What is a statutory demand?
A statutory demand is a formal written demand (usually over £750 for companies or £5,000 for individuals) that (where the debt remains unpaid) acts as a precursor to bankruptcy or winding-up proceedings. It should be used when you are owed an undisputed debt and want to put serious pressure on the debtor to pay, as they have 21 days to either pay the debt or reach an agreement - failing which, you can petition for their bankruptcy (for individuals) or winding-up (for companies).
A statutory demand should not be used if there is a genuine dispute about the debt, as the court may set aside the demand and order you to pay costs.
There is a standard prescribed form for statutory demands in England and Wales :-
These forms must be used and filled out correctly as they are prescribed by the Insolvency Rules 2016.
If after 3 weeks from the date the statutory demand is served the debtor fails to make payment, the creditor then has grounds to issue a bankruptcy or winding up petition.
How we can help you
A statutory demand creates immediate tactical decisions for both sides. For a creditor, proceeding with insolvency action where the debt is genuinely disputed can backfire and lead to an adverse costs order. For a debtor, simply ignoring the demand can allow the creditor to move to the much more serious stage of bankruptcy or winding-up proceedings.Early advice also creates more options. A dispute may be identified and evidenced before proceedings escalate, or a commercial payment arrangement may be negotiated while both sides still have room to compromise.
If you are owed money
Before serving a statutory demand, we can advise whether it is the right strategy and whether there are any weaknesses which could allow the debtor to challenge it.
We can help you with:
Checking whether the debt is suitable for a statutory demand – including whether it is genuinely undisputed and whether the debtor has raised a potentially valid counterclaim, set-off or other defence.
Choosing between a statutory demand and a court claim – insolvency proceedings are not simply another form of debt recovery. We can advise which route gives you the best combination of pressure, cost and prospects of recovery.
Assessing whether recovery is commercially worthwhile – there may be little benefit in incurring further costs if the debtor has no assets or is already facing serious financial difficulties.
Drafting the statutory demand – ensuring the correct form is used and that the debt, interest and other relevant details are accurately stated.
Arranging and evidencing service – including instructing a process server where appropriate and ensuring there is evidence of the steps taken to bring the demand to the debtor's attention.
Responding to a challenge – if the debtor alleges that the debt is disputed, we can assess whether that challenge has substance and advise whether you should continue, negotiate or pursue the debt through ordinary court proceedings instead.
Negotiating payment – a statutory demand often results in proposals for instalments or a reduced settlement. We can negotiate the terms and document any agreement properly.
Taking the next step if payment is not made – where appropriate, we can advise on and conduct subsequent bankruptcy or winding-up proceedings.
The important decision is often not simply whether you can serve a statutory demand, but whether you should. We can assess that before you commit to a strategy which may become expensive if the debt is subsequently disputed.
If you have received a statutory demand
Do not assume that receiving a statutory demand means that bankruptcy or liquidation is inevitable. Equally, it should not be ignored. There are strict deadlines and your options will depend upon why the money is said to be due and whether the demand has been properly made.
We can urgently:
Review the demand and underlying debt – including the contract, invoices, correspondence and previous disputes between the parties.
Identify whether the debt can genuinely be disputed – for example because the amount is wrong, the creditor has breached the contract or there is a genuine defence to payment.
Identify a counterclaim or set-off – you may have your own claim against the creditor which materially changes the position.
Check the statutory demand itself – including whether the correct procedure and service requirements have been followed.
Apply to set aside a statutory demand against an individual – where there are proper grounds, we can prepare the evidence and make the necessary court application within the applicable deadline.
Challenge threatened company winding-up proceedings – the procedure is different for companies. If a debt is genuinely disputed, we can put the creditor on notice and, where necessary, seek court intervention to prevent inappropriate insolvency proceedings.
Negotiate before matters escalate – where the debt is due but immediate payment is difficult, we can seek a payment arrangement or settlement which avoids bankruptcy or winding-up proceedings.
Defend a bankruptcy or winding-up petition – if the creditor has already moved beyond the statutory demand stage, urgent action may still be possible.
Serving a statutory demand
There are a number of rules which creditors must obey in both issuing a statutory demand and serving it on the debtor. Failure to serve a statutory demand in compliance with these rules can render the statutory demand ineffective, allowing the debtor to either set aside the statutory demand or, in the event the debtor has been made bankrupt or wound up, they can make an application to annul the order, irrespective of whether the debt is legitimate or not.
Service on company
If the statutory demand is served on a limited company, it should be served at the registered office of the company. If the statutory demand is served on an unregistered company, it should be served by leaving the statutory demand at the company’s main place of business or delivering the statutory demand to a director/officer of the business. Upon service, the debtor has 21 days in which to apply to set aside the demand.
Service on an Individual
A creditor can only serve a statutory demand on a debtor where the debt is undisputed and equals or exceeds £5000.00. In serving a statutory demand the creditor ‘must take all steps to make sure that the statutory demand comes to the attention of the individual’. Upon service, the debtor has 18 days in which to apply to set aside the demand.
Ensuring you serve correctly
Usually a process server will be instructed to attend the debtors address to hand deliver the statutory demand upon the debtor. This is referred to as ‘personal service’. In the event this is not possible, substituted service may be effected by other means, such as first class post or insertion through a letterbox.
If the creditor is aware the debtor either resides or has links to more than one address, under insolvency rules they are obliged to make attendances at all addresses before making substituted service. Similarly, if the creditor has a telephone number or email address for the debtor and they have made no attempt to bring the statutory demand to the attention of the debtor, under insolvency rules they cannot be deemed to have made ‘every attempt’.
Setting a Statutory demand aside
Some debtors claim, when receiving a bankruptcy or winding up petition, that they di not receive the statutory demand can be tricky and depends heavily on how the demand was served.
The main substantive grounds for setting aside a statutory demand under English law are :-
The debt is genuinely disputed on substantial grounds - meaning there is a real triable issue about whether the debt exists or its amount
The debtor has a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt - this must be a genuine claim that could be pursued legally
The debt is secured (i.e. there is collateral against it) and the security is not worthless - a statutory demand should only be used for unsecured debts
The demand is defective in its content or form - for example, if it contains major errors, uses the wrong prescribed form, or wasn't properly served
For other material irregularity - this includes situations where serving the demand was an abuse of process or where there are other compelling circumstances that make it unjust for the demand to stand
The application to set aside must be made within 18 days of service of the statutory demand. The debtor needs to demonstrate at least one of these grounds and provide supporting evidence. If successful, the court may not only set aside the demand but also order the creditor to pay costs.
