If you have received a statutory demand, whether as an individual or on behalf of a limited company, it is important to act quickly. A statutory demand is a formal demand for payment of an outstanding debt and can have serious consequences if you fail to respond appropriately.

Receiving a statutory demand does not automatically mean that you will become bankrupt or that your company will be wound up. However, if the creditor takes further legal action, you could face bankruptcy proceedings as an individual or a winding-up petition against your limited company.

If you have received a statutory demand from a creditor, you should obtain legal advice as soon as possible. The correct response depends on whether the debt is disputed, the amount claimed, the type of debtor and the stage the proceedings have reached.

What Is a Statutory Demand?

A statutory demand is a formal written demand requiring payment of a debt. A creditor may serve a statutory demand on an individual or a limited company when an outstanding debt remains unpaid.

The legal consequences of receiving a statutory demand differ depending on whether the demand is against an individual or a company.

If you have received a statutory demand personally, the creditor may be able to use it as a step towards bankruptcy proceedings if the relevant legal requirements are met.

If your limited company has received a statutory demand, the creditor may be able to rely on the demand as evidence that the company is unable to pay its debts and may seek to present a winding-up petition.

In either situation, ignoring a statutory demand can put you in a more difficult legal position. It is essential to establish whether the demand is valid, whether the debt is genuinely disputed and what action is available to protect your interests.

Received a Statutory Demand as an Individual?

If you have received a statutory demand in your personal name, you should establish whether the debt is legally owed, whether the amount is correct and whether there are grounds to challenge the creditor’s claim.

A statutory demand served on an individual may be used as part of the process leading to a bankruptcy petition. Under the relevant insolvency rules, a creditor may generally rely on a statutory demand for a qualifying debt of at least £5,000, subject to the applicable legal requirements.

For an individual, the usual statutory demand procedure involves a 21-day period to pay, secure or agree terms for the debt, and a separate 18-day period relevant to an application to set aside the demand. The applicable deadlines and available remedies should be checked immediately.

If you have received a statutory demand for a debt you dispute, do not assume you can resolve the problem simply by ignoring the creditor. Obtain legal advice about the evidence required and whether an application to set aside the statutory demand is appropriate.

How to Challenge a Personal Statutory Demand

Depending on the circumstances, grounds for challenging a personal statutory demand may include:

• The debt is genuinely disputed on substantial grounds.

• You have a counterclaim, set-off or cross-demand that meets the relevant legal requirements.

• The creditor does not have a valid basis for demanding the amount claimed.

• There is a defect in the statutory demand or another recognised ground for setting it aside.

A court will consider the applicable legal requirements and evidence. Receiving a statutory demand does not mean that bankruptcy is inevitable, but prompt action is important.

Received a Statutory Demand for Your Limited Company?

If you have received a statutory demand on behalf of your limited company, you should take immediate steps to assess the debt and the risk of winding-up proceedings.

A statutory demand against a limited company is commonly used by creditors seeking payment of an outstanding business debt. Under section 123(1)(a) of the Insolvency Act 1986, a company may be deemed unable to pay its debts where a qualifying creditor serves a statutory demand for more than £750 in the prescribed manner and the company fails for three weeks to pay, secure or compound the debt to the creditor’s reasonable satisfaction.

If your limited company has received a statutory demand, the creditor may seek to rely on the demand when considering whether to present a winding-up petition.

A winding-up petition can have serious consequences for your company, including potential disruption to banking facilities, damage to business relationships and compulsory liquidation if a winding-up order is made.

What to Do If Your Company Receives a Statutory Demand

If your company has received a statutory demand, you should:

• Review the debt: Check the amount claimed, the contractual basis of the debt and the supporting documents.

• Identify any genuine dispute: Establish whether there are substantial grounds to dispute the debt or whether a counterclaim or set-off may apply.

• Contact the creditor: Consider whether a settlement, payment arrangement or other agreement is appropriate.

• Obtain legal advice: Determine whether there are grounds to challenge the creditor’s position or seek an injunction.

• Act before further proceedings: Take advice promptly if the creditor threatens to present or advertise a winding-up petition.

A statutory demand against a limited company is not the same as a personal statutory demand. The applicable court procedures and remedies are different, so it is important to obtain advice specific to your circumstances.

What Happens If You Ignore a Statutory Demand?

If you have received a statutory demand and take no action, the creditor may be able to pursue further insolvency proceedings, subject to the relevant legal requirements.

For an individual, a statutory demand may be used as part of the process leading to a bankruptcy petition.

For a limited company, failure to address a statutory demand may provide evidence of an inability to pay debts and may support a winding-up petition.

A winding-up petition against a company can create significant practical difficulties. If the petition is advertised in the London Gazette, the company’s bank may become aware of the proceedings and may restrict or freeze banking facilities, depending on the circumstances and its obligations.

For an individual, bankruptcy proceedings can have serious financial and legal consequences.

If you have received a statutory demand, do not wait until a bankruptcy petition or winding-up petition is presented before seeking advice. Early action may help you identify available defences and understand the options for dealing with the creditor.

Can You Stop a Statutory Demand?

The options for challenging a statutory demand depend on whether it has been served on an individual or a limited company.

For an individual, it may be possible to apply to set aside a statutory demand where the relevant legal grounds are satisfied. This may apply where the debt is genuinely disputed, there is an applicable counterclaim or set-off, or another recognised ground exists.

For a limited company, the appropriate remedy may involve challenging the creditor’s claim, negotiating a resolution or applying for an injunction to restrain the presentation of a winding-up petition.

The procedure for setting aside a statutory demand against an individual should not be confused with the procedure for seeking an injunction in company insolvency proceedings.

The correct legal approach depends on the facts, the evidence available and whether the creditor has already commenced further proceedings.

Can a Creditor Take Action Without a Statutory Demand?

In some circumstances, a creditor may be able to commence insolvency proceedings without first serving a statutory demand.

For a limited company, a creditor may seek to present a winding-up petition on an applicable statutory ground, including inability to pay debts, without necessarily relying on a statutory demand.

For an individual, the requirements for a bankruptcy petition are different and depend on the applicable statutory provisions and circumstances.

If you have received a letter before action, a formal demand for payment or a warning that insolvency proceedings may follow, you should not assume that you have a fixed period of seven days in every case. Review the correspondence and obtain advice about any applicable deadlines.

How We Can Help If You Have Received a Statutory Demand

If you have received a statutory demand personally or on behalf of a limited company, we can help you understand the available options and the steps that may be appropriate.

Our assistance may include:

• Reviewing the statutory demand and the creditor’s supporting evidence.

• Assessing whether the debt is genuinely disputed.

• Identifying potential counterclaims, set-offs or other grounds for challenging the demand.

• Advising on an application to set aside a personal statutory demand.

• Assessing whether an injunction may be appropriate to restrain a winding-up petition against a limited company.

• Advising on urgent action if bankruptcy or winding-up proceedings have already commenced.

• Helping you understand the potential consequences of ignoring a statutory demand.

Every statutory demand needs to be considered on its own facts. The appropriate remedy will depend on the type of debtor, the amount claimed, the nature of the dispute and the stage of any insolvency proceedings.

Received a Statutory Demand? Contact Nigel Today

If you have received a statutory demand, whether in your personal name or for your limited company, it is important to seek legal advice promptly.

Do not ignore a statutory demand or assume that the creditor cannot take further action. The relevant deadlines can be short, and the correct response depends on your circumstances.

Contact Nigel as soon as possible to discuss your statutory demand, assess whether the debt can be challenged and establish what options may be available to protect you or your company.