Grid Law founder David Walker advises a sole trader struggling to receive payments worth almost £7,000 from a building firm and clarifies the process of statutory demands.
I found your website when I was researching statutory demands.
I am a heating engineer and run a small business as a sole trader. I have a situation with a builder who owes me approximately £6,600. The amount is made up out of three invoices for £1,700, £1,300 and £3,600.
The two smaller invoices are for jobs that are complete and the invoices and are now overdue. The £3,600 is a stage payment on a job I am part way through and am almost finished. On this job there is a further £1,600 that will be due on completion.
However, due to the payments that are overdue, I have informed the builder that I will not proceed with the planned work until all my invoices are settled.
Then, once the balances have been settled I will continue and complete works.
The builder did not like this and said I was holding him to ransom.
I replied saying that I have no choice. I run a small business and he cannot expect me to wait for payment to ease his cash flow on his projects.
There’s no dispute over the amount owed, he just keeps making excuses for not paying. For example;
“I’ve transferred the money”
“I’m going to the office to do it now”
“It should be in your account now”
I have since run a credit check on this builder and found that he has County Court Judgments (CCJ) against him and companies that have gone bankrupt etc. I can’t believe I was so naive as not to do a credit check in the first place. However, I was and this is my situation now.
My question to you is:
Can I serve a statutory demand without any notice that I am going to do it, or is there a legal procedure I need to follow in order to do that?
Or, is there another legal route that would be more effective in this situation?
My future position is that once I’ve been paid the money I’m owed I will not work for this builder again, other than to complete my works to date. So, the preservation of a business relationship is not required in this situation.
Thanks for your question.
It sounds like you have given the builder plenty of chances to pay so there is no need to do anything else before issuing a statutory demand. However, if you want to send him one final warning that this is what you intend to do, you can.
Statutory demands are not part of any court process, there are no fees to pay and they don’t commit you to taking any further action. Therefore, you’re not going to do any harm if you do send it without any further warning.
Serving a statutory demand can be a very effective way of obtaining payment because the consequences of not paying are severe.
After 21 days, if payment has not been made, you have the right to serve a bankruptcy petition against an individual or winding up petition against a company.
If the debtor wants to avoid this, they will usually pay up.
In your case, this may not be as intimidating for the builder as it would be for someone running a profitable business. It sounds like he’s been in this situation before and may just accept the consequences to avoid paying.
Is the builder operating through a limited company or is he a sole trader?
The reason I ask is that you need to choose the correct form. If the builder is a limited company, you should use form SD1. If he is an individual / sole trader, you should use form SD2.
Statutory demands for individuals and companies
Also, the rules for when you can issue a statutory demand against an individual and a company are slightly different. A company must owe you at least £750 and an individual must owe you at least £5,000.
In both cases, the debt must be undisputed.
As you are owed more than £5,000 and this is an undisputed debt, issuing a statutory demand and serving it on the builder is a good option for you.
Disadvantages to statutory demands
Unfortunately, there are disadvantages to statutory demands.
One disadvantage is that if the builder doesn’t pay and you do follow up with bankruptcy or winding up proceedings, you will be just another unsecured creditor. You will rank alongside all the other unsecured creditors who are owed money by the builder and will be paid in equal proportions to them.
If the builder has any secured creditors, i.e. a bank which has a charge or mortgage over property he owns, they will be paid before you. If there are insufficient assets to cover all the liabilities you may only receive a fraction of what you are owed, if anything.
Another disadvantage of statutory demands is that they can only be used to recover undisputed debts.
Whilst your debt isn’t disputed at this stage, there’s always a risk that the builder will raise a dispute if you serve a statutory demand on him. If he does, then a statutory demand will no longer be appropriate.
Instead, you will have to issue a claim through the courts.
Going through the courts
Legal action through the courts is a little more time consuming than issuing a statutory demand. There are also more formalities and procedures to follow. However, as this will be a small claim (as it’s valued at under £10,000) the process is still relatively straight forward.
I explained the court process in more detail in a previous article “How to win a court case without a lawyer”.
When you issue a claim through the courts, there are fees to pay.
Court fees vary depending on the value of the claim. For your claim, valued at £6,600, it will be £455 (or £410 if you issue the claim online) but you are entitled to get this back from the builder if you win.
If you win, the builder will have another County Court Judgement (CCJ) against his name. However, from what you have said, it seems like this builder has been in this situation before.
So, if you win and he still doesn’t pay, you will need to take enforcement action against him. Most likely, you will use a bailiff to seize items of his property which can be sold to pay you.
Your only risk is that if he doesn’t have sufficient property to be seized, the process could make him bankrupt (or if he is running a limited company, it may end up being wound up).
Therefore, before starting a claim through the courts, it’s a good idea to assess the builder’s financial position as best you can. Carry out another credit check, look at what assets he owns and if he is running a limited company, look at the latest accounts.
You don’t want to spend more time and money pursuing a claim through the courts if, ultimately, you’re going to end up with nothing.
With statutory demands, you don’t really have this issue.
As I said above, there’s just one form to complete, no fees to pay and serving a statutory demand doesn’t commit you to taking any future action.
So, you could issue and serve a statutory demand and see what happens.
If the builder pays, great. If he doesn’t, you can make a choice depending on the circumstances.
You can either continue with bankruptcy or winding up proceedings, issue a claim through the courts or you could decide not to pursue this any further.
I hope this helps and if you have any further questions, please feel free to email me at email@example.com
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