Statutory Demands are powerful legal tools — but if handled incorrectly, they can lead to serious financial and legal consequences. Whether you're a creditor considering insolvency proceedings or a debtor facing a demand, getting the right legal advice is critical from the very beginning.
Our Commercial Litigation Team specialise in serving and defending statutory demands.
Our experienced legal team can help you:
- Creditors: Draft and issue legally compliant statutory demands and avoid costly errors.
- Debtors: Understand your rights, assess your options, and respond strategically to protect your position — including applying to set aside demands where appropriate.
What is a statutory demand?
A statutory demand is a formal written request issued by a creditor to a debtor. It’s primary purpose is to demonstrate that a debtor, whether an individual or a company, is unable to pay their debts, thereby establishing Insolvency. This inability to pay can then form the basis for initiating proceedings, such as a winding-up petition for companies or a bankruptcy petition for individuals. Importantly, a statutory demand is not a court-issued document; it is served directly by the creditor.
What is the purpose of a statutory demand?
The purpose of a statutory demand is to demonstrate the debtor’s inability to pay their debts, which is a key criterion for insolvency. However, it is crucial that the debt is genuinely undisputed on substantial grounds, as serving a statutory demand in such circumstances may be considered an abuse of process.
What to include in a statutory demand
The statutory demand must include specific information, such as the amount of the debt, how it arose, and the consequences of non-compliance. It must also explain the debtor’s rights, including the ability to apply to the court to set aside the demand (for individuals) or seek an injunction to prevent a winding-up petition (for companies). The demand must name a contact person for the debtor to communicate with regarding payment or settlement and provide their contact details.
For companies, a statutory demand can be served if the debt owed is at least £750. If the company fails to pay, secure or settle the debt within 21 days, and the debt is not disputed, the creditor may use this as evidence of the company’s inability to pay its debts. This can lead to a winding up petition under s122(1)f and 123(1)(a) of the Insolvency Act 1986. For individuals, the debt must exceed £5,000 to support a bankruptcy petition, although a statutory demand can be issued for a smaller amount. In addition, for individuals the debtor has 18 days to apply to the court to set aside the demand and 21 days to comply with it to avoid bankruptcy proceedings.
What are the rules of serving a statutory demand?
To serve a statutory demand in England and Wales, the following rules apply:
- Personal service
The creditor must take all reasonable steps to bring the statutory demand to the debtor’s attention. Ideally, this is done through personal service i.e. personally delivering the statutory demand. If personal service is achieved, the person serving the demand must provide a certificate of service.
- Substituted Service
If personal service is not appropriate, the creditor may use substituted service. This involves taking reasonable steps such as visiting the debtor’s residence or business, leaving notices, or using other methods like post or electronic communication. The creditor must document these efforts and provide evidence that the demand is likely to have come to the debtor’s attention.
- Certificate of Service
For both personal and substituted service, a certificate of service must be filed with the court if bankruptcy proceedings are initiated. This certificate must detail the steps taken to serve the demand and the date by which the demand is deemed to have been served.
- Timeframes
The debtor has 18 days from the date of service to set aside the demand and 21 days to comply with it. If the statutory demand is served outside jurisdiction, these rules are extended.
- Evidence of Service
The court will not allow a bankruptcy and winding up petition to proceed unless it is satisfied that the statutory demand was properly served. Failure to meet this requirement can result in a dismissal of the petition.
Importance of legal advice
Statutory demands are powerful tools in debt recovery and play a significant role in insolvency proceedings. However, their serious legal implications mean that both creditors and debtors must proceed with caution.
For creditors, it is essential to ensure that any statutory demand issued complies fully with legal requirements. A misstep in the early stages can lead to delays, increased costs, or even the demand being set aside with an order for adverse costs. For debtors, receiving a statutory demand is not something to take lightly. It is critical to seek prompt legal advice to assess available options and possible grounds for challenging the demand.
Mishandling a statutory demand—whether through improper issuance or failure to respond appropriately—can have costly and far-reaching consequences for both parties. As such, understanding the legal framework governing statutory demands is crucial. It helps maintain transparency and fairness in the insolvency process, and ensures that the rights and obligations of all parties are respected from the outset.
The information contained within this article is provided for informational purposes only and should not be construed as legal advice on any matter.
Do not act or refrain from acting upon this information without seeking professional legal advice: you are strongly advised to obtain specific, personal legal advice about your case or matter and not to rely on the information or comments in this article.
