Understanding Statutory Demands in Singapore: A Guide for Creditors and Debtors

A statutory demand is a formal notice issued by a creditor to a debtor demanding payment of an outstanding debt. It serves as a crucial preliminary step in the process of initiating insolvency proceedings against the debtor.

Understanding the nuances and processes of issuing and responding to a statutory demand is essential for both creditors seeking to recover debts and debtors facing such demands in Singapore. This guide provides a comprehensive overview of what a statutory demand is and the legal implications it carries.

Statutory Demand: A Powerful Tool for Creditors

What is a Statutory Demand?

A statutory demand is a written notice from a creditor to a debtor, formally requesting payment of a debt. It is a legal document with specific requirements under the Companies Act in Singapore. A valid statutory demand must:

• Clearly state the amount of the debt owed.
• Specify the creditor’s name and address.
• Require the debtor to pay the debt or secure or compound for it to the creditor’s reasonable satisfaction within 21 days after the demand is served.

The 21-day deadline is of paramount importance. Failure to comply with a statutory demand within this timeframe can lead to severe consequences for the debtor.

When Can a Creditor Issue a Statutory Demand?

A creditor can issue a statutory demand in Singapore when the following conditions are met:

• There is a qualifying debt: The debt must be a liquidated sum, meaning it is a specific amount that is due and payable.
• The debt exceeds the prescribed threshold: The current threshold for issuing a statutory demand is SGD10,000. This means statutory demands in Singapore may only be issued for debt amounts higher than SGD10,000.
• There is no substantial dispute: There must be no genuine dispute regarding the existence or the amount of the debt.

Serving a Statutory Demand

The statutory demand must be served personally on an individual debtor or at the registered office of a company. As for how much it costs to serve a statutory demand: the costs involved are typically relatively low, primarily involving process server fees. A debt collection lawyer can provide more information on the fees and processes of serving a statutory demand.

Proper service of the statutory demand, as outlined under the Companies Act, is crucial. Failure to comply with these requirements can render the demand invalid, allowing the debtor to challenge the demand.

Responding to a Statutory Demand: A Debtor’s Guide

If you are a debtor who has received a statutory demand, you should take prompt and decisive action:

• Review the validity of the statutory demand: The debtor should carefully examine the demand to ensure it complies with all legal requirements.
• Dispute over validity (if applicable): If there is a bona fide dispute regarding the debt’s existence or amount (e.g. disputes over the quality of goods or services, contractual terms, or the amount owed), the debtor has to provide sufficient evidence demonstrating this dispute.
• Demonstrate a valid cross-claim (if applicable): If the debtor has a valid claim against the creditor, this can be used to reduce or offset the debt.
• Other valid reasons for disputing a statutory demand: The statutory demand may be set aside if there are errors in the demand itself, errors in the way it was served, or if the creditor is shown to be using the statutory demand for an improper purpose.
• Understand the 21-day deadline: Debtors have the 21 days set out in the statutory demand to either pay the debt or apply to the court for setting aside of the statutory demand, on specific grounds. Failing to act within the 21-day deadline may lead to further legal consequences.
• Seek legal advice immediately: It is strongly recommended that debtors consult with a debt collection lawyer or a corporate law firm as soon as they receive a statutory demand.

Application to Set Aside a Statutory Demand

The process of applying to set aside statutory demand involves:

• Filing the application within the 21-day timeframe: This is a strict deadline, and failure to meet it can have severe consequences.
• Supporting the application with affidavits and evidence: The debtor must provide sworn statements and other evidence to support their grounds for setting aside the demand.
• The court process for setting aside a statutory demand: The court will consider the evidence presented by both parties and make a decision based on the merits of the case.

Consequences of Ignoring a Statutory Demand

If the debtor fails to comply with the demand within 21 days and does not apply to set aside the statutory demand, they are presumed to be insolvent and unable to pay their debts. For companies, this presumption can lead to the creditor applying to the court for a winding up application to liquidate the company. Whereas for individuals, it can lead to bankruptcy proceedings.

Difference Between a Statutory Demand vs. Letter of Demand

Both a statutory demand and letter of demand may be invoked or served in the process of settling a debt. It’s important to understand the key difference between them, so that you may proceed in a way that is legally sound:

• Formality and legal weight: A statutory demand is a formal legal document with serious legal consequences, whereas a letter of demand is a less formal request for payment.
• Legal consequences of non-compliance: Ignoring a statutory demand can lead to insolvency proceedings, while ignoring a letter of demand does not have the same immediate legal ramifications.
• Purpose and strategic use: A letter of demand is typically used as an initial step in commercial debt recovery, while a statutory demand is used when the creditor intends to pursue insolvency proceedings.

In sum, a letter of demand is a less formal document that is typically used as an initial demand for payment, often to encourage settlement. A statutory demand is a more serious step, indicating the creditor’s intention to initiate a winding up application or bankruptcy proceedings.

Farallon Law: Your Partner for Navigating Complex Legal Processes in Singapore

Statutory demand proceedings can be complex and have significant legal implications. It is crucial to seek legal advice promptly, be it as a creditor or debtor involved in the matter. Having a credible legal counsel ensures that your legal rights and assets are protected throughout the statutory demand process.

For creditors, an experienced debt collection lawyer can assist you in issuing valid statutory demands and pursuing the debt recovery process. Find out more about the benefits of hiring a law firm for debt collection in Singapore.

While for debtors, consulting with a corporate law firm or insolvency lawyer can help you understand the available options, initiate setting aside of statutory demands if appropriate, and navigate insolvency proceedings.

Farallon Law has extensive expertise in debt recovery and corporate law, and our legal team is well-equipped to guide you through these challenging situations.

If you are facing a statutory demand or need assistance with debt recovery, contact Farallon Law for expert legal guidance.