A statutory demand, and twenty-one days to answer it

A commercial fit-out subcontractor, roughly twenty people, mostly office and retail work. Two jobs had finished and been signed off. Around $420,000 sat in progress claims and retentions that had not been released, and one materials supplier had run out of patience over an unpaid account of about $95,000.

The supplier served a statutory demand. The business was not insolvent in any sense the directors recognised. It was owed more than it owed. That distinction, obvious as it is from the inside, is not the test that matters here.

Why this one is urgent in a way an overdue invoice is not

A statutory demand gives twenty-one days to comply with it or to apply to have it set aside. Where neither happens, the creditor can rely on a presumption that the company is insolvent, and that presumption is the foundation of a winding-up application. A company that is trading profitably can be wound up over an amount it could have paid, because the deadline passed while everybody was busy.

• Twenty-one days to comply or to apply to set aside. The set-aside route is a court process with a hard deadline.
• Non-compliance supports a presumption of insolvency the creditor can then act on.
• Being owed money by third parties is not, in itself, an answer to the demand.
• Once a winding-up application is public, banking and trade credit become harder almost immediately.

The lawyer took the demand. WeL’nd took the money question, and both started on the same day.

The money question was narrow and answerable: could roughly $95,000 be funded, settled and applied inside twenty-one days, against security that genuinely existed. A bank could not do that on that timetable. So the file went to short-term secured funding instead, with a documented exit.

The exit came first

In private lending, the exit is the deal. A lender is being asked to fund quickly against security, and what it wants to see is exactly how it gets repaid and when. No credible exit, no facility, and that is a reasonable position rather than an obstructive one.

Here the exit was evidenced rather than asserted: two retention releases with dates attached and a builder’s written confirmation, plus a refinance to a mainstream facility once the retentions landed. The facility was written for six months against an exit expected earlier, because a bridge should have room in it.

1. 01

   Day one

   Solicitor engaged on the demand. Security and equity position assessed. Debtor ledger and retention schedule assembled with dates.

2. 02

   Days two to five

   Private second mortgage arranged behind the existing first over a director’s property. Valuation and legals run concurrently rather than in sequence.

3. 03

   Days six to twelve

   Facility settles. The supplier account is paid as directed by the solicitor, inside the twenty-one day period.

4. 04

   Months two to six

   Retentions released, private facility repaid, and invoice finance put in place so the next slow release does not become the next demand.

In this scenario the amount is paid inside the period, the winding-up route closes, and the business keeps trading with its supplier relationship intact. That last part matters more than it sounds: in fit-out, a supplier who has been paid is a supplier who will extend terms on the next job.

The short facility is repaid when the retentions come through, and the more useful change is structural. An invoice finance line was put in place afterwards, so the business is not funding a head contractor’s payment cycle out of its own balance sheet next time.

• Legal advice and finance run in parallel from day one, not one after the other.
• Short-term secured funding used deliberately as a bridge, priced above bank funding and treated as temporary.
• The exit evidenced with dates and written confirmations before drawdown.
• A working capital structure put in place afterwards to address the cause rather than the symptom.

The limits are worth stating. Short-term funding costs more than bank funding, and it should. It is appropriate when it buys time to do something specific, and it is a poor answer to an ongoing shortfall. Where there is no security and no evidenced exit, this structure is not available, and the right conversation is with an insolvency practitioner instead.