Statutory Demands: When and How to Use One

A statutory demand is a formal written demand for payment of an undisputed debt. If it is ignored, it can be used as the first step towards bankruptcy or winding up. Used properly, it often brings a quick result, because most debtors would rather pay than face insolvency proceedings. Used carelessly, it can leave the creditor on the receiving end of an injunction and an order for costs.

The rules come from the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. There are two distinct routes depending on whether the debtor is an individual or a company, and it is worth being clear about which one applies before anything is sent. One point to flag at the outset: individuals can apply to have a demand set aside, but companies cannot. A company that disputes the debt has to take a different route, and that difference shapes much of what follows.

Against an individual

Under section 268 of the Insolvency Act 1986, a statutory demand can be served on an individual for an unsecured debt above the bankruptcy threshold. The threshold in England and Wales is currently £5,000, but it is sensible to check the current figure on GOV.UK or legislation.gov.uk before proceeding. If the debtor fails to pay or reach an agreement within 21 days, the creditor can present a bankruptcy petition based on the debtor's apparent inability to pay.

The demand must be on the prescribed form and must set out the amount claimed, the consideration for the debt (what it is for), and how it has been calculated, including any interest. It must also give the debtor clear information about how to respond, including the right to apply to set the demand aside.

Against a company

Under section 123 of the Insolvency Act 1986, a company is deemed unable to pay its debts if a statutory demand for more than £750 has been served at its registered office and remains unpaid after 21 days. Once that deadline has passed, the demand opens the door to a winding-up petition.

The temporary protections introduced by the Corporate Insolvency and Governance Act 2020 have largely expired, and the pre-pandemic position on winding-up petitions has broadly returned. That said, the legislative picture in this area has changed more than once in recent years, and anyone acting on an older debt should check the current rules on legislation.gov.uk before serving a demand.

When a statutory demand is appropriate

A statutory demand is for debts that are clear, due, and not genuinely disputed. That is the single most important point. It is not a general debt-chasing letter. If there is any real argument about whether the money is owed, for example a dispute over the quality of work, a counterclaim, or a set-off, a statutory demand is the wrong tool. The ordinary route through the county court is better suited to that.

Typical situations where a demand works well include unpaid invoices that have been acknowledged, county court judgments that have not been satisfied, and loans where the borrower has simply stopped paying. Before serving one, it is often worth considering a final letter before action, a without-prejudice proposal, or mediation. Those steps cost little and, if the debt is less clear cut than it first appears, they can surface a dispute before the creditor commits to an insolvency route.

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How to serve it

Service on a company is straightforward: deliver the demand to the registered office shown at Companies House. Personal delivery is the safest option, and most creditors instruct a process server who will provide a certificate of service. Post to the registered office is permitted, but the creditor carries the evidential risk if receipt is later challenged.

Service on an individual is less forgiving. The rules expect the creditor to do what is reasonable to bring the demand to the debtor's attention. Personal service is the usual method. If the debtor cannot be found, substituted service (for example by post or through advertisement) may be acceptable, but only after genuine attempts at personal service, properly documented. Poor service is one of the most common reasons demands fall over later.

Proof of service matters. For personal service, a certificate of service from a process server setting out the date, time and place, and the person served, is the usual evidence. For substituted service, the creditor needs a clear record of the attempts made to serve personally, and why those attempts failed. Vague or inconsistent records are a gift to a debtor applying to set the demand aside.

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The 21-day window and setting aside

Once the demand has been served, the clock starts. The debtor has 21 days to pay, to secure the debt to the creditor's reasonable satisfaction, or to reach a compromise. If none of that happens, the creditor can move to the next stage.

For individuals, there is an earlier deadline running alongside this. A debtor who wants to challenge the demand must apply to the court to set it aside within 18 days of service. That application is made to the court that would deal with any later bankruptcy petition, using the prescribed form and a witness statement explaining the grounds. The court can set aside a statutory demand where:

• the debt is disputed on substantial grounds;
• the debtor has a counterclaim, set-off or cross-demand that equals or exceeds the debt;
• the debt is secured, or partly secured, and the creditor has not properly accounted for the security; or
• there is some other reason the demand ought to be set aside, such as a technical defect or abuse of process.

Companies cannot apply to set aside a statutory demand. A company that disputes the debt would usually apply for an injunction to restrain the creditor from presenting a winding-up petition. The courts take a firm line on this and will readily grant an injunction where the debt is genuinely in dispute, often with costs on the indemnity basis against the creditor.

The risks of getting it wrong

Issuing a statutory demand over a disputed debt is not a minor slip. A creditor who presses ahead with a winding-up petition on a disputed debt can expect the petition to be struck out and to pay the company's costs. Even the threat of presenting a petition may be treated as an abuse of process. For individuals, a set-aside application will usually carry a costs order against the creditor.

There is also a practical risk. A statutory demand against a company can cause reputational damage very quickly, particularly if word reaches the bank. If the underlying debt is shaky, that damage can turn into a claim for losses.

Practical points before sending one

• Check that the debt is clear, due, and undisputed.
• Confirm the amount is above the current statutory threshold (£5,000 for individuals, £750 for companies) and verify the position on legislation.gov.uk.
• Use the correct prescribed form for the type of debtor and complete every required field, including how interest has been calculated.
• Plan how you will serve it, instruct a process server where possible, and keep detailed proof of service.
• Consider a final letter before action or a without-prejudice approach first, particularly where the commercial relationship matters.
• Be ready to follow through with a petition if the debt remains unpaid, otherwise the demand loses its weight.

For many creditors, a properly drafted statutory demand produces payment without the need to go any further. For others, it is the start of a longer process. The key is honest analysis before service: if there is any doubt about whether the debt is genuinely undisputed, that question is better resolved through the county court than through an insolvency route, and better resolved before the demand goes out than after.

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