What can you do if you receive a statutory demand? Julie Hunter, a senior solicitor specialising in commercial litigation at Stephensons, explains what a statutory demand is and how one is served.

What is a statutory demand?

A statutory demand is a formal demand for payment of an undisputed debt issued in accordance with the Insolvency Act 1986 (IA86). These formal demands may be served on:

• an individual debtor under section 268 of IA86, as a prerequisite to the presentation by a creditor (someone who’s owed money) of a bankruptcy petition
• a company under section 123 of IA86, as a precursor to a winding up petition

In either case, there is no need for there to have been a judgment awarded against the debtor, but the debt must be undisputed.

Individual debtor

Where an individual debtor is indebted to a creditor for a sum exceeding the bankruptcy financial level, currently £5,000, the creditor may serve a formal statutory demand requiring payment, or for the debt to be compounded for or secured, within 21 days of the date of service of the demand. In default, the creditor may present a bankruptcy petition against the debtor.

Company debtor

In the case of a company debtor, there is no formal requirement for a statutory demand to be served before the presentation of a winding up petition, but the receipt by a debtor of such a demand, warning of impending insolvency proceedings if the debt is not paid, will warn the debtor of the likelihood of such action and allow time to make arrangements with the creditor for repayment of the debt. Note that the minimum value of a debt claimed on a statutory demand against a company remains at the very low level of £750.

The statutory demand has long been a useful tool in the armoury of a debt recovery lawyer, but given the serious consequences of the process, courts do not condone their use merely for debt recovery purposes. And whilst it is not obligatory to present a petition for the debtor to be declared insolvent, it is regarded as an abuse of process to serve a statutory demand with no intention of subsequently presenting a petition.  

How do you serve a statutory demand?

A statutory demand must be brought to the attention of the debtor and there are various ways of doing this:

• The safest method of ensuring this condition is met is to personally serve the demand on the debtor, by handing it to the individual, or in the case of a company, leaving it at the registered office address.
• If the debtor’s current residential address is known, it can be posted by mail. However, this is not recommended given the real possibility it will not reach the debtor’s attention, and the uncertainty created by this method leaves open the likelihood of a debtor simply denying the demand was ever received.
• More commonly, demands are served by email to an address known to be regularly used by the debtor. It is helpful in these cases to also send a copy by post. Once acknowledged, the debtor is unlikely to have an argument that the demand was not received.

In the case of an individual debtor, it’s important to be certain that service of the demand has been made as the court has to be satisfied that the statutory demand has been brought to the debtor’s attention before any bankruptcy petition can be presented.

Evidence of service, in the form of a Witness Statement verified by a Statement of Truth, must be filed at court at the time the bankruptcy petition is filed and the court will not agree to issue a petition if it is not satisfied of service of the demand.

What can you do if you receive a statutory demand?

In general, a debtor receiving a statutory demand needs to act swiftly in responding to it, to avoid the prospect of insolvency.

Individuals

An individual served with a statutory demand will have 18 days from the date of service in which to apply to the court to ‘set aside’ the demand if the debtor can demonstrate that the debt:

• has already been paid
• is disputed
• can be paid within a short time or compounded for or secured

Any such application must be made supported by written evidence proving either there is a valid dispute, or the debtor does or will have the means to pay within a reasonable period of time. In the case of the latter, these applications are generally accompanied by proposals for the payment of the debt by instalments.

On hearing an application to set aside a statutory demand, if the court is satisfied there is a genuine dispute it will set aside the demand. The creditor cannot then proceed to present a bankruptcy petition.

Where a statutory demand has been based on an unsatisfied court judgment, the debtor must make a concurrent application to set aside that judgment. If the judgment remains in force the insolvency court will not look beyond that judgment and will refuse any application to set aside the statutory demand, as the validity of the debt has already been determined by the court awarding the judgment.

Companies

There is no corresponding provision for a company served with a statutory demand, because it is not a prerequisite for the presentation of a winding up petition. Instead, a company served with a statutory demand may apply for an injunction to restrain the presentation of a petition or may merely notify the creditor that the debt is disputed and any petition will be opposed.

Creditors will find that serving a statutory demand is an effective method of recovering payment of a debt but must be aware that this is a draconian measure and ought not to be abused.

Where can I see insolvency notices in The Gazette?

You can view all corporate and personal insolvency notices, including statutory demands, on The Gazette website.

The Gazette also provides a data service which gives access to official intelligence on all UK businesses, corporate and personal insolvencies. Benefits of The Gazette’s data service include:

• Bespoke reports - tailored around your specific business
• Geo-targeted editions - available for specific geographical targeting (National, London, Belfast, Edinburgh)
• Custom filters - specific custom attributes (company number, notice type, key terms)
• Data at regular intervals - delivered at a rate to match your business needs (daily, weekly, monthly)

For more information on The Gazette’s data service, contact the team on 01603 985949 or email data@thegazette.co.uk.

About the author

Julie Hunter is a senior associate solicitor specialising in commercial litigation at Stephensons.

See also

How do you know if your company is insolvent?

What restrictions are there during bankruptcy?

Place an insolvency notice

Gazette Firsts: The history of The Gazette and insolvency notices

Find out more

Insolvency Act 1986 (Legislation)

Make and serve a statutory demand, or challenge one (GOV.UK)

Image: Getty Images

Publication date: 23 April 2021

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.