Issuing a Statutory Demand (or Stat D) is an effective way to encourage prompt payment of overdue invoices and debts, but it’s not the only method.
A Stat D is a formal document requesting payment of an outstanding debt within 21 days. By issuing one, you give creditors another 3 weeks to pay a debt that’s already overdue.
In that time, if the debtor is a limited company with debts; the director(s) may consider a formal insolvency procedure.
Bizarrely, issuing a Stat D may deter a company director from paying quickly. 20 days after it’s been issued, they can file in court a Notice of Intention to Appoint an Administrator.
This acts as a moratorium preventing creditors from taking oppressive action against the company for 14 days. After 2 weeks, the director is free to repeat the process.
Breach of payment terms
Filing 2 notices buys the director(s) extra time in addition to the 21 days offed by the Stat D. Despite breaching your payment terms, they may have benefited from 7 weeks of interest-free credit.
In these circumstances, director(s) have 21 to 49 days to consider their options. During that time, they can easily remove assets from the company and place them beyond the reach of creditors.
And this is the primary reason why it’s sometimes best to avoid Statutory Demands if the debt is undisputed.
If you really want companies to pay swiftly, ensure your initial contract with them includes a watertight enforcement provision. This should inform creditors that you may take action 14 or 28 days after the due date.
Once this provision is included and the specified period has elapsed, you can refer them to the provision and say:
“If this debt remains unpaid after 24 hours, I may petition for the Winding-Up of your company.”
As soon as the court issues your Winding-up Petition, Section 127 of the Insolvency Act 1986 comes into effect. This forbids directors from taking several actions, including making payments from the company’s bank account(s) without first obtaining the court’s permission.
But there’s no guarantee their application will be granted. So the director must pay the invoice immediately if they want to regain control of the company’s assets.
Whereas Stat D’s offer a 21-day reprieve; an enforcement provision accompanied by a 24-hour notice motivates debtors to pay faster.