Received a Statutory Demand? What It Means and Why Timing Matters in England and Wales
Receiving a statutory demand can be alarming. It often arrives looking like an ordinary letter, but it is…
Statutory Demands — The Legal Framework
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Statutory demand on an individual (s.268 IA 1986) — Form 6.1 or 6.2. The demand must be for an undisputed, liquidated debt of at least £5,000. Served by personal service or, where personal service is not practicable, by other means approved by the court. The individual has 18 days to apply to set it aside; 21 days until the creditor can present a bankruptcy petition. Where the individual neither pays nor applies to set aside, the court is entitled to presume insolvency.
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Statutory demand on a company (s.123(1)(a) IA 1986) — no prescribed form for a company statutory demand, but it must identify the debt, give 21 days to pay. A company is deemed unable to pay its debts if it has failed to comply with a statutory demand for £750 or more within 21 days. This deems the company insolvent and entitles the creditor to present a winding-up petition. The lower £750 threshold for companies (compared to £5,000 for individuals) makes statutory demands particularly powerful against debtor companies.
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Setting aside a statutory demand — for individuals — a debtor individual applies to the county court serving their insolvency district. Grounds for setting aside (Insolvency Rules 2016 r.10.5): (i) the debtor has a counterclaim, set-off, or cross-demand that equals or exceeds the statutory demand; (ii) the debt is disputed on substantial grounds; (iii) the creditor holds adequate security; or (iv) the court is satisfied on other grounds that the demand ought to be set aside. A solicitor prepares the application and supporting witness statement urgently within the 18-day window.
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Challenging a statutory demand served on a company — a company cannot formally "set aside" a statutory demand in the way an individual can, but it can: (i) apply to court for an injunction restraining the presentation of a winding-up petition, on the grounds that the underlying debt is genuinely disputed; or (ii) challenge the petition once presented. Acting before the petition is presented and before it is advertised in the London Gazette (which freezes bank accounts) is critical. A solicitor applies urgently for an injunction restraining presentation where the debt is disputed.
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Using a statutory demand as a creditor — a statutory demand is the most cost-effective first step against a debtor who has no genuine defence to the debt. It avoids the cost of court proceedings, generates significant pressure for payment, and — if not complied with — provides the foundation for a bankruptcy or winding-up petition. A solicitor prepares and serves the demand correctly (to avoid technical defects that would found a set-aside application) and manages the next steps if the demand is not met.
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Security and disputed debts — creditor considerations — a statutory demand should not be served where the creditor holds adequate security for the full amount of the debt (the security must be valued and deducted), or where the debt is genuinely disputed. Abuse of the statutory demand process — serving a demand for a debt known to be disputed — is an improper purpose and may result in the demand being set aside with costs against the creditor. A solicitor advises on whether a statutory demand is appropriate in the specific circumstances.
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Frequently Asked Questions
The debt on the statutory demand is disputed — does that mean I can have it set aside?
Yes — but the dispute must be on "substantial grounds." A mere assertion that the debt is disputed is not sufficient; the debtor must be able to demonstrate a genuine and meritorious basis for the dispute — a real prospect of success in defending a claim for the debt. The court considers whether the dispute raises questions that ought to be decided at a trial. A solicitor prepares a witness statement setting out the grounds of dispute in detail, with supporting evidence, to maximise the chances of a successful set-aside application.
A creditor has served a statutory demand on my company — what happens next if we do not pay?
If the company does not pay, compound the debt, or give security within 21 days, the creditor can present a winding-up petition at the court. The petition is served on the company, and then (unless the company applies to injunct its advertisement) advertised in the London Gazette. Advertisement triggers automatic freezing of the company's bank accounts — the bank will not honour payments from a current account once it is aware of the petition. The court then hears the petition at a hearing typically 8 weeks after presentation. A solicitor acts immediately on receipt of a statutory demand to protect the company.
I served a statutory demand but the debtor says the debt is disputed — should I still issue a petition?
You should take specialist advice before presenting a winding-up petition where the debtor claims the debt is disputed. The court will dismiss a winding-up petition where the underlying debt is genuinely disputed on substantial grounds — and may order costs against the petitioner. If the debtor applies for an injunction restraining the petition and succeeds, costs will be awarded against you. Where the dispute is a pretext or without merit, the solicitor advises on the strength of the debt claim, the likely response to a petition, and whether court proceedings to establish the debt first is a more appropriate route.
How is a statutory demand served — can it be sent by post?
Service of a statutory demand on an individual must be by personal service where reasonably practicable — leaving the demand with the debtor in person. Where personal service is not practicable (for example, the debtor is evading service), the court can approve substituted service — for example, service by first class post at the debtor's last known address, or by leaving it at the premises. There is no prescribed service method for a company statutory demand — service at the company's registered office is sufficient. A solicitor advises on valid service and manages substituted service applications where needed.
Can the debtor pay part of the statutory demand debt and have the rest set aside?
No — a statutory demand that has been partially paid but the remaining balance equals or exceeds the threshold (£5,000 for individuals, £750 for companies) remains effective, and the creditor can proceed to a petition on the unpaid balance. However, where partial payment reduces the balance below the threshold (£5,000 individual, £750 company), the statutory demand is no longer effective and no petition can be presented on the remaining balance. A solicitor advises on the most cost-effective response to a statutory demand — including whether a partial payment reduces the remaining balance below the relevant threshold.