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.


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.

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