What is a Statutory Demand?

What does a Statutory Demand mean for your business?

A Statutory Demand is a formal, written request for a debt to be paid. Statutory demands can be sent to an individual or a company by someone you owe money to (known as a creditor).

In the case of a company, you can receive a Statutory Demand for a debt exceeding £750. The demand gives you 21 days to pay the amount due. If you do not settle the debt in that time, the creditor can issue a Winding Up Petition against your company which could lead to its closure.

Why has my company received a Statutory Demand?

If a creditor has made several attempts to recover a debt without success, they may decide to escalate the situation by issuing a Statutory Demand against your business. It’s often the case that a Statutory Demand is not the first form of legal action a creditor takes. However, it’s very serious, as it’s the first stage in a creditor initiating insolvency proceedings against you.  

Your company can be issued with a Statutory Demand if:

• There’s a clear invoice referring to the debt and the amount you owe
• You owe more than £750
• The date the payment was due has passed
• You do not dispute the debt
• The debt is not part of a payment arrangement that’s already in place
• The creditor does not have security over assets that cover the value of the debt

HMRC is one creditor which uses Statutory Demands to recover business tax arrears. However, any individual or company you owe money can issue this type of demand as long as they use the correct forms and serve it in the prescribed way.   

How do I challenge a Statutory Demand?

You can apply to have the Statutory Demand ‘set aside’ by the court within 18 days of the date it was served. If you challenge the demand, make sure that your grounds for doing so are genuine. If they’re not, you could be held in contempt of court. 

You can challenge a Statutory Demand on the following grounds:

• It was not issued correctly - the details are inaccurate, the creditor didn’t use official forms or serve the demand in the right way
• You owe the creditor less than £750
• You dispute the debt amount
• You have an ongoing dispute about the debt with the creditor
• The creditor also owes you money
• The debt is secured by business assets
• You have agreed to repay the debt in instalments and have not missed any payments 

If the court accepts your initial challenge, it will arrange a hearing to discuss the debt in more detail and suspend the payment deadline. If the court agrees to set the debt aside, it will cancel the demand and your creditor will be liable for the court costs. 

What are my options if I can’t afford to pay a Statutory Demand?

It’s often the case that a business is unable rather than unwilling to repay a creditor. If you do not dispute the debt but cannot pay it in full, you should contact the creditor to try to negotiate a payment plan. 

If you cannot negotiate a plan with them, you may be able to enter into a Company Voluntary Arrangement (CVA) with the help of an insolvency practitioner. This is a formal agreement with all your creditors, not just the creditor that issued the demand. If your creditors accept your CVA proposals, all legal action against you will cease and you will be able to repay your creditors via monthly instalments over a period of up to five years. 

What if I ignore a Statutory Demand?

Even if you dispute the debt, you should never ignore a Statutory Demand. If you do not pay the full amount, reach a repayment agreement or officially challenge the debt within the prescribed timeframe, the situation can escalate quickly. 

Non-payment of the demand confirms the existence of the debt in law. Your creditor can then issue you with a petition to wind up your company. At this point, you have a period of eight days to pay the debt or ‘lodge answers’ to the petition. If you fail to do so, the court can make a Winding Up Order that forces the company into Compulsory Liquidation. The company’s assets will be sold for the benefit of its creditors and it will cease to exist as a legal entity. 

Need advice?

If your company has received a Statutory Demand or you think it might do, you need to act quickly. Call our team of professional debt advisers for a free, same-day consultation. We will discuss your options with you and help you find the best way forward in your particular circumstances.