Kevin McLeod
Written By Kevin McLeod
Licensed Insolvency Practitioner
July 13th, 2023

What does it mean if a statutory demand has been issued against your company and what are the possible consequences? In this guide, we’ll take a detailed look at everything from the statutory demand process to the steps you can take to protect your business. 

What is a Statutory Demand?

A statutory demand is a formal way of asking for a debt to be paid. If a creditor has made repeated requests for payment from a company but without any success, it may decide to issue a statutory demand against the business. It will set out the amount that must be paid in writing and explain the further steps that can be taken against the company if the payment is not made within a specific timeframe.  

A statutory demand can be issued against a company for an undisputed debt of over £750. In the case of a limited company, it is often the first step a creditor will take before issuing a winding up petition against the business. Therefore, it should be taken extremely seriously. Failure to pay the statutory demand or apply to have it set aside and your company could be forced into liquidation and cease to exist as a legal entity.

When Can a Company be Issued With a Statutory Demand?

A statutory demand will cost a creditor between £200-£500 to issue via a solicitor, so it’s something that will only be used as a last resort by a creditor that is intent on recovering its money and has been unsuccessful doing so by other means. 

It’s often the case, when used against a company, that a statutory demand will not be the first form of legal action the creditor chooses to take. A county court summons is also commonly used, with a county court judgement (CCJ) being made against the business if the debt remains unpaid. 

Once a statutory demand has been issued against the company, it has just 21 days to pay the amount in full or arrange a payment plan with the creditor to repay the debt in instalments. If the company wishes to challenge the statutory demand, it has 18 days to do so. If you do not pay or challenge the demand within 21 days of it being served, then the creditor can make an application to the courts for a winding up petition to be issued against your business. 

For a statutory demand to be issued against a company, certain criteria must be met. That includes:

  • The debt must be for more than £750 and not in dispute
  • The creditor must not owe you money
  • The demand must be made using the correct forms and the creditor must be able to prove it has been served correctly
  • The money owing must not be part of a payment arrangement that is already in place
  • Your creditor must not have security over assets that cover or exceed the value of the debt  

How to Serve a Statutory Demand?

There are set ways a statutory demand must be delivered to a company by a creditor, known as ‘serving’. This is a crucial part of the process. If the statutory demand is not served in the prescribed way, then you can apply to have it set aside.  

Form SD1 must be served on a company by:

  • Leaving it at the registered office of the company that owes the debt (or its main place of business if it does not have a registered office)
  • Handing it to a company director, company secretary, manager or principal officer
  • Getting a ‘process server’ (debt collector) to serve it on the creditor’s behalf – that can be arranged by a solicitor

A statutory demand can only be sent by registered post or put through a letterbox if it cannot be delivered in person. The creditor must also keep a copy of the demand as well as evidence that confirms:

  • The time and date it was served – such as confirmation from a process server or a receipt of postage
  • The debtor has received the demand – a friend or colleague can provide an affidavit if the demand is served in person   

What Should you do if you Receive a Statutory Demand?

If your company is served a statutory demand by a creditor, you must act quickly to give yourself the best chance of dealing with the situation successfully and limiting the impact on the company. The first thing you should do is to check that all of the details on the demand are accurate and that it has been served in the correct way, as described above. If you do not dispute the debt then you should pay the debt in full to remove the risk of more serious action being taken against you. If you cannot afford to repay the debt in full, contact the creditor to try and negotiate an acceptable payment plan.

If an informal agreement with your creditor cannot be reached, you may be eligible to enter a formal insolvency procedure called a company voluntary arrangement (CVA). You will have to appoint an insolvency practitioner to help you draw up proposals that can be presented to your creditors as a whole (not just the creditor that issued the statutory demand). If the creditors agree to the proposals, you will make a monthly payment for a period of up to five years to repay the company’s debts while the business continues to trade.  

What Happens if you Ignore a Statutory Demand?

If you do not pay the debt in full within 21 days, reach an agreement to repay the debt over time or apply to have the demand set aside within 18 days, there can be very serious consequences for your business. The likely course of events is as follows: 

  • The non-payment of the statutory demand allows the creditor to apply to the court for a winding up petition to be issued against your company.
  • Once you have received the petition, you will have just seven business days to act before the petition is advertised publicly in the London Gazette.
  • The advertisement will be seen by other creditors of the company who may choose to join the same petition to make a claim for their own debts. 
  • The advertisement will be seen by the banks and the business’s bank accounts will be frozen, making it extremely difficult to trade.   
  • Seven business days after the petition has been advertised in the Gazette, the court can make a winding up order to commence the liquidation.
  • The assets of the business will be valued and sold for the benefit of its creditors and the business will be struck off the Companies House register. 

What are the Grounds for Setting Aside a Statutory Demand?

There are certain grounds under which you can apply to have a statutory demand ‘set aside’ by the court, and if you are successful, it will be cancelled. That includes:

  • You have a genuine and ongoing dispute with the creditor about the debt
  • The demand has not been issued correctly – the official forms must be used, the demand must be served in the right way and all the details (including the debt amount) must be accurate
  • You owe the creditor less than £750
  • The creditor owes you money
  • The debt included in the demand is secured by business assets
  • You are repaying the debt in instalments and have not missed any payments

If you do plan to challenge a statutory demand, you must do so using the prescribed forms. If your challenge is accepted by the court, a hearing will be held to discuss the debt and the payment deadline will be suspended until the court has made a decision. If you are successful in having the debt set aside, the demand will be cancelled and your creditor will be liable for the court costs. 

Will a Statutory Demand Affect my Company’s Credit Record?

A statutory demand in itself will not be recorded on your credit file. If you pay the debt in full or reach an agreement to repay the creditor in instalments, your company’s ability to access finance will not be affected. However, if you fail to deal with the statutory demand and a winding up petition is subsequently issued against you, it will dramatically affect the company’s credit score and you will find it very difficult to access credit lines of any sort.   

Has a Statutory Demand Been Issued Against Your Company?

If you have been issued with a statutory demand by a creditor and you don’t have the means to pay the full amount upfront, contact our team of licensed insolvency practitioners immediately. We will provide a free, no-obligation initial consultation to help you understand the options available to you to prevent the forced liquidation of your business.