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Non-Payment is Killing Subbies – Are stat demands the solution?

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Cash flow is the lifeblood of the building industry”.

Lord Denning made this remark in a series of Court of Appeal decisions in 1971 and his statement is as true today as it was then. In recent months we have seen a steady increase in sub-contractor clients coming to us because they haven’t been paid by a Main Contractor or an Employer.  These outstanding payments, can accumulate to strangle firms and threaten their very existence.

As a result, we are drafting, serving and defending against an ever-increasing number of statutory demands for non-payment.

But what is a stat demand and how do they work?

In simple terms, if a company owes you more than £750, then you can serve them with a stat demand, giving them 21 days to pay the debt.  If they fail to pay the debt within 21 days, then the stat demand can be used to support a winding up petition against them.

If used correctly, stat demands can be a simple and cost-efficient way of “suggestively prompting” a company to pay you the money that they owe, through fear of being wound up.

But, if you do decide to go down this route there are several factors that you should first consider.

Firstly, if you intend to rely on the stat demand in winding up proceedings you must be able to demonstrate to the court that the stat demand was served correctly. This can only be done by leaving the stat demand at the company’s registered office or by personally delivering it to a company director. Re a Company (No 008790 of 1990) [1991] BCLC 561) outlines that service may be affected by registered post to the Company’s registered address, if it can be shown that, in fact, the company received the stat demand.  The method which we would usually recommend is to employ the services of a service provider to perform this on your behalf.

The above is all fairly simple but the real difficulty is in deciding whether a stat demand is the appropriate vehicle for the recovery of debt.

In simple terms you should only seek to use a statutory demand if you are absolutely certain of the following:

  • that you are owed the debt;
  • exactly how much is owed (including any interest pursuant to Late Payment of Commercial Debts(Interest) Act 1998); and
  • that the company who owe you money will pay rather than run the risk of a winding up petition being presented.

 

The key risk with a stat demand is that if payment is not made you are left deciding between either commencing winding up proceedings and potentially only receiving a proportion of what it is owed under the insolvency process, or doing nothing and having the threat be shown to be empty.

Another important consideration, which is often overlooked, is that you will not be able to enforce a stat demand if the other party disputes the debt or has a genuine cross-claim or right of set off.  This was held by the court in in the case of Wilson and Sharp Investments Limited -v- Harbour View Developments Limited [2015] EWCA 1030.

In this same case, the Court also held that a Statutory Demand should not be issued when a party is claiming sums owed by virtue of either a missing payment notice or pay less notice. These disputes should be referred to adjudication.

Finally, it is also worth considering how serving a stat demand may affect your relationship with the company in question, as it may destroy any relationship between the parties. They should arguably only be used as a final resort so as to avoid gaining a reputation as a serial “stat demander”.

So, in conclusion stat demands are indeed simple, effective and cost-efficient and can be an invaluable tool in the never-ending fight to get paid. However, they are more complex than they first appear.

Before you consider serving a stat demand, you should identify whether it is the correct vehicle for recovery and should ensure that you follow the necessary rules for drafting and serving (particularly if you later intend to rely on the stat demand in winding up proceedings).

And of course, if you have been served with a stat demand, it would be highly advisable to contact a suitable legal professional as soon as possible to reduce the risk to your company.

 

James Sargeant is an Associate at construction and procurement law specialists, Quigg Golden. James.Sargeant@QuiggGolden.com

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