A statutory demand, more commonly referred to as a stat demand or a Section 289 notice, is a legal demand to pay. Its use is covered by section 289 of the Companies Act.
A statutory demand is the start of the process that can lead to the liquidation to a company. Once a statutory demand has been issued the debtor company has ten days to challenge it in court and fifteen days to pay.
After this, the creditor has thirty days to begin a liquidation application. This will be heard by the High Court, usually within three months. At the court hearing, the unpaid statutory demand will be used as evidence that the debtor company is insolvent and a liquidator, chosen by the creditor, will be appointed.
The Five Rules of a Statutory Demand
- The debt must not be a dispute
- The statutory demand must be in writing. It cannot be done verbally.
- It should be in the prescribed form; there are specific words that must be used
- It must be for more than a thousand dollars.
- It should be served on the company’s registered address.
Can a Statutory Demand be sent by email?
This last point is the subject of some contention, with different judges giving different rulings. The most recent case on point is Upright Scaffolding, where a statutory demand served by email was effective.
The email address was one used by the director and the demand came to the director’s attention and evidence of service could be achieved.
As a consequence, it is wise to consider a statutory demand served by email may be effective, but if you are serving a statutory demand, it would be wise to have a process server send it.
There are two aspects to a dispute.
The first is that the underlying debt is not due. The threshold for the person issuing the statutory demand is high. They must show that, if this issue was put before a defended hearing, there are no realistic prospects that a court would not find that the money was owing.
This is a high threshold, although in most cases it isn’t a difficult one to obtain. Most firms seek to obtain an order before delivering a good or service and can show evidence that the good or service was delivered. If there were no complaints once the work was done then the burden falls back on the debtor to justify why they should not have to pay.
The second aspect of a dispute is a counter-claim. A classic example would be a builder issuing a statutory demand for an unpaid invoice, only for the customer to issue a counter-claim for the costs to remediate poor workmanship.
What are the legal consequences of an unpaid statutory demand?
The debtor who receives a statutory demand has ten days to dispute it, and fifteen days to pay, or make some other arrangements to settle the debt.
If the debtor wishes to dispute the issuing of a statutory demand they must file an application in court to set it aside. This is called a Section 290 application, named after Section 290 of the Companies Act.
One advantage of disputing the issuing of a statutory demand by using the Section 290 defence is that the liquidation process is placed on hold. However, it is risky because if the 290 hearing goes very badly, the High Court can place the debtor company into liquidation immediately.
This is the rate, but it does happen.
Usually, if a 290 hearing is lost by the debtor company, the debtor will be given one or two weeks to settle the debt. If they continue to fail to do so, they can be liquidated.
Alternatives to paying the statutory demand
If the debtor company cannot pay the debt, they have several options.
The first is to appoint their own liquidator. Once a liquidation notice has been served, which can happen after the fifteen days to pay has expired, the Company is prohibited by law from appointing a liquidator and must wait for one to be appointed by the court.
The debtor can enter into a Compromise with Creditors (a part XIV Compromise, as prescribed by the Companies Act).
They can also invoke the Voluntary Administration Regime, which will allow an external administrator to be appointed to try and save the company. This is a complex process and should not be done lightly.
If you received a Statutory Demand and if you think your company is in financial trouble. Call us Today to explore your options.
Waterstone offers a free 30-minute consultation to discuss your financial problems.