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As a business owner, receiving a letter of demand can be stressful. If you receive letters demanding something of you, you might find it easier just to leave it alone and simply wait and see whether the sender takes any further steps. However, this can be risky, as it may put you at risk of legal action that you could have avoided. This article will outline how you should respond to a letter of demand.
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Why is It Important to Respond to a Letter of Demand?
Ignoring a letter of demand could quickly lead to court proceedings against you. This can be a costly and time-consuming process. However, if you respond to a letter of demand, you have the chance to avoid that process and resolve the matter commercially.
Furthermore, court proceedings can be costly, time-consuming and can damage your reputation both personally and professionally. Additionally, the time taken away from your business dealing with court processes and lawyers will likely impact your business’ productivity.
What Are Statutory Demands?
If you operate your business through a company and you ignore a letter of demand, you may receive a ‘statutory demand’. A statutory demand requires payment of the debt within 21 days.
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What Should You Do When You Receive a Letter of Demand?
When you first receive a letter of demand, it is important to avoid sending off a fiery response to the sender – even if there is an error in their demands or you have a valid reason for not making a payment.
Before responding to the letter, your first steps should be:
- considering the accuracy of the claim against you;
- getting legal advice; and
- seeking further information.
1. Consider the Accuracy of the Claim Against You
Be sure to check the facts and calculations in the letter. For instance, you should consider:
- what documents they are relying on;
- whether they have made references to the accurate invoices or contracts; and
- if they failed to do something under the contract, and therefore, they are not entitled to make their claim for payment.
2. Get Legal Advice
Seeking legal advice is vital, especially if you believe you have a right to dispute the demands. Even if you are unsure, it is best to get advice from a lawyer, as they may pick up on discrepancies that you may not have noticed. Furthermore, a dispute resolution lawyer can:
- provide you with strategic advice on the best way to respond;
- prepare a legally sound response for you; and
- assist with negotiating a resolution.
3. Seek Further Information
Once you provide the letter of consideration and seek legal advice, you may need to request further information before you can respond. If any aspects of the demand are unclear, you should also seek clarification on those points. Additionally, you should request copies of documents that the letter relies on if you do not have copies. This might include invoices or contracts.
If the letter of demand has requested that you respond within a short time frame, such as seven days, you should include a request for an extension of time after receiving the documents to provide your response. It would help to also request that they take no further action until you respond.
4. Respond to the Letter
How you respond will depend on the circumstances. If you disagree with the claims made against you, you should respond, noting your disagreement and explaining why you disagree.
Depending on your position, you may refuse the demand entirely, or you may consider making an offer of settlement to resolve the dispute. If you do enter into commercial negotiations, you should ensure that you make it clear they are on a ‘without prejudice basis’, to ensure any statements made during your discussions cannot be used against you in court proceedings.
Key Takeaways
Receiving a letter of demand can be stressful. Unfortunately, ignoring a letter of demand may put you at risk of facing legal proceedings or your company facing insolvency. However, you can avoid these risks by following the steps in this article when you receive a letter of demand. In summary, when you receive a letter of demand, you should:
- consider the accuracy of the claims made against you;
- get legal advice from a lawyer;
- request any additional documents or information you need from the other side to assess the accuracy of their claims; and
- respond to the letter as appropriate, which may be through a ‘without prejudice’ letter seeking a commercial settlement.
If you have concerns about a letter of demand, our experienced dispute lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A letter of demand is typically used to communicate a figure owed and expand on the claim’s nature. This means that a letter of demand is not legally binding and does not have or create any legal obligations. However, if the dispute proceeds to court proceedings, it can be used as evidence of proof that a letter of demand was initially sent to resolve an outstanding debt and the issue at hand.
If you ignore an initial letter of demand, you will likely receive a final letter of demand. This letter should include all previous correspondence and have the same information regarding the outstanding debt owed. If you ignore the final letter of demand, proceedings may be brought against you, and a Statement of Claim may be served without further notice to you.
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