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Debt Recovery Update: New Threshold for Bankruptcy Statutory Demand

October 2015

From 1 October the threshold for serving a statutory demand on an individual (including a sole trader) will rise from £750 to £5,000, effectively making it more difficult to make a person bankrupt. Our Debt Recovery documents have been updated to reflect this change.

The threshold of £750 will continue to apply to statutory demands served on companies.

What is a statutory demand?

A statutory demand is the first step to having an individual declared bankrupt or a company wound up. However, it can also be used as a threat to persuade a debtor to pay up.

When can a statutory demand be issued?

A creditor may decide to issue a statutory demand when attempts to recover the debt by other means – e.g. reminder letters, negotiation – have not been successful.

If the debtor is solvent, and the debt is for an amount greater than £750 in the case of a corporate debtor or more than £5,000 in the case of an individual debtor (including a sole trader), the creditor can issue a statutory demand. A statutory demand gives the debtor 21 days warning to pay the debt.

If the debtor does not respond by either paying off the debt or applying for the statutory demand to be set aside the creditor can apply for a bankruptcy petition (for individuals and sole traders) or a winding-up petition (for companies). This effectively stops the debtor’s business from functioning.

Further information

Our Debt Recovery folder has Guidance Notes, Template Letters and Forms for every step of the debt recovery process, including the issue of a statutory demand.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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