What is a statutory demand and how should you respond if you receive one?

A statutory demand is typically issued by a creditor as a last request for payment before initiating a winding-up petition. 

Upon receiving a Statutory Demand, you must settle the owed amount within 21 days, set up a payment arrangement, or contest it within 18 days.


Statutory Demand: Definition and how does it impact company directors? 

A statutory demand is a written request for payment and constitutes a significant aspect of the debt recovery procedure. Frequently accompanied by a winding-up petition, it signifies your creditor’s resolve to retrieve their debt and should not be disregarded.

Failing to recover their funds through alternative methods such as reminders and informal negotiations, your creditor may find this as the only remaining recourse.

Upon receiving a statutory demand, prompt action is crucial. You have 21 days to settle the owed amount or establish a payment schedule, and only 18 days to contest it.


What are the criteria for proceeding with a statutory demand? 

The Insolvency Act, of 1986, outlines the criteria for issuing a statutory demand. These criteria include:

  • The debt must exceed £750 and must not be under dispute. However, under the Government’s temporary measures from 1 October 2021 to 31 March 2022, this threshold has increased to £10,000.
  • The creditor must demonstrate proper service of the demand. Additionally, your creditor must not possess security over assets equal to or surpassing the debt’s value.
  • Your creditor must not be in debt to you.
  • The demand must be issued using the appropriate forms.
  • The amount owed must not already be included in a payment arrangement.

The method of service is a critical aspect of the process. Incorrect service may provide grounds for setting it aside. Statutory demands are commonly served in person by the creditor, a bailiff, or another third party, but they can also be received through the post.


Unlocking the power of statutory demand

A statutory demand typically comes before a petition for winding-up. With only 21 days to reply, it strongly encourages the debtor company to discuss payment. Creditors often resort to them as a final option for substantial debts, and they do not need court involvement.

While the statutory demand threshold for companies is £750 (temporarily £10,000), creditors frequently employ them for larger sums. HMRC is recognised for utilising this approach because it circumvents court proceedings and enables swift debt recovery.


What to do after receiving a receipt of a statutory demand? 

Acting quickly provides the best opportunity to handle the situation effectively, and seeking professional advice on how to proceed will ensure you understand all your options.

Initially, ensure the demanded amount is accurate, the debt is not under dispute, and it has been served correctly. If full payment isn’t feasible, negotiating an affordable repayment plan may be possible.


What could happen if I don’t follow instructions?

In case you are just avoiding a statutory demand, it can also lead to severe consequences. Here’s a potential timeline of events if you fail to respond:

  • The petition is advertised in the Gazette, notifying your bank and other creditors of the situation. Also, the bank may freeze company bank accounts, while other creditors might initiate legal action.
  • Failure to make payment establishes the debt in legal terms, enabling your creditor to apply for a winding-up petition.
  • You have only seven days to take action before a winding-up order is granted by the court once a petition has been filed.

How can you save the company after getting the above timeframe?

If informal negotiations with your creditor have proven unsuccessful, you may qualify to enter a Company Voluntary Arrangement or CVA. 

This formal insolvency option can aid in settling this debt and other company liabilities without forfeiting control of day-to-day operations as a director.

This assumes there are no grounds to dispute the demand. A financial expert can identify any anomalies and take steps to set them aside if deemed appropriate. Setting aside involves applying to the court to have it cancelled.

The format and delivery method employed by your creditor are stipulated by the Insolvency Act, and errors can serve as grounds for setting aside. Statutory Demand Form 4.1 must be utilised for a limited company debtor. 

It must be delivered to the registered address by hand or registered post and signed for by an officer of the company.


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Seeking professional help? 

At every stage of this process, from the moment you receive a statutory demand, seeking professional assistance should be a priority. Events unfold rapidly, but we possess extensive experience in aiding company directors in this circumstance.

Vanguard Insolvency will promptly verify the validity of the demand and assist you in taking steps to set it aside or negotiate the most suitable arrangement for paying in manageable installments.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.