A Statutory Demand Against a Limited Company is a formal demand served by a creditor requiring a limited company to pay an outstanding debt. If your limited company has received a statutory demand, it is important to act quickly to protect your company from a potential winding-up petition.

A statutory demand against a limited company is commonly used by creditors seeking payment of an unpaid debt. If the company fails to pay, secure or compound the debt to the creditor’s reasonable satisfaction within the applicable 21-day period, the creditor may be able to rely on the statutory demand as evidence that the company is unable to pay its debts under the Insolvency Act 1986.

What Is a Statutory Demand Against a Limited Company?

A statutory demand against a limited company must comply with the relevant requirements of the Insolvency Act 1986 and the Insolvency Rules 2016. The demand sets out the debt claimed by the creditor and requires the company to address the outstanding amount.

Under section 123(1)(a) of the Insolvency Act 1986, a company may be deemed unable to pay its debts if a creditor owed more than £750 serves a statutory demand in the prescribed manner and the company fails to pay, secure or compound the debt to the creditor’s reasonable satisfaction for three weeks.

Receiving a statutory demand against a limited company does not automatically mean the company will be liquidated. However, failing to respond appropriately may expose the company to a winding-up petition.

What Happens If a Limited Company Ignores a Statutory Demand?

If your limited company ignores a statutory demand, the creditor may use the failure to pay as evidence of the company’s inability to pay its debts. Depending on the circumstances, the creditor may then present a winding-up petition to the court.

A winding-up petition can have serious consequences for a limited company, including potential disruption to its banking facilities, damage to commercial relationships and the risk of compulsory liquidation.

If your company has received a statutory demand against a limited company, do not ignore it. Obtain legal advice promptly to establish whether the debt is valid, whether there are grounds to dispute the demand and what steps can be taken to prevent further insolvency proceedings.

How to Respond to a Statutory Demand Against a Limited Company

If your company receives a statutory demand, the appropriate response depends on the circumstances of the debt and the creditor’s proposed action.

You should consider:

• Reviewing the statutory demand: Check the amount claimed, the basis of the debt and whether the demand complies with the relevant legal requirements.

• Disputing the debt: Establish whether there is a genuine and substantial dispute about the debt or a valid counterclaim or set-off.

• Contacting the creditor: Consider whether payment, settlement or another agreement may resolve the dispute.

• Seeking an injunction: Where the legal requirements are satisfied, an application may be made to restrain the presentation or advertisement of a winding-up petition.

• Obtaining urgent legal advice: Ensure that the correct steps are taken before the matter progresses to winding-up proceedings.

The 21-day period associated with a statutory demand is important. However, the correct procedure and any court deadlines depend on the circumstances, so you should seek advice without delay.

Injunction Against a Winding-Up Petition

If a creditor intends to present a winding-up petition following a statutory demand against a limited company, it may be possible to apply to the court for an injunction to restrain the presentation of the petition.

An injunction may be appropriate where the alleged debt is genuinely disputed on substantial grounds or where there is another recognised legal basis for preventing the creditor from proceeding.

The application must be supported by appropriate evidence, which may include a witness statement, contracts, invoices, correspondence and financial records. The court will consider the evidence and applicable legal principles before deciding whether an injunction should be granted.

Injunction to Restrain Advertisement of a Winding-Up Petition

If a winding-up petition has already been presented, a limited company may, in appropriate circumstances, apply for an injunction to restrain advertisement of the petition.

Advertisement in the London Gazette can have serious consequences for a company’s banking facilities and business operations. For this reason, urgent legal advice is essential if a winding-up petition has been presented or is about to be advertised.

The appropriate court application depends on the stage of the proceedings and the circumstances of the case.

Can a Creditor Present a Winding-Up Petition Without a Statutory Demand?

A creditor does not always have to serve a statutory demand against a limited company before presenting a winding-up petition. Under the Insolvency Act 1986, a creditor may rely on other evidence to establish that a company is unable to pay its debts, provided the relevant legal requirements are met.

If your company has received a letter before action or a demand for payment threatening a winding-up petition, you should take the warning seriously and obtain legal advice promptly.

How We Can Help With a Statutory Demand Against a Limited Company

We assist company directors dealing with a statutory demand against a limited company and the threat of winding-up proceedings.

Our assistance may include:

• Reviewing the statutory demand and the creditor’s claim.

• Assessing whether there is a substantial defence to the alleged debt.

• Identifying potential disputes, counterclaims or set-offs.

• Advising on an injunction to restrain a winding-up petition.

• Helping prepare supporting evidence for a court application.

• Advising on options where a winding-up petition has already been presented.

If your company has received a statutory demand against a limited company, early advice can help you understand your options and determine the most appropriate response.

Contact Nigel About a Statutory Demand Against a Limited Company

If you have received a statutory demand against a limited company, contact Nigel as soon as possible to discuss your circumstances.

Do not ignore a statutory demand or assume that the creditor will take no further action. Prompt legal advice can help you assess the debt, understand the risks of a winding-up petition and establish whether there are grounds to challenge the creditor’s claim or seek an injunction.

Contact Nigel today for advice about a statutory demand against a limited company and the options available to protect your business.