A Statutory Demand is a formal demand requiring payment of a debt. The Statutory Demand procedure is governed by the Insolvency Act 1986 and the Insolvency Rules 2016.

A Statutory Demand may be served on an individual where the debt meets the applicable requirements for a bankruptcy petition. For a creditor’s bankruptcy petition, the current minimum debt threshold is generally £5,000.

A Statutory Demand can also be served on a limited company. Under section 123(1)(a) of the Insolvency Act 1986, a company may be deemed unable to pay its debts where a creditor owed more than £750 serves a Statutory Demand in the prescribed manner and the company fails for three weeks to pay, secure or compound the debt to the creditor’s reasonable satisfaction.

A Statutory Demand is not a court judgment and does not automatically make an individual bankrupt or place a company into liquidation. However, if the debt remains unpaid, the creditor may be able to pursue further insolvency proceedings.

What Is a Debt for the Purpose of a Statutory Demand?

A debt for the purpose of a Statutory Demand will generally need to be an identifiable sum of money that is due and payable. The debt may arise from a contract, an unpaid invoice, a loan or another legal obligation.

In appropriate circumstances, a creditor may serve a Statutory Demand without first obtaining a County Court Judgment. However, the debt must satisfy the relevant legal requirements, and certain types of debt may be subject to additional restrictions.

If the debt is genuinely disputed, the Statutory Demand may be challenged. The court will consider the evidence and whether there are substantial grounds for disputing the debt.

A Statutory Demand should not be used as a substitute for ordinary debt recovery proceedings where the debt is genuinely disputed and insolvency proceedings are inappropriate.

How Does a Statutory Demand Work?

A Statutory Demand is served by a creditor seeking payment of an outstanding debt. The creditor must identify the debt and comply with the applicable requirements for the demand and its service.

If a Statutory Demand is served on an individual, the debtor generally has 21 days to pay, secure or reach an acceptable arrangement regarding the debt. A separate deadline, generally 18 days from service, applies to an application to set aside a personal Statutory Demand.

If a Statutory Demand is served on a limited company, the company generally has three weeks to pay, secure or compound the debt to the creditor’s reasonable satisfaction if the creditor intends to rely on the demand under section 123(1)(a) of the Insolvency Act 1986.

The legal procedures for an individual Statutory Demand and a company Statutory Demand are different. It is important to obtain appropriate advice if you intend to challenge a demand or proceed with insolvency action.

Received a Statutory Demand?

If you have received a Statutory Demand, you should act promptly. Ignoring a Statutory Demand can expose you to further legal action, including bankruptcy proceedings for an individual or a winding-up petition against a limited company.

Before deciding how to respond to a Statutory Demand, consider whether:

• The debt is genuinely owed.

• The amount claimed is correct.

• You have already paid some or all of the debt.

• There is a substantial dispute about the debt.

• You have a relevant counterclaim or set-off.

• The Statutory Demand has been served in accordance with the applicable requirements.

If you dispute a personal Statutory Demand, you may be able to apply to set it aside on recognised legal grounds. If the demand is against a limited company, an injunction to restrain presentation of a winding-up petition may be appropriate in certain circumstances.

The correct procedure depends on the circumstances. A Statutory Demand should never be ignored simply because you disagree with the creditor.

Send a Statutory Demand to Recover an Outstanding Debt

If someone owes you money, sending a Statutory Demand may be an effective way to seek payment before considering further legal action.

A Statutory Demand can be used in appropriate circumstances for qualifying debts owed by individuals and limited companies. It can prompt a debtor to pay or negotiate a settlement before the matter progresses to bankruptcy or winding-up proceedings.

Before sending a Statutory Demand, you should consider whether the debt is due, whether the debtor has a genuine defence and whether insolvency proceedings would be an appropriate way to pursue payment.

A Statutory Demand does not guarantee recovery. If the debtor cannot pay, or disputes the debt on substantial grounds, you may need to consider other options.

Statutory Demand for an Individual or a Limited Company

The Statutory Demand procedure depends on who owes the money.

For an individual, a Statutory Demand may be used as a step towards bankruptcy proceedings where the statutory requirements are met. The applicable debt threshold and court procedure must be checked before taking action.

For a limited company, a Statutory Demand may be used as evidence of an inability to pay debts and may support a winding-up petition if the relevant legal requirements are satisfied.

A creditor does not always need to serve a Statutory Demand before presenting a winding-up petition against a limited company. The creditor may rely on other appropriate evidence of insolvency, depending on the circumstances.

If you have received a Statutory Demand personally or on behalf of a company, it is important to establish which legal procedure applies before taking action.

Can You Challenge a Statutory Demand?

A Statutory Demand can be challenged where there are recognised legal grounds for doing so.

For an individual, an application to set aside a Statutory Demand may be appropriate if the debt is genuinely disputed on substantial grounds, a qualifying counterclaim or set-off exists, or another recognised ground applies.

For a limited company, the appropriate remedy may be an injunction to restrain presentation of a winding-up petition where the legal requirements are met.

The court will consider the evidence supporting the challenge. A genuine dispute must be supported by appropriate facts and documents, and the outcome of any application will depend on the circumstances.

If you have received a Statutory Demand and believe the debt is incorrect, obtain legal advice promptly to understand your options.

What Happens If You Ignore a Statutory Demand?

Ignoring a Statutory Demand can have serious consequences.

For an individual, failure to address a Statutory Demand may allow a creditor to take further steps towards bankruptcy proceedings, provided the legal requirements are met.

For a limited company, a creditor may rely on an unanswered Statutory Demand as evidence of inability to pay debts and may seek to present a winding-up petition.

A winding-up petition can have significant consequences for a company’s banking facilities and commercial relationships. If a petition is advertised in the London Gazette, a bank may become aware of the proceedings and may restrict or freeze the company’s accounts, depending on the circumstances and its obligations.

If you have received a Statutory Demand, obtaining advice early may help you understand whether the debt can be challenged, whether a settlement is possible or whether urgent court relief should be considered.

Statutory Demand Advice and Assistance

Whether you want to send a Statutory Demand to recover a debt or need help responding to a Statutory Demand you have received, obtaining appropriate advice can help you understand the procedure and potential risks.

We can assist with reviewing the circumstances of a Statutory Demand, considering potential grounds for challenging a debt and assessing options for pursuing or defending insolvency proceedings.

If you are a creditor, we can help you consider whether a Statutory Demand is an appropriate debt recovery option.

If you are a debtor, we can help you understand the available options for responding to a Statutory Demand and assessing whether there are grounds to challenge it.

Every Statutory Demand must be considered on its own facts. The correct approach depends on the type of debtor, the amount claimed, the evidence available and the stage of any proceedings.