What is a Statutory Demand?
A statutory demand is a formal written demand for payment of a debt within 21 days. The purpose of the Statutory Demand is to prove that the company is insolvent and unable to pay its debts.
If you or your company are owed money and your debtor is failing to make payments, you can send a statutory demand as a formal warning to make payment. You must only use this process if the debt is undisputed.
Payment Terms
If your debtor does not pay within the 21 days and either fails to apply to have it set aside (where the debtor is an individual) or fails to apply to restrain you from presenting a winding-up petition (where the debtor is a company), you can use the statutory demand as grounds to present a petition to the court for a bankruptcy order or winding-up order.
A statutory demand can be used to support such applications because non-payment of a statutory demand within 21 days may be deemed evidence of your debtor’s inability to pay their debts. Such evidence is provided if the sum demanded (or several sums if more than one demand has been served) exceeds £750 for company debtors or equals or exceeds £5,000 for individual debtors.
Defence
If your debtor is an individual, they can apply to set aside the statutory demand on the following grounds and they must do this within 18 days of receiving the demand:
- The debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand.
- The debt is disputed on grounds which appear to the court to be substantial.
- It appears that the creditor holds some security in relation to the debt claimed by the demand, and the court is satisfied that the value of the security equals or exceeds the full amount of the debt.
- The court is satisfied, on other grounds that the demand ought to be set aside.
There is no formal procedure for applying to set aside a statutory demand that has been served on a company. A company wishing to challenge a statutory demand can only do so either:
- By applying for an injunction to restrain presentation or giving notice of a winding-up petition on the basis of the demand
- By opposing your application for a winding-up order against the company, if you present a winding-up petition on the basis of the demand.
Covid Restrictions
During COVID-19 restrictions were put in place in the Corporate Insolvency and Governance Act 2020 on presenting winding-up petitions. However, for petitions issued between 1 October 2021 and 31 March 2022, the previous restrictions have been partially lifted.
You must be aware that restrictions on winding-up petitions remain in place for debt under £10,000 and for debt in respect of relevant business tenancies that is unpaid by reason of a financial effect of coronavirus. For other debt, there is a new threshold of £10,000 for winding-up petitions that takes precedence over the £750 threshold for statutory demands.
If you would like advice in relation to whether a statutory demand is the right next step for you or your company, please contact us.
More information on Debt Collection and Recovery
Last reviewed on 11/07/23 by Maariyah Yacub who is a Solicitor