What are they?
The Insolvency Act 1986 provides for formal demands to be served upon a debtor when a sum of money is outstanding. These demands can be served upon an individual or a company.
What do they mean?
Serving a statutory demand may be a means of exerting pressure on an individual or company to pay a debt. It is often the first step taken by a creditor who intends to present a bankruptcy or winding up petition against the debtor.
A failure by an individual to set aside a demand served upon them (see below) means that they will be deemed to be insolvent. This may give sufficient grounds to present a bankruptcy petition against an individual or a winding up petition against a company.
How do you challenge them?
If you are an individual and have been served with a statutory demand, your first step would be to explain to the creditor serving it why you believe it should not be used. The most common reason is that the debt, referred to in the demand, is the subject of a genuine dispute. If this is the case, the creditor should agree to withdraw the demand. However, if the creditor refuses to withdraw it, then an application must be made immediately to the court (which must be no later then 18 days of the demand being served), to set it aside. There will then be a court hearing to consider the matter.
If you are a company, there is no means to make an application to set aside the demand in the same was as exists for individuals. In this instance, a refusal to withdraw the demand may mean that you need to as the court for an urgent injunction, to prevent the creditor from presenting a winding up petition. If a winding up petition has already been presented, it is not too late, as if the creditor has not advertised the petition, it is possible to obtain an order preventing it from doing so.
It is important for companies to be aware that once a petition is presented, it will have very serious consequences.