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[ Debt recovery: Statutory demands ]

How do you go about recovering debts with a statutory demand? Paul Jackson from the ECA’s commercial contract and legal department explains

Making demands I

ssuing a statutory demand is an effective weapon in the arsenal available to members for chasing unpaid debts. However the courts have, over time, developed several formalities that will need following

if the demand is to succeed. Here we outline what these are, and suggest how these formalities should infl uence a company’s credit control procedures. The Insolvency Act provides that a company can be

wound up if it fails to pay a debt of more than £750. The Small Claims court will judge on disputes for sums up to £5,000. Credit control procedures should refl ect the limits the courts impose. The 1986 Act says that a statutory demand must be

About the author

Paul Jackson Paul Jackson is a commercial adviser at the ECA. He has extensive experience in the industry as a commercial manager and quantity surveyor, specialising in estimating, tendering, contract administration, payment and the legal aspects of the industry.

‘served on the company by leaving at the company’s registered offi ce, a written demand’. Usually this means service by registered post, but delivering the demand in person is equally effective. The debtor then has three weeks to pay up. Failure to pay may entitle the creditor to issue a winding up petition, but it will be the courts that fi nally judge whether the company is insolvent. The defence that a company has an excess of assets over liabilities will not defeat an application; it is the failure to settle the debt that is important. Use statutory demands on undisputed debts. In

practice, this means the quality of work is unquestionable, the debt is determined according to pre-set rules and there are no legitimate ‘contra-charges’. The courts will, however, penalise companies that abuse the process. Where there is a genuine dispute or where there is no other evidence of insolvency, the court may award costs against the creditor. Perhaps the greatest diffi culty members face is that

under a construction contract, the payment process is seldom adequately administered and, as an industry, we are not good at instigating a customer satisfaction

■ Oppose the winding-up order because there is no good reason in law why it should continue.

■ Counter with a genuine, costed, dispute about the debt and have it sent to the creditor.

■ Establish the right to ‘set off’ a sum of money equal to, or more than, the outstanding debt.

The Construction Act and the amendments introduced

by the Local Democracy, Economic Development and Construction Act 2009, require that payers issue a withholding notice if they intend to pay less than the due sum. Given the nature of the interim valuation process, with the right to refer disputes to adjudication, the statutory demand weapon can only be deployed once a court has ruled on the value of any disputed amount. One fi nal word of warning – the courts will look to the

debtor to pursue his claim on a timely basis. Judges do not look favourably on an injunction where the ‘genuine and substantial counter-claim’ has just been discovered. The lessons from reported cases is clear – if a party feels it has just cause, it must make its claim and pursue it at the earliest possible juncture. The statutory demand, used properly, can be an

effective way of securing payment of outstanding money. It has the overwhelming advantages of being quick, easy and cheap to use, but if it is to be used effectively, then certain procedural protocols must be observed.

■ Members who wish to serve a statutory demand can talk to the ECA debt recovery service on 0870 112 5310.

system. For instance, it is diffi cult to raise a claim of poor work if an unhappy customer has previously attached his signature, at completion, to a form of words that says something to the contrary.

Response When faced with a statutory demand then, for companies, there are four possible courses of action. ■ Apply for an injunction to prevent the advertisement or presentation of the winding-up petition.


ECA Today Winder 2010


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