So, a company owes you money and they haven’t responded to your requests for payment? You are well within your rights to send them a Statutory Demand formally stating that a debt must be paid. Be careful though, failure to include any security you hold in connection to the debt or stating an incorrect claim amount provides the courts with the opportunity to set your Statutory Demand aside. The Courts are really strict on this as it is their job to prevent a secured creditor being paid in priority to an unsecured creditor. Therefore, it’s really important to understand what must be stated under ‘security in respect of the debt’ on a Statutory Demand.
What is security?
Security is property deposited or pledged as a guarantee of the repayment of a loan and is forfeited in default of those repayments. Once security has been provided, a lender becomes a secure creditor.
Sounds simple right? Well, it becomes trickier if security is granted by an individual debtor to a creditor in relation to a third party’s liabilities. This was discussed recently in Promontoria (Chestnut) Ltd v Bell & Anor  EWHC 1581 (Ch) by the High Court.
A company (C), owned and managed by B, borrowed £783,000 from a bank. C provided security for this loan while B provided a guarantee and indemnity for around 20% of the loan. B’s guarantee provided security for C, but this did not include personal liability for C’s liabilities. Following repayment failures by C, the bank assigned the debt to a company (P). P made demands under the loan leading to a statutory demand on B in respect of the amount they owed under the guarantee. In the demands, P did not detail or account for the security it held over B’s property stating that it was not necessary to do so. P argued that the security did not secure the personal debt of the individuals against whom the demand was served.
The Court held that P should have detailed the security and deduct this from the amount of the demand. This resulted in the court setting aside the Statutory Demand.
What if only a portion of the debt is secured?
If the security is less than the amount of the debt, the creditor is entitled to participate in the bankruptcy of the debtor to the extent of the shortfall between the debt owed and the value of the security. This means that stating security correctly on a Statutory Demand will ensure that the remainder of the debt must be paid and your demand will not be set aside.
How we can help
We will prepare a Statutory Demand document for you, ensuring that all security is adequately listed. If the debtor still doesn’t reply or pay you, we would then draft a Winding-up Petition. This contains similar information to the Statutory Demand, but is a legal document that is lodged with the appropriate court. You pay a court fee and Official Receiver’s deposit, and the court clerk sets a date for the hearing. The court clerk also seals or stamps the Winding-up Petition, and gives you a copy. If a Winding-up Order is made at the hearing, the company will be placed into compulsory liquidation. Once a liquidator is appointed, they will seek to realise the company’s assets.
If you’d like more information about Statutory Demands or Winding-Up Petitions, call us on 020 7467 3980 or make an online enquiry here. We’ll be happy to help.