The wrong kind of demand

Nick Lane is right to sound a warning (3 September, page 52) about using winding-up petitions to make debtors cough up. However, his explanation of what the recipient of a statutory demand needs to do is not quite correct as far as a company is concerned. Before issuing a statutory demand it is important to identify the debtor correctly. You need to know whether the debtor is an individual (who might be Joe Bloggs trading as Joe Bloggs Builders), a partnership (eg Joe and Jim Bloggs trading as Bloggs Builders) or a limited company. Where a partnership is concerned, the safest course is to name all of the partners and describe them as “trading as …”. A statutory demand to an individual (including a partner) is a precursor to a bankruptcy petition, whereas a demand to a company is a precursor to a winding-up petition.

If an individual or a partner (not a limited company) is served with a statutory demand then he can apply to court for the statutory demand to be set aside. He must do so within 18 days of receiving the statutory demand and will need to satisfy a judge that there is a genuine triable issue.

However, where a statutory demand is served upon a company, there is no procedure for applying to set aside the demand. If the claiming party will not agree to withdraw the statutory demand then the company’s only recourse (provided of course there can be shown to be a genuine triable issue) is to make an originating application to restrain presentation of a winding-up petition, or, where a petition has already been issued, to restrain the advertisement of the petition or any further action in the proceedings. If successful, the result is an injunction and, needless to say, injunction proceedings can be expensive.

The key point is that the procedures are different depending on the named target of the statutory demand. The available time within which to react to a statutory demand is short and you do not want to waste it by kicking off the wrong procedure.