Pay Less Notices and Statutory Demands
On some occasions though, for example if the works have been completed already, downing tools is not an option. In those circumstances the contractor can serve a statutory demand. This gives the employer a period of 21 days to pay the debt, otherwise a petition may be presented to either wind-up (if it is a company) or make bankrupt (in other cases) the employer. A statutory demand should only be sent if the debt is not disputed and if there are concerns over the ability of the employer to pay its debts. If the employer, for example, disputes the debt or has a valid counterclaim which would cancel out the unpaid sums, then service of a statutory demand is liable to be counter-productive.
What happens if the employer disputes the debt but failed to submit a Pay Less Notice?
A construction contract, where stage payments are applicable, must provide for the employer to give a Payment Notice identifying the amount it considers due following receipt of a payment application. If no Payment Notice is given, the contractor may send a Default Notice stating the amount it considers due. If a Default Notice is sent then the employer can serve a Pay Less Notice setting out how much of the sum set out in the Default Notice it intends to pay. In the absence of a Pay Less Notice, the amount in the Default Notice crystallises. In the event of a Pay Less Notice being served, the liability to pay any sums referred to in the Default Notice that are not covered by the Pay Less Notice crystallises.
The effect of the liability crystallising is that the employer is obliged to pay the sum. If the contractor then presents a statutory demand the employer cannot challenge that demand on the basis that liability is disputed.