A Guide to Statutory Demands for Debtors

If you have been served with a Statutory Demand from a creditor, you or your company may be at risk of being made bankrupt or wound up. This article in our insolvency series explains what to do if you wish to avoid the adverse consequences of a Statutory Demand.

It is very important not to ignore a Statutory Demand, and to seek legal advice as to the best action to take in your specific situation.

What is a Statutory Demand?

A Statutory Demand is a formal document which gives a debtor 21 days to make payment before a creditor is entitled to take further action to recover their debt.

A Statutory Demand does not itself commence Court proceedings; it is not issued at Court and requires no Court fee. However, it is still a formal legal document and is seen as a more aggressive way for a creditor to recover their debt from you, compared to a Letter Before Action, for example. 

What are my options?

Depending on your financial situation, several options may be available to you on receipt of a Statutory Demand.

If you accept that the debt is owed and have means to pay, the fastest method of resolution is to negotiate with the creditor to pay it, either in a lump sum or by instalments. This may ultimately result in a written Individual or Company Voluntary Arrangement (IVA/CVA) being drawn up and entered into by both parties.

However, if you have no means to pay and no assets for the debt to be enforced against then you should explain this to the creditor. They may consider writing off the debt if you can prove that they have nothing to gain by pursuing you.

If you do not accept that the debt is owed, then there are various actions you can take to contest the Statutory Demand.

How do I dispute a Statutory Demand?

If you are an individual, you can challenge the Statutory Demand. Challenging a Statutory Demand is a complex process which involves applying to the Court to have it set aside.

Individual debtors have 18 days from service of the Statutory Demand to apply to have it set aside, so time is of the essence, and you should seek legal advice as soon as you receive the Statutory Demand to have the best chance of challenging it.

If you are successful in setting aside the Statutory Demand, the creditor may be unable to continue bankruptcy proceedings against you. The grounds for applying are quite technical but include:

  • If you have a genuine dispute with the creditor
  • If the creditor also owes you money
  • If the Statutory Demand has not been served correctly
  • If you owe less than £5,000.00

If it is your company which has been served with a Statutory Demand, you must instead attempt to stop your creditors from winding up your company. There is no formal process to this, but action should be taken as soon as possible to avoid the creditor potentially issuing a winding up petition.

You should explain to the creditor why the debt is disputed and seek assurances that no winding up petitions will be started without formal notice.

If negotiations fail, you might consider applying to the Court for an injunction to prevent the creditor from winding up your company. This is a very complex process that should be conducted by specialist solicitors to maximise your company’s chances of avoiding being wound up.

What now?

If you find yourself in a dispute over debt, you should always seek professional advice to navigate you efficiently through its resolution.

For more information on the contents of this article or advice on the issues raised, please contact us to speak to a member of our Dispute Resolution team.

Bethany Fitzgerald
Solicitor, Dispute Resolution
View profileContact Us

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Latest Legal Insights

Best Law Firms 2024

Herrington Carmichael has once again been named in the Times Best Law Firms. We were first listed in 2023 and have once again made the Best Law Firms list for 2024.  

www.thetimes.co.uk/article/herrington-carmichael

Best Law Firm 2024