Statutory demands, winding up and bankruptcy: what if someone owes you money?

What a statutory demand is

A statutory demand is a formal notice from a creditor to a debtor, made under the Insolvency, Restructuring and Dissolution Act. It states the amount of the debt and the time within which it must be paid. Unlike an ordinary letter of demand, it has to follow requirements set by insolvency law, and it can lead to a company being wound up or an individual being made bankrupt.

The thresholds and the 21-day window

For a company, the debt must be more than S$15,000. For an individual, the debt must be at least S$15,000.

If the debtor does not pay the debt, or secure or compound it to the creditor's satisfaction, within 21 days of being served, the debtor is presumed to be unable to pay its debts. The creditor can then rely on that presumption to apply to court to wind up a company or for a bankruptcy order against an individual.

The Court of Appeal has indicated that a company which pays part of the debt within the three weeks, so that the balance falls below the threshold, will not be presumed unable to pay on that basis.

When the debt is disputed

A statutory demand is not a way to collect a debt that is genuinely in dispute. A creditor who uses the winding-up process for a debt that is disputed in good faith may have the application dismissed, often with costs. The proper course is to bring a claim, obtain judgment, and only then consider insolvency proceedings.

The debtor does not need to prove it would win. It needs to show, with supporting evidence, that there are real issues about the debt that should be decided at a full hearing. Raising genuine, arguable issues can be enough to resist a winding-up application.

An individual who disputes the debt can apply to court to set the demand aside. The application must be made within 14 days of service, or 21 days if the demand was served outside Singapore. If it succeeds, the creditor cannot rely on that demand to apply for bankruptcy.

Winding up a company

A winding-up application asks the court to bring the company's existence to an end and appoint a liquidator to take over its affairs and realise its assets. The applicant must nominate a licensed insolvency practitioner to act as liquidator, which adds to the cost.

Many winding-up applications do not end in liquidation, as the parties often negotiate before the first hearing. Even after an order is made, the court may stay or end the winding up if circumstances change. Mediation may also be a practical alternative.

Bankruptcy of an individual

If an individual does not comply with the demand and does not apply to set it aside in time, the creditor may file a bankruptcy application.

For debts not exceeding S$150,000, the court may refer the debtor to the Debt Repayment Scheme run by the Official Assignee, a structured repayment plan, instead of making a bankruptcy order straight away.

Is it the right step for you?

A statutory demand can be effective where the debt is clear and undisputed, because the consequences of ignoring it are serious. Where the debtor has a real defence or counterclaim, a letter of demand followed by a court claim is usually the better route. If you receive a statutory demand, act immediately: the time limits are short.

Getting advice

Insolvency steps have consequences for both sides. A lawyer can review the debt and the evidence, advise whether a statutory demand is appropriate or how to respond to one, and explain the costs and likely outcomes.