21/01/2016

When discussing the recovery of debts with clients, we’re often asked, “What is a better course of action – statutory demand or issue proceedings through the County Court?” Richard Anderson, Head of Debt Recovery, considers the advantages and disadvantages of both options.

Statutory demands

As against an individual:

A statutory demand is a simple, low–cost option as there is no delay or costs associated with going to court. It’s effective in concentrating the debtor’s mind because if no payment has been received after 21 days, or the debtor has not made an application to set the demand aside, you can proceed to issue a petition in court to obtain a bankruptcy order against that debtor.

As against a limited company:

If a statutory demand is served upon a limited company at its registered office address, there is no process for a limited company to set aside this demand. If no payment has been received after 21 days, or the debtor has not made contact with you to dispute the debt, you can proceed to issue a winding up petition in court to obtain a winding up order against that debtor.

If a company debtor is disputing the debt and you do not agree to withdraw your statutory demand, the debtor can apply to the court to seek an injunction to prevent you presenting a winding up petition to the court. Further advice can be given on this.

However, a statutory demand cannot be used in all circumstances. It cannot be used for:

• Debts of less than £5,000 for individuals
• Debts of less than £750 for companies
• Debts which are in dispute

Where a statutory demand is not appropriate, the correct forum would be to issue court proceedings.

Much more debt will fall outside the scope of bankruptcy proceedings, which means that court proceedings will have to be issued to secure judgment and thereafter to take enforcement proceedings.

Court Proceedings

A claim for payment of the debt and court expenses should be issued, and served upon the debtor, by the court. This can be done through the money claims online system (MCOL) subject to the level of debt up to a maximum of £99,999-00.

The receipt of court–issued proceedings usually prompts the debtor into realising they can’t ignore the debt and they will then have to contact you to pay you in full or to negotiate a deal.

If the debtor defends or disputes the claim, you should seek professional advice, as you may then be able to issue an application for summary judgment (i.e. the defendant does not have any real prospect of successfully defending the claim).

If the debtor does not defend or dispute the claim, then you can proceed to enter judgment. Once judgment has been obtained you can then proceed with enforcement of that judgment. There are many enforcement options open to you. For example, you can instruct the High Court Enforcement officer to seize the debtor’s assets, proceed with a charging order over the debtor’s property or apply to the court for a Third Party Debt Order..

Any outstanding debt should be assessed on its own merits, whether against an individual or against a company, particularly where it is disputed.

Need advice on statutory demands or court proceedings?

We understand it’s difficult to know which avenue to take. For a no-obligation discussion regarding the best route to pursue a particular debt, whether it’s statutory demands or court proceedings, please email debtrecovery@beswicks.com or phone 01782 205000.