Unpaid Debt? Statutory Demands and Bankruptcy

Statutory Demands

A Statutory Demand (‘SD’) is regulated by the Insolvency Act 1986 (‘IA’) and is used in cases where a debtor refuses to or is unable to pay debts. A SD may be used to petition for the winding up of a company or the bankruptcy of an individual. In relation to winding up proceedings for a company a SD is optional. In bankruptcy proceedings it is central to the process of petitioning for the bankruptcy of an individual.

By virtue of 267 (2) of the IA 1986 a SD may only be served if the debtor’s debt exceeds a minimum of £750.00.

In relation to bankruptcy proceedings, after serving a SD a creditor may present a petition to the relevant County Court (or High Court in London if debtor resident in London) for the bankruptcy of the individual:

• The creditor must show the debtor owes him £750 or more of a liquidated sum that is not a secured debt, (if a creditor’s debt does not exceed £750 he may also join with another creditor in presenting a petition if the debt collectively exceeds £750).
• He must also demonstrate that the debtor is unable to pay or has little prospects of paying off the debt evidenced by an unpaid judgement debt or unsatisfied SD.

Â

The effects of Bankruptcy on business activities

• It will become a criminal offence if a bankrupt attempts to obtain credit for more than £500 without disclosing his bankruptcy.
• It is also a criminal offence if a bankrupt attempts to trade under a name other than the name under he was declared bankrupt (unless he declares to all those he carries out business with, the previous name under which he traded).
• Under s33 of the Partnership Act 1890, if a bankrupt has previously been trading under a partnership the bankruptcy automatically dissolves the partnership (unless there is a contrary provision in the partnership agreement).
• If a director of a company is declared bankrupt, he is prohibited from acting as a director or being involved directly or indirectly in the management of a company, it is also common for the articles of a company to provide that the director immediately ceases to hold office.

Overall bankruptcy makes it extremely difficult to carry on business. If you have been served with a Statutory Demand you must act quickly to either set aside or make arrangements to settle the debt or you may face serious consequences for yourself and your business.