What a statutory demand is
It is a formal written demand for a liquidated sum, served at the company's registered office, requiring payment, security or a satisfactory compromise within 21 days. If the company does neither, it is treated as unable to pay its debts, which is the ground a creditor needs to present a winding-up petition.
The statutory minimum is £750, so relatively small sums can start the process. The demand itself does not appear on a credit file in the way a judgment does, but a resulting petition does.
The 21-day window
Twenty-one days from service to pay, secure or compound the debt. After that, the creditor can present a petition, and it must generally wait a further 21 days from presentation before the hearing is listed.
The demand should not simply be ignored in the hope the creditor goes away. Silence is usually read as an admission that the debt is due and unpaid.
Grounds for challenging it
A company cannot apply to set a statutory demand aside — that procedure applies to individuals. The company's route is to apply to the court to restrain presentation of a petition, and the grounds are well established.
- The debt is genuinely disputed on substantial grounds.
- The company has a counterclaim, cross-claim or right of set-off that equals or exceeds the demand.
- The sum demanded is not in fact due, or has already been paid.
- The demand was not properly served, or is defective on its face.
- The creditor holds security that covers the debt.
What evidence is needed
Correspondence about the underlying contract, invoices and credit notes, proof of payment, and a clear explanation of why the debt is disputed. A witness statement that simply says the debt is disputed carries little weight; the court wants to see the documents that show it.
Speed matters. An application is far more effective before a petition has been presented than after advertisements have gone out.
If the debt is owed
Where the debt is due and funds allow, paying it — with written confirmation that no petition will be presented — is usually cheaper than litigation. Where funds do not allow, a negotiated instalment agreement or a formal insolvency process should be considered before the 21 days expire.
Frequently asked questions
Is a statutory demand a county court judgment?
No. It is a formal demand, not a judgment, and it is not entered on the register of judgments. Its significance is that it can lead to a winding-up petition.
Can the company get it set aside?
Companies cannot apply to set aside a statutory demand. The equivalent protection is an application to restrain presentation of a winding-up petition, which is why the response has to be prepared quickly.
What happens if we do nothing?
After 21 days the creditor can present a petition. That brings advertisement, likely banking restrictions and a hearing, so the cost of responding early is almost always lower.
Sources and further reading
How we can help
If any of this applies to your company, the order in which you act matters. Our solicitors and accountants can review your position and set out the options quickly.
This guide is general information about the law in England and Wales and is not legal advice on your circumstances. Deadlines and procedural requirements change, so check the documents you have been served and take advice before acting.