The service of a Statutory Demand is a precursor to commencing insolvency proceedings, whether it is bankruptcy proceedings against an individual debtor or a winding up petition against a corporate debtor.
Typically, Statutory Demands are used by creditors as a persuasive tactic against debtors in order to recover monies owed. The debt threshold is currently £750. This is usually an effective strategy as the threat of being served with a Statutory Demand in itself can be alarming, particularly to an individual debtor.
The government has recently announced proposals to increase the current debt threshold of £750 to £5,000 before a creditor can serve a Statutory Demand against an individual debtor. This change is proposed to take place from 1st October 2015.
The proposals have been suggested in order to address the following issues with the current debt level:
- Costs and fees – the overall costs of commencing bankruptcy proceedings are an expensive way of recovering a low level debt.
- Proportionality – arguably a high impact on a debtor’s personal estate in respect of a low value debt.
- Legal rulings/human rights implications – appropriateness of bankruptcy to recover low debt levels.
Although the current threshold of £750 has been in place since 1986, the proposed increase is significantly more than inflation.
Creditors should be aware that the current proposal of raising the debt level only applies to Statutory Demands served in relation to bankruptcy proceedings against individual debtors, and not to winding up petitions taken against corporate debtors. Creditors should therefore be aware of this distinction prior to serving a Statutory Demand.
This potential change is likely to make it more difficult for creditors to recover low level, routine debts. If you are a creditor that is likely to be affected by these proposals, please contact our Dispute Resolution Team on 0116 289 7000 to discuss alternative options in relation to the recovery of your debts.
Bhavika Mistry, Trainee Solicitor