Key Takeaways
- A statutory demand is a formal, pre-insolvency demand for payment. Ignore it and the creditor can apply to wind up your company or make you bankrupt.
- The debt must be more than £750 for a company, or £5,000 or more for an individual, and it must not be genuinely disputed.
- The clock is short. An individual has 18 days to apply to set the demand aside and 21 days before a petition can follow.
- Your options are to pay, negotiate, or challenge it. A company cannot set one aside but can seek an injunction to stop a winding-up petition.
Opening the post to find a statutory demand is a genuinely alarming moment. It does not look like an ordinary chasing letter, and it should not be treated like one. It is the step a creditor takes just before trying to wind up a company or make a person bankrupt, and the time you have to react is short. Ignore it and you can find yourself facing insolvency proceedings before you have properly understood what happened.
The good news is that a statutory demand can often be dealt with, sometimes quite straightforwardly, if you act quickly and take the right step. The danger lies almost entirely in doing nothing.
This guide explains what a statutory demand is, the tight deadlines involved, and your options for responding, whether you have received one or are thinking of using one. If you need advice fast, Osbourne Pinner offers a free 30-minute consultation with a dispute resolution solicitor.
What a statutory demand actually is
A statutory demand is a formal written demand for payment made under the Insolvency Act 1986. It is not a court claim and no judge has looked at it, which surprises people, but it carries real weight because it is the recognised first step towards insolvency. If it is not paid or dealt with in time, it creates a presumption that you cannot pay your debts, which the creditor can then use to petition to wind up a company or bankrupt an individual. That is what makes it so much more serious than a normal letter before action.
The debt thresholds
A statutory demand can only be used for a debt above a certain size. For a company, the debt must be more than £750. For an individual, it must be £5,000 or more. The debt also has to be for a clear, fixed sum that is due now, and, importantly, one that is not genuinely disputed. Using a statutory demand for a debt that is properly in dispute is the wrong tool, and it can backfire badly.
The clock is short, so act fast
This is the part that catches people out. From the date it is served, an individual has just 18 days to apply to court to set the demand aside, and 21 days to pay or reach agreement before the creditor can present a bankruptcy petition. The equivalent 21-day window applies to companies before a winding-up petition can follow. These deadlines are tight and are not generous with latecomers, so the worst thing you can do is put the demand in a drawer and hope it goes away.
Your options for responding
There are really four responses. You can pay the debt in full, which makes the problem disappear. You can negotiate, for example agreeing instalments or a reduced settlement, and ask the creditor to withdraw the demand. You can challenge it, if the debt is disputed or the demand is defective. Or you can do nothing, which is not so much an option as a decision to let insolvency proceedings begin. For most people the choice comes down to whether the debt is genuinely owed.
Setting aside a statutory demand as an individual
If you are an individual and you believe the demand is wrong, you can apply to the court to have it set aside, but you must do so within 18 days of it being served. The usual grounds are that the debt is genuinely disputed on substantial grounds, that you have a counterclaim or set-off that equals or exceeds the debt, that the creditor already holds security worth as much as the debt, or that the demand contains a serious defect. Get it set aside and the threat falls away. You can read the current process on the GOV.UK statutory demands pages.
If you are a company
Companies are in a slightly different position. A company cannot apply to set aside a statutory demand in the same way an individual can. Instead, if the debt is disputed, the company can apply to court for an injunction to stop the creditor presenting a winding-up petition, on the basis that doing so would be an abuse of process. The key is to move before any petition is presented, because once a winding-up petition is advertised it can freeze bank accounts and do serious damage even if it is later dismissed.
When a statutory demand is the wrong tool
It is worth being clear on this, for creditors as much as debtors. A statutory demand is not a general debt collection device, and it must not be used where the debt is genuinely disputed. If it is, the court can strike out or restrain the petition and order the creditor to pay costs. Insolvency is meant for those who genuinely cannot pay, not as a lever to pressure someone who has an honest dispute. Where a debt is contested, ordinary court proceedings are the right route.
How a statutory demand must be served
Service matters more than people realise. For an individual, the creditor is expected to take reasonable steps to bring the demand to the debtor’s attention, usually by personal service, and for a company it is normally delivered to the registered office. If a demand was not properly served, that can itself be a reason to challenge it, and it can affect when the clock started running. So one of the first things to check is exactly how and when the demand reached you, and to keep the envelope and any covering letter.
What happens if you ignore it
Ignoring a statutory demand is where real damage is done. Once the time limit passes without payment, agreement or a successful challenge, the creditor can present a bankruptcy or winding-up petition, relying on the demand as evidence that you cannot pay. For a company, a winding-up petition can be advertised and lead to bank accounts being frozen, sometimes before the hearing. For an individual, a bankruptcy order affects your credit, your assets and, in some cases, your job. None of that is automatic, but it all becomes much harder to stop the longer you leave it.
If you are the creditor
Used correctly, a statutory demand is one of the most effective tools in debt recovery. Where a debt is clear and undisputed and the debtor is simply refusing to pay, the threat of being wound up or made bankrupt often prompts payment far faster than other methods. The trick is to use it only for undisputed debts, and to be ready to follow through. Our debt recovery solicitors can advise on whether a statutory demand is the right move, and our guide on how to enforce a court judgment covers the other options.
Speak to a Dispute Resolution Solicitor About a Statutory Demand
Whether you have received a statutory demand or are considering serving one, the deadlines are short and the consequences serious. Acting quickly, and on the right advice, is what keeps a manageable problem from turning into insolvency proceedings.
At Osbourne Pinner, our dispute resolution solicitors can advise on setting aside or challenging a demand, applying for an injunction, or using a statutory demand to recover a genuine debt.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
We offer a free 30-minute consultation to discuss your situation. You can speak with us via video call or visit our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. To arrange your consultation, call 0203 983 5080, email [email protected] or complete the form below.
