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Statutory Demands - How They Work

  • Thread starter Scottish Business Owner
  • Start date
Scottish Business Owner

Scottish Business Owner

New Member
Some great info I got in an email today which I had to share :)

Statutory demands can be an excellent method of recovering cash. But a word of caution. They should only be used if there is an undisputed debt. If there is dubiety as to whether the debt is due or if there is a genuine dispute then it may be more appropriate to initiate the recovery process with a payment action rather than an insolvency process.

The Statutory Demand Briefly Explained

If there is a monetary debt the creditor can threaten a winding up petition as part of the tactics to get a debtor company to pay up. Three weeks after a statutory demand is served where a debt for £750 or more exists, a winding up petition can be issued against a company which has not paid. The financial wellbeing of the company is irrelevant as long as they have not paid. If the debt is not in dispute the only safe option will be for the debtor company to pay the debt.

If the company does not pay the debt or deny it is due then the creditor can present a petition for the company to be wound up. However, generally the court will not allow a winding up petition where the debt is genuinely in dispute. Debtors often therefore raise arguments that the money is not due because the creditor is in some way in breach of contract in which case the winding up order may not be granted.

Foxholes Nursing Home v Accora Ltd [2013] EWHC 3712 (Ch)


In this case, the appellant, Foxholes Nursing Home, applied for an order restraining the presentation of a winding up petition brought against it by the respondent, Accord Limited. The alleged debt owed was for the amount of £53,148.

The appellant ran a nursing home. As part of a refurbishment, the appellant contracted with the respondent to provide furniture and soft furnishings. The appellant paid two of three instalments and the respondent began delivering the goods.

The appellant was unhappy with the goods which were delivered alleging that many of the items delivered were not ordered. In addition, in relation to the goods which were delivered, it was argued that they did not conform with the agreed specification (for example size, colour and fabric).

The respondent took the view that the goods were delivered and submitted its invoice for the final instalment. After numerous discussions and correspondence, the appellant paid part of the final invoice, however the final bill remained outstanding. As a result, Accora Limited served Foxholes Nursing Home with a statutory demand under section 123(1) (a) of the Insolvency Act 1986.

Grounds of Injunction to Restrain Petition


The appellant made an application to restrain the respondent from presenting a winding up petition on the grounds that:

  1. the debt was not yet due because under the contract the respondents obligation constituted an "entire obligation", meaning that it could not recover under the contract until it had completed the performance of its obligations; and
  2. it had a substantial dispute raised on bona fide grounds in respect of the amount claimed.
Companies Court Injunction

The court ruled that there was clear evidence of a substantial dispute between the parties regarding the respondent's performance of the contract and that is sufficient grounds for disputing the debt. The court said:

"...the purpose of Accora threatening to present a winding up petition when it served its statutory demand on Foxholes on 19 November 2012 was indeed to pressure Foxholes into paying the amount invoiced despite there being a substantial dispute between Foxholes and Accora in relation to Accora's performance of the contract." Conclusion

This decision demonstrates that if there are substantive grounds for disputing the debt, the Court will grant an injunction preventing the presentation and/or restraining the advertisement of a winding up petition. However, sufficient evidence must be submitted in order to persuade the Court that there are genuine grounds for disputing the debt.

Questions?

If you have any questions or comments on the above then please do contact me using the details below. As always a selection of articles relating to debt recovery and credit control can be found at www.debtscotland.com/news.cfm .
 
Gemma Rowlands

Gemma Rowlands

New Member
Thank you for this information. As self employed AND a small business owner, debt is something that is more or less constantly "there" in my life. Sending an invoice doesn't necessarily mean you're going to get the money! For a long time I've kind of overlooked small payments, but recently I have started to take legal action against money owing because I realised just how much it was adding up to. I have a solicitor who helps me out, but this information was good to read through because up until now I had just been letting her get on with it without really thinking about what was going on myself.
 

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