Statutory demands

A statutory demand is a document demanding immediate payment of a debt in full or a suitable alternative such as compounding or securing the debt. Failing that the creditor can file a bankruptcy petition.

A statutory demand should never be ignored.

If you have received a statutory demand for a debt regulated by the Consumer Credit Act (and not subject to a judgment), you should send a CCA request to the creditor immediately.
What is a statutory demand?

statutory demandNewsThere have been significant changes in the past couple of years with regards to creditors using the insolvency route as a way to recover debts. The most important change was the increase of the bankruptcy threshold from just £750 to a much more realistic £5,000. A less obvious but no less important change has been with regards to regulation. In the past, a number of debt purchasers routinely used statutory demands as a debt collection tool, some event went all the way to the bankruptcy petition. Ever since the FCA took over consumer credit regulation in April 2014, the number of statutory demands issued by debt purchasers for consumer credit debts has reduced dramatically.

Capquest, Cabot, First Credit, Aktiv Kapital (now PRA Group) and Lowell were some of the worst culprits. Lowell were probably the most aggressive, often making people bankrupt for no more than £1,000.

UpdateFrom October 2015, a creditor can only apply to make you bankrupt if you owe them more than £5,000. In theory, two or more creditors who are owed at least this amount between them can petition together. In reality this hardly ever happens.

A judgment creditor who has unsuccessfully attempted to enforce the judgment, for example, using bailiffs, can file a bankruptcy petition without issuing a statutory demand.
In reality, the high cost of making someone bankrupt and the likelihood of there not being enough assets and/or other creditors means this option is not commonly used by judgment creditors.
A statutory demand is not a court document, it doesn’t have to be issued, sanctioned or even viewed by a court before being served.

The following forms are used:

  • form 6.1 is used for debts not subject to judgment;

  • form 6.2 is used for judgment debts or court orders.
A judgment is not required to issue a statutory demand, it can be issued for any debt over £5,000.
If the debt is subject to a judgment, the creditor need not attempt any other enforcement method before serving the statutory demand.

In many cases, the creditor may not have any intention to proceed with a petition. The fees payable are high and you may have a lot more debt and not enough assets to pay it all off so your creditor could well be out of pocket if they decided to proceed, however, it should never be assumed that they are using the statutory demand just as a debt collection tool.

Responding to a statutory demand

Responding to a statutory demand

If you want to avoid a bankruptcy petition you should consider the following options:

  • reducing the debt below the £5,000 threshold if you are able to make a payment;
  • offering a lump sum in full and final settlement if you are able to raise the funds;
  • making an installment offer, if the debt is subject to a judgment you should apply to the court for a variation;
  • for debts regulated by the Consumer Credit Act, applying for a time order;
  • offering a voluntary charge on your property to secure the debt;
  • looking into an IVA if suitable; or
  • applying to set aside the statutory demand.
Setting aside a statutory demand

You can apply for set aside if:

  • the debt is statute barred;
  • you have grounds to dispute the debt or the amount owed;
  • you can assert that there is an unfair relationship with the creditor;
  • if the debt is regulated by the Consumer Credit Act, if you have sent a CCA request that hasn’t been responded to or their response has not been compliant; or
  • you have a counterclaim against the creditor, for example, for mis-sold PPI.

How to apply

You need to download and fill in the following forms and take the completed forms plus three copies to the court in person or by registered post:

The forms should go to the court named on the statutory demand. No fee is payable. The court can dismiss the application without a hearing if they think there are no grounds to make it, otherwise a hearing will be arranged with a district judge.

The court will not grant the set aside on the grounds that the creditor has refused an offer of repayment.
If you application for set aside is dismissed, the creditor can file a petition.
If the debt is subject to a judgment, your application for set aside is unlikely to succeed.
Service

There have been a lot of arguments surrounding service of statutory demands, particularly when they were commonly used by debt purchasers. It has always been a common belief that they should be served personally by a process server, however, substituted service may be acceptable.

Arguments regarding service of statutory demands are only relevant if you are served with a bankruptcy petition without having previously received a statutory demand, unless the debt is subject to a judgment that the creditor has repeatedly attempted to enforce.

In many cases, improper service of statutory demands (i.e. sending them via normal post or pushing them through the letterbox) has been regarded as an indication that the creditor is not serious about filing a petition and is just using them as a debt collection tool. That may well be true in many cases, however, you should never be complacent and ignore a statutory demand.

CPR 13.2 deals with service:

13.2   Substituted service of statutory demands

13.2.1  The creditor is under an obligation to do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable, to cause personal service to be effected (rule 6.3(2)).

Rule 13.2.3 and 13.2.4 set out in great detail the process for substitute service when the statutory demand is not served personally.

13.2.3  Where personal service is not effected or the demand is not advertised in the limited circumstances permitted by rule 6.3(3), substituted service is permitted, but the creditor must have taken all those steps which would justify the court making an order for substituted service of a petition. The steps to be taken to obtain an order for substituted service of a petition are set out below. Failure to comply with these requirements may result in the court declining to issue the petition (rule 6.11(9)) or dismissing it.

13.2.4  In most cases, evidence of the following steps will suffice to justify acceptance for presentation of a petition where the statutory demand has been served by substituted service (or to justify making an order for substituted service of a petition):

(1) One personal call at the residence and place of business of the debtor where both are known or at either of such places as is known. Where it is known that the debtor has more than one residential or business address, personal calls should be made at all the addresses.

(2) Should the creditor fail to effect personal service, a letter should be written to the debtor referring to the call(s), the purpose of the same and the failure to meet the debtor, adding that a further call will be made for the same purpose on the [day] of [month] 20[  ] at [ ] hours at [place].  Such letter may be sent by first class prepaid post or left at or delivered to the debtor’s address in such a way as it is reasonably likely to come to the debtor’s attention.  At least two business days’ notice should be given of the appointment and copies of the letter sent to or left at all known addresses of the debtor. The appointment letter should also state that:

(a) in the event of the time and place not being convenient, the debtor should propose some other time and place reasonably convenient for the purpose;

(b) (In the case of a statutory demand) if the debtor fails to keep the appointment the creditor proposes to serve the debtor by [advertisement] [post] [insertion through a letter box] or as the case may be, and that, in the event of a bankruptcy petition being presented, the court will be asked to treat such service as service of the demand on the debtor;

(c) (In the case of a petition) if the debtor fails to keep the appointment, application will be made to the Court for an order for substituted service either by advertisement, or in such other manner as the court may think fit.

(3) When attending any appointment made by letter, inquiry should be made as to whether the debtor has received all letters left for him. If the debtor is away, inquiry should also be made as to whether or not letters are being forwarded to an address within the jurisdiction (England and Wales) or elsewhere.

(4) If the debtor is represented by a solicitor, an attempt should be made to arrange an appointment for personal service through such solicitor. The Insolvency Rules enable a solicitor to accept service of a statutory demand on behalf of his client but there is no similar provision in respect of service of a bankruptcy petition.

(5) The certificate of service of a statutory demand filed pursuant to rule 6.11 should deal with all the above matters including all relevant facts as to the debtor’s whereabouts and whether the appointment letter(s) have been returned. It should also set out the reasons for the belief that the debtor resides at the relevant address or works at the relevant place of business and whether, so far as is known, the debtor is represented by a solicitor.

process serviceIn the past, some creditors issued statutory demands that were pre-dated by as long as three weeks, making it look like the debtor had already missed their opportunity to apply for set aside, despite the fact that these had been served personally. It should be easy enough to establish that the demand had not been served two or three weeks earlier as there would be a record of service if it was effected by a process server.

You may need to argue about service if you have missed the deadline to apply for set aside. There may be other reasons why you may need to apply later than 18 days from the date of service of the demand, for example if you were away from home, working abroad, on holiday, in hospital, etc. You may also want to apply for an injunction to avoid a petition being filed.

Rule 13.3.5 sets out the process:

13.3.5  A debtor who wishes to apply to set aside a statutory demand after the expiration of 18 days from the date of service of the statutory demand must apply for an extension of time within which to apply. If the applicant wishes to apply for an injunction to restrain presentation of a petition the application must be made to the Judge. Paragraphs 1 and 2 of Form 6.5 (witness statement in support of application to set aside statutory demand) should be used in support of the application for an extension of time with the following additional paragraphs:

“(3) To the best of my knowledge and belief the creditor(s) named in the demand has/have not presented a petition against me.

(4) The reasons for my failure to apply to set aside the demand within 18 days after service are as follows: …”

If application is made to restrain presentation of a bankruptcy petition the following additional paragraph should be added:

“(5) Unless restrained by injunction the creditor(s) may present a bankruptcy petition against me”.

Creditor's petition

petitionThe creditor has to file the following:

  • the bankruptcy petition form;
  • a witness statement;
  • the court fee (currently £280); and
  • the deposit (currently£700).
Petitions have to be served personally.
It is still possible to prevent a bankruptcy order, you can oppose the order by raising any issues. You need to give the creditor and the court at least five working days’ notice of your intention to oppose the order.

If you have received a bankruptcy petiton, you should seek legal advice immediately.

If you think bankruptcy may be a suitable solution for you, see bankruptcy.
If you have received a statutory demand, you have 18 days to apply for set aside. After 21 days, the creditor can file a bankruptcy petition. You should seek legal help to avoid dealing with a petition.
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