Recovering a debt: statutory demands, bankruptcy and winding up

What a statutory demand is

A statutory demand is a formal demand for payment in a form set by insolvency law. It states the amount owed and requires the debtor to pay, secure or settle the debt within 21 days. It can be served without first going to court.

If the debtor does none of these within the 21 days, the law presumes that the debtor cannot pay its debts. That presumption is the basis for an application to make an individual bankrupt or to wind up a company.

When it can be used

In general:

• the debt must meet the S$15,000 threshold under the Insolvency, Restructuring and Dissolution Act 2018;
• it must be for a fixed sum, not damages still to be assessed, and be payable now;
• it should not be genuinely disputed.

When it is the wrong tool

Bankruptcy and winding-up proceedings are not a way to decide whether a debt is owed. If the debtor has a substantial dispute or a genuine cross-claim, it can apply to set the demand aside, or a winding-up application may be dismissed and the creditor ordered to pay costs. For disputed debts, an ordinary court claim is usually the right route.

A statutory demand may also be the wrong choice if the debtor has few assets. In bankruptcy or liquidation, what is recovered is shared among all creditors after costs and debts with priority, so an individual creditor may recover only part of the debt.

What happens after an order is made

If a bankruptcy order is made, the Official Assignee (or a private trustee) takes control of the bankrupt's assets and realises them for creditors. A bankrupt faces restrictions, for example on travelling abroad without permission and on acting as a company director.

If a company is wound up, a liquidator takes control, the business stops, and the assets are sold and distributed in the order set by law. Unsecured creditors are paid after secured creditors and certain preferential debts.

A pressure point as much as a remedy

Because the consequences are serious, a statutory demand often leads a debtor who can pay to pay or to negotiate. Whether it is worth serving depends on how clear the debt is and on the debtor's financial position.

If you have received one

Do not let the 21 days pass. If the debt is owed, consider paying, securing it or agreeing terms in writing. If you dispute it, say so in writing with your reasons inside the 21 days and take advice promptly on applying to set it aside.

Getting advice on your situation

Whether a statutory demand, a court claim or a negotiated plan is the right step depends on the debt and the debtor. A lawyer can review the documents and explain the options on either side.