Statutory Demand Guide [2024]

What is a Statutory Demand?

A statutory demand is a formal written demand for payment for a genuine and valid debt that it owed to a creditor.  Payment must be made within 21 days.

The creditor can be anyone who is owed money – a company or an individual is the most common creditor.  But any legal entity (for example an LLP) can serve a valid statutory demand on a debtor if it is owed money.

In the absence of payment of the debt within the permitted time periods – the creditor can then

• issue a winding up petition against a company for a debt over £750 (section 123(1)(a), Insolvency Act 1986) 
• issue a bankruptcy petition against an individual for a debt over £5,000 (section 267(4), Insolvency Act 1986).

However, the purpose of a statutory demand is served by a creditor is to get paid.  So whichever side one is on (a debtor or a creditor), the key is to see whether and how the situation can be resolved.  Whilst it is always possible for a creditor to wind up a non-paying company or bankrupt a non-paying individual – that will rarely result in any payment at all – and often incur legal fees in the process which cannot be recovered.

The main legislation dealing with Statutory Demands is

• Rule 11 of the Practice Direction on Insolvency Proceedings
• Part 10 of the Insolvency Rules (England & Wales) 2016
• section 123(1)(a), Insolvency Act 1986

How we can help

At Francis Wilks & Jones, our specialist statutory demand team is here to help with any type of debt recovery or defence enquiry.  Not only do we have expert knowledge of the law, we also have thousands of hours’ experience dealing with all types of statutory demand enquiries and cases. We advise clients who wish to use statutory demands as a form of debt recovery as well as helping defend clients who have received statutory demands.  Our all-round expertise in this area means that whatever your statutory demand enquiry is – we have the answers.

We hope that you find the rest of this Statutory Demand Guide useful.  But if you have any questions whatsoever, don’t hesitate to contact one of our friendly team today.

When do you use a statutory demand?

A statutory demand is most often used to try and recover money which is owed to a creditor from a debtor.

• It is firstly important to check that the debt you are chasing is less than 6 years old.  Otherwise you might be prohibited from collecting it on what are called “limitation grounds”.  Limitation is quite a complicated area of the law – but our friendly team can help if you have any concerns about the age of the debt.
• In terms of the debt amount – whilst there is technically no lower limit to the value of the debt you can chase, you need to always remember that for an individual, the limit for the next stage (a bankruptcy petition) is £5,000 and for a company (a winding up petition), £750. To understand more about how the debt value can affect your choice of legal action – read our heading “Statutory Demand Minimum Amount” further in this Guide.
• You must be sure that the debt is not disputed. As a rule of thumb, statutory demands should only be used when a debt is not subject to a genuine dispute.  Otherwise the debtor can apply to set aside the statutory demand.

Make sure you can justify the exact amount you are claiming – it needs to be a debt which has fallen due and “crystallised”.

Do not use statutory demands for damages-based claims which you cannot put an exact figure on. Otherwise they, are likely to fail or be set aside by the court.

How we can help

Knowing when to use a statutory demand is critical in any claim. We can help you make an informed decision and avoid common mistakes which people make trying to deal with demands themselves. Our expert team are happy to discuss your claim in a friendly first call to see if it is something we can help you with.

Statutory demand minimum amount

Understanding the value for which a statutory demand can be issued is important to understand, particularly for a creditor thinking of using a statutory demand for debt recovery purposes.

There is no statutory demand minimum amount

Interestingly, there is no minimum amount for a statutory demand – so technically a creditor could draft and serve one for a very low amount indeed.

However, serving a statutory demand for too low an amount is likely to be counterproductive for a number of reasons:

• Unless you try and draft the statutory demand yourself and arrange to serve the statutory demand yourself, then the likelihood is that you will incur legal fees for drafting assistance and require a process server to formally serve it. Whilst you don’t have to instruct experts, our strong advice is that you do – otherwise you could find yourself on the wrong end of a court set aside application if you serve an incorrect document or risk having the demand thrown out if it is not served properly. Either way you might end up paying the other side’s legal costs. 
• The wider point therefore is that is wont be cost effective to proceed with a statutory demand for an amount lower than the cost of the legal fees and process server costs to make sure it is properly drafted and served.  We are happy to discuss this aspect with you and work out if your debt is suitable for a statutory demand process or might actually be better chased through the county court.

• Individual statutory demands. If a statutory demand is served against an individual and the statutory demand debt is still not paid, then the next step which can be taken is to issue a bankruptcy petition or bankruptcy order. 
  • at present, the bankruptcy petition minimum amount is £5,000 for an individual (section 267(4), Insolvency Act 1986);
  • therefore, creditors using statutory demands against individuals normally do so on debts over £5,000 as otherwise a statutory demand debtor who knows the rules knows that if they fail to pay a statutory demand for less than £5,000 it doesn’t matter as the creditor cannot follow through with a bankruptcy petition.

• Company statutory demand. With respect to a company, the position is better than with individual statutory demands.
  •  if a statutory demand is served against a company and the statutory demand debt is still not paid, then the next step which can be taken is to issue a winding up petition or winding up order;
  • at present, the winding up petition minimum amount is £750 for a company and therefore nice and low (section 123(1)(a), Insolvency Act 1986). So any debt of £750 or above against a company means that an unanswered statutory demand leaves the door open for a winding up petition.  So it carries more threat.

Summary

In summary, whilst there is no statutory demand minimum debt level, normally creditors will use them when

• the statutory demand level is over £750 for a company; and
• over £5,000 for an individual. 

However, there is nothing stopping a creditor serving a statutory demand for less than £5,000 on an individual, as the threat of the statutory demand may prompt payment, especially if the debtor does not understand the bankruptcy petition minimum fee limits.  The same is true for companies – you could issue one for less than £750 and hope the debtor pays up.

Service of a statutory demand can often still lead to payment and can be far quicker than proceeding by way of a small claim case. As the costs of the statutory demand process are relatively low, it can make sense to proceed with one first to see if the debt is paid rather than proceed in the small claims court.

How we can help

Our experience will enable you to make the right choice as to what type of legal remedy to use, whether it is a statutory demand or something. Understanding your options if the statutory demand is unsuccessful if also very important. We can give you that rounded view – which will help you get to the right solution and avoid common mistakes.

Statutory demand time limits

A proper understanding of statutory demand time limits can be vital. Once the permitted time periods after service of the statutory demand have passed, the next step can be a bankruptcy petition against an individual or a winding up petition against a company.

Our expert team is well versed in dealing with statutory demands and the importance of adhering to the right time limits Let our team of experts help.

The 21 day rule

A recipient of a statutory demand has 3 weeks (21 days) from the date of service to pay the debt. Failure to do so could lead to further action such as

• For a company – a winding up petition might be issued if £750 or over of the debt remains unpaid (section 123(1)(a), Insolvency Act 1986) 
• For an individual – a bankruptcy petition might be issued if £5,000 or more of the debt remains unpaid (section 267(4), Insolvency Act 1986).

Disputed statutory demands – what can be done?

If a statutory demand is disputed, then the situation is generally as follows

• For individuals – they can make an application to set aside the statutory demand within 18 days of service (Rule 10.4 of The Insolvency Rules 2016).
• For companies – they can apply for an injunction to restrain (stop) presentation of a winding up petition, so long as this is done within the 21 days from date of service.

Our expert statutory demand defence team can help with any type of disputed statutory demand. To learn more about this subject matter, read other key sections of this Guide on disputed statutory demands and statutory demand set aside.

When does the 21 days start to run?

It is important to understand when the 21day period starts. As a general rule, the 21day period starts from the following:

• If served by post or DX it is deemed served on the second day after the day of despatch (or if that is not a business day, on the next business day after that day).
• If it is advertised, it is deemed served on the date the advertisement appeared.
• If it is served personally, or by fax or email or being left at a specified place before 14.30 on a business day, it is deemed served on that day.
• If it is served after 16.30 on a business day, it is deemed served the next business day.

The above rules are pursuant to the Civil Procedure Rules 6.26 which relate to deemed service of documents including a statutory demand.

How we can help

Understanding the different time periods and when they run from and when they expire is extremely important when dealing with statutory demands – especially if you are on the receiving end of one. Make a mistake and it can result in a bankruptcy or widing up petition.

Our team can take the stress out of this situation and find the right solution for you.

Statutory demand procedure

Before starting off the statutory demand process – a creditor should try to avoid making common mistakes. Our brilliant team can guide you through and make sure you maximise your chances of success.

Whilst you do not have to take formal legal advice and could try to deal with the statutory demand yourself, it is a risk. 

• There are various different forms and very specific criteria which need to be completed.
• And in addition to this, the document needs to be properly served under the court rules.
• Failure to do either of these properly could result in your statutory demand being struck out by the court at a set aside hearing and you having to pay legal costs of the debtor.  We can take all this risk away.  As a minimum, have a chat to one of our friendly statutory demand team today.

The statutory demand process – an overview

There are a number of key steps in the statutory demand process

• ensure that there is a genuine debt due and owing from the debtor individual or company. The validity of that debt is important to establish. A statutory demand should only ever be used in circumstances where the debt is undisputed;
• choose the right form of statutory demand. There are different statutory demand forms for an individual and a company and it is important that the correct statutory demand form is completed and completed properly. Failure to do so, may lead to issues over the statutory demand validity and it can be struck out at court and set aside;
• once the statutory demand is properly completed, it has to be signed properly;
• then the statutory demand has to be served properly. All statutory demands must be served in accordance with the rules governing service. We would always recommend the use of a process server to serve the statutory demand to ensure adherence to this part of the statutory demand procedure. Proper personal service of the statutory demand on either a statutory demand individual or a statutory demand company is always recommended.

What happens once the statutory demand is validly served

Once service has been properly carried out, the 21day statutory demand period starts to run. Much then depends upon the response of the debtor at this stage but normally one of the following will then happen:

• they will ask to make payment of the statutory demand debt. This is the preferred choice and following payment, the statutory demand simply falls away;
• they will offer part payment of the statutory demand debt. Often an instalment basis can be agreed for statutory demand repayment and an agreement can be reached effectively putting the statutory demand on hold until payment is made of the entire statutory demand balance;
• no payment is made. If this is the case then the creditor can proceed with a winding up petition against the company or a bankruptcy petition against an individual, so long as the debt owing is high enough to allow the next stage to take place.

How we can help

Understanding the statutory demand process from start to finish is always important before you take the first step. Just issuing and serving a statutory demand is just the first step – knowing what can potentially happen next and the possible cost consequences is very important. The same is true for anyone who has received a statutory demand – knowing what options you have and the timescales involved can make all the difference.

Let our team talk you through this – so you make the best possible decision whatever situation you are dealing with.

Setting aside a statutory demand

Setting aside a statutory demand is an option which is open to individuals who have been served with a statutory demand.

If you are a company which has been served with a statutory demand – the set aside procedure is not available to you – the company has to apply for an injunction (a type of court order) to prevent the creditor from taking the next step of issuing a winding up petition. Company injunctions are covered in the section of this Guide called “statutory demands and company injunctions”

How does a person set aside a statutory demand?

An application to set aside a statutory demand must be made in accordance with section 10.4 of the Insolvency Rules 2016.  The Set aside rules are also set out in the Insolvency Proceedings Practice Direction Rule 11.4.

The key elements to note are as follows

• The application must be made within 18 days from the date of the service of the statutory demand (section 10.4 (1) of the Insolvency Rules 2016).

• The application must
  • identify the debtor;
  • state that the application is for an order that the statutory demand be set aside;
  • state the date of the statutory demand; and
  • be dated and authenticated by the debtor, or by a person authorised to act on the debtor’s behalf (section 10.4 (2) of the Insolvency Rules 2016).

• The application must be made to the court or hearing centre where the debtor is resident in England and Wales (section 10.4.8 of the Insolvency Rules 2016).

On what grounds can a statutory demand be set aside?

Paragraph 10.5 (5) of the Insolvency Rules 2016 states that the court may grant the application if—

• 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 either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
• the court is satisfied, on other grounds, that the demand ought to be set aside (eg it has not been properly served or contains some other material technical mistake in it).

At Francis Wilks & Jones, our brilliant team will be able to review whether there are any genuine grounds to set aside a statutory demand, and if so, how best to deploy them.

Drafting the witness evidence in support of an application to set aside the statutory demand

In order to have the best chances of success in the application to set aside the statutory demand, you need a properly drafted witness statement clearly setting out the grounds by which the statutory demand should be set aside. We would strongly recommend you take legal advice preparing this document as it is probably the most important part of the entire process.  If you get the evidence right, the court is far more likely to set aside the statutory demand.  Get it wrong and the application wont even make it past the initial review by the Judge. 

Rule 10.4 (6) of the Insolvency Rules 2016 sets out the form of the witness statement which needs to support the application.  It states

The debtor’s application must be accompanied by a copy of the statutory demand, where it is in the debtor’s possession, and supported by a witness statement containing the following

• the date on which the debtor became aware of the statutory demand;
• the grounds on which the debtor claims that it should be set aside; and
• any evidence in support of the application.

For further information on rules relating to the format of witness statements, these are governed by Part 32 of the Civil procedure Rules

Initial review by the judge

The initial application will be put in front of a judge to see whether it merits having a full court hearing. A badly completed application will mean that it won’t even get past the first hurdle – in which case the creditor can continue with further enforcement action – most commonly a bankruptcy petition.

Paragraph 10.5 (1) of the Insolvency Rules 2016 states that on receipt of an application to set aside a statutory demand, the court may, if satisfied that no sufficient cause is shown for it, dismiss it without giving notice of the application to the creditor. If this happens, Paragraph 10.5 (2) of the Insolvency Rules 2016 states that time for complying with the statutory demand runs again from the date the application is dismissed under paragraph (1).

 The Judge gives the set aside application authority to proceed

If the judge does agree that there are sufficient grounds to proceed, the case will be listed for a hearing.

Paragraph 10.5 (3) of the Insolvency Rules 2016 states that unless the application is dismissed under paragraph (1), the court must fix a venue for it to be heard, and must give at least five business days’ notice to

• the debtor or, if the debtor’s application was made by a solicitor acting for the debtor, to the solicitor;
• the creditor; and
• whoever is named in the statutory demand as the person with whom the debtor may communicate about the demand (or the first such if more than one).

The set aside hearing at court

At the set aside hearing, the judge will review the witness statement evidence filed by the debtor and make a decision as to whether the statutory demand should be set aside or not. For example,

• if the debtor can show that the debt is subject to a genuine and substantial dispute then court will order setting aside the statutory demand;
• if the debtor shows that there is a valid cross claim which extinguishes the amount of the creditor’s claim, the statutory demand will also be set aside.   

On the hearing of the application, the court must consider the evidence then available to it, and may either determine the application or adjourn it, giving such directions as it thinks appropriate Paragraph 10.5 (4) of the Insolvency Rules 2016.

We would strongly recommend that you take legal advice and have legal representation at a statutory demand set aside application. We are happy to assist with this and can arrange attendance at the hearing by a barrister or local agent, often at short notice.

What will the court order setting aside the Judgment say?

Paragraph 10.5 (6) of the Insolvency Rules 2016 states that an order setting aside a statutory demand must contain

• identification details for the debtor – Rule 10.5 (6)(a) of the Insolvency Rules 2016
• the date of the hearing of the application – Rule 10.5 (6)(b) of the Insolvency Rules 2016
• the date of the statutory demand – Rule 10.5 (6)(c) of the Insolvency Rules 2016
• an order that the statutory demand be set aside – Rule 10.5 (6)(d) of the Insolvency Rules 2016
• details of any further order in the matter – Rule 10.5 (6)(e) of the Insolvency Rules 2016; and
• the date of the order – Rule 10.5 (6)(f) of the Insolvency Rules 2016.

What happens if the creditor already holds security in relation to the debt?

Paragraph 10.5 (7) of the Insolvency Rules 2016 states that where the creditor holds some security in relation to the debt and has complied with rule 10.1(9) but the court is satisfied that the statutory demand undervalues the security, the court may order the creditor to amend the demand (but without prejudice to the creditor’s right to present a bankruptcy petition by reference to the original demand as so amended).

What happens if the court dismisses the application to set aside the statutory demand?

Paragraph 10.5 (8) of the Insolvency Rules 2016 states that if the court dismisses the application, it must make an order authorising the creditor to present a bankruptcy petition either as soon as reasonably practicable, or on or after a date specified in the order.

How we can help

If you have been served with a statutory demand – we can help you quickly work out if there are valid grounds to apply to have it set aside. If there are – we can use our experience to persuade the creditor to withdrawn the statutory demand without the need for a formal application to set aside the statutory demand. But if they wont back down – our expert team can help draft the application and witness statement evidence in support – and arrange attendance at court – and maximise your chances of getting the demand dismissed and the threat of a bankruptcy petition removed

Equally – if you have served a statutory demand and are served with an application to set aside – our team can review the merits of the evidence and draft any evidence in response – and then help with the court hearing itself.

Statutory demands and company injunctions

If a company has been served with a statutory demand which it disputes  – it might apply for an urgent injunction to prevent the issuing of a winding up petition. Our brilliant team can help on these urgent applications, whether you are a company which needs to obtain one, or whether you are the creditor who has been threatened with an injunction.

What is a company injunction?

An injunction is a type of court order which stops the other person from doing something. In the case of a statutory demand against a company – it prevents the creditor from the next step of issuing a winding up order – at least until the facts in dispute have been properly herd by the court and an informed legal judgment made on the underlying facts of the case and if a genuine debt is due and owing.

When is an injunction needed?

If the company which has been served with a statutory demand, it can apply for an injunction if

• it has a genuine dispute regarding the amount claimed; or
• has a claim against the creditor which is bigger than the creditor’s claim; and
• the creditor still refuses to withdraw the statutory demand within 18 days of the date of service

Injunctions are serious types of court orders

An injunction is a serious type of court application where one party (in this case the company which has received the statutory demand) seeks an order prohibiting or restraining (stopping) the other party (in this case the creditor) from doing a particular thing (in this case prohibiting the creditor from issuing a winding up petition).

These court applications need to be made quickly. The debtor only has 18 days from the date of service to make the application – and leaving it too near this deadline can be dangerous.  TO make the application the debtor will need to prepare witness evidence, make a formal application and also have a barrister attend court on the day.  

Our brilliant legal team have dealt with many injunction situations – we can help you too.

The court will not grant an injunction without good reason.

Good evidence will need to be given to the Judge to persuade the court that an injunction is appropriate to grant.

The application notice needs to be supported by a detailed witness statement setting out the grounds for the order sought. It needs to set out

• details of the statutory demand debt claimed,
• the grounds the statutory demand is disputed
• and exhibit any correspondence passing between the parties prior to seeking the court order.

Expert legal advice is necessary for an injunction

Due to the complex nature of this type of application we would strongly advise you take legal advice as these are not easy applications to obtain.

If the injunction is obtained, then the statutory demand creditor will have to pay the legal costs of the injunction which could run into many thousands of pounds. But if you lose the application – you could end up facing a big legal bill AND a winding up order.

Statutory demands by HMRC

Statutory demands from HMRC can be frightening experiences. Our team of experts have dealt with 100’s claims for clients being chased by HMRC. We can help have the statutory demand removed, set aside or settled. We also have a dedicated Tax Dispute Team who can help on many different types of Tax related claims. This team is headed up by Andy Lynch – who worked at HMRC for 18 years before joining FWJ.

Where a creditor has a claim against you, whether you are a company or an individual, it is not unusual for a statutory demand to be served on you. HMRC often present statutory demands against individuals and companies.

This is a relatively inexpensive out of court process where the claim can be notified and, if the debtor does not pay within an 18 day period, they can use this to support the presentation of a winding-up petition (for companies) or a bankruptcy petition (for individuals).

When would HMRC Present a Statutory Demand?

HMRC may seek to present a statutory demand where the sums demanded are

• a combination of different taxes or
• where the tax liability is unclear and HMRC wish to rely on the schedule attached to the statutory demand in winding-up or bankruptcy proceedings.

The presentation of a statutory demand also serves to quickly bring the taxpayer to the table and stimulate tax negotiations.

How should a company or individual respond?

You should respond quickly and commence negotiations if you have not done so already.

• after 21 days, HMRC will be able to petition to court for the company to be wound-up or you declared bankrupt and, even if a settlement is subsequently reached, this will add legal costs to the bill.
• a statutory demand is really the last opportunity you have to seek to negotiate any exit from enforcement by HMRC. If you allow matters to escalate, the court will intervene and in a court hearing you may not receive the same reasonable level of treatment that you would otherwise be able to gain from HMRC.

Setting aside an individual statutory demand

For individuals, following receipt of a statutory demand an application can be made (or threatened to be made) to court for the statutory demand to be set aside, in which case you can claim your legal costs from HMRC.

• the grounds to set aside a statutory demand are slightly wider than those for defending a bankruptcy petition, as the sums demanded must be accurate whereas a bankruptcy petition merely needs to meet a debt threshold of £5,000
• Any application to set aside the statutory demand must be made within 21 days from the date it was served. 
• We are experts in statutory demand set aside applications

How to defend a company statutory demand

If you are a company and you dispute the amount claimed by HMRC, you should firstly try to negotiate a withdrawal of the statutory demand (our expert team can hep with this as we have direct contacts with the right people at HMRC).  However if tis is not possible, then the next step would be to apply for a court injunction to prevent HMRC from issuing the winding up petition.

Our expert team have dealt with numerous HMRC injunction claims – and we can help today. 

At Francis Wilks & Jones we are able to assist with such negotiations or litigation steps, should they be required, and advice on any matters to protect you personally in the event you or your company face a statutory demand or the risk of bankruptcy or winding-up proceedings.

How we can help

HMRC statutory demands can be frightening. But our statutory demand defence team has successfully dealt with many HMRC demands. And we also boast HMRC Tax Dispute expert Andy Lynch who can help deal with often complex tax computations in the HMRC statutory demand. Often he is able to reduce the claimed amount substantially.

How to serve a statutory demand

It is vital to serve a statutory demand properly. Failure to do so can invalidate the whole process and lead to the statutory demand being set aside by the court – and even a costs order against the creditor.

Service on an individual

If the statutory demand service is for an individual, the service must comply with Rule 10.2 of the Insolvency Rules 2016. The creditor must take all steps to make sure that the statutory demand comes to the attention of the individual.

Service on a limited company

If it is a company statutory demand, it should be served at the registered office of the company in accordance with the Insolvency Act 1986 Section 123(1)(a).

Service on an unregistered company

The rules vary slightly for statutory demand service on an unregistered company where service can be undertaken by leaving the statutory demand at the company’s main place of business, delivering the statutory demand to an officer manager or director of the company or seeking the court’s guidance on how to serve the statutory demand.

Avoid mistakes – consider using a process server if you want to serve a statutory demand

In our experience it is always better to have a process server arrange for service of the statutory demand.

• this means that a professional is arranging for service of the statutory demand and it removes any doubt as to whether service has been validly done;
• the process server will then prepare a witness statement setting out the details of statutory demand service so to avoid any doubt that it has properly happened;
• it will avoid the statutory demand getting lost in the post – something which is unfortunately too common these days.

If the process server cannot serve the statutory demand then it is possible to serve the statutory demand by what is called “substituted service”. Often a process server will leave what is called a letter of appointment and if the debtor does not turn up at the right time on the appointed day, the statutory demand can be served by post through the letterbox or other means.

Occasionally demands can be served by social media although often the court sanction is required for this. If you are having trouble tracking down a debtor – our brilliant team can help on this too.

How we can help

Proper service of statutory demands is harder that it first looks. Get it wrong and the demand can be thrown out by the court. Our team can take the risk out of the service process – we have worked with a trusted process server for 20 years and they know the rules inside out – and also all the ways that people try to avoid service – and how to deal with that.

Statutory demand service on an individual

Proper service of a statutory demand on an individual person is vital – get it wrong and the statutory demand can be set aside and thrown out of court.

Always comply with rule 10.2 of the Insolvency Rules 2016

When serving someone personally with a statutory demand, the creditor must comply with Rule 10.2 of the Insolvency Rules 2016. This states that the creditor must “do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and if practicable in the particular circumstances, to cause personal service of the demand to be effected”.

Personal service by a process server is always best

It is always best to have the statutory demand served on the individual personally. This removes any doubt with regards to service of the statutory demand and any allegations by the debtor that he/she was unaware of it.

What happens if the debtor is not there?

However, on occasion the process server cannot locate the individual on the first visit at the address given. In those circumstances the process server should leave behind what is known as a “letter of appointment”. That letter informs the debtor of a date and time when the process server will return to the address to arrange for statutory demand service. If the person is then there at that time, he/she will be personally served. If they are not then the statutory demand is served by way of substituted service.

Service by social media

It is occasionally possible to obtain court sanction for the statutory demand to be served by the use of social media. The courts have for example being prepared in certain circumstances to allow service by Twitter and Facebook in civil litigation although this is very much the exception rather than the rule.

Deliberate avoidance by the debtor

If the creditor believes that the debtor has absconded or is deliberately avoiding statutory demand service, the demand itself may be advertised if the debt arose pursuant to a judgement or court order. This is pursuant to Rule 10.2 of the Insolvency Rules 2016.

Can a statutory demand be served on a company?

A statutory demand can be served on a company – but the strict rules of service need to be followed properly and complied with – otherwise it could be invalid service. Our team are experts. Let us help you.

• a statutory demand can be served on a company;
• a company statutory demand and must comply with the format set out in Section 123(1)(a) or Section 222(1)(a) of the Insolvency Act 1986. It is different to the form of a statutory demand against an individual.

For the statutory demand to be effective it then needs to be properly served against the company.

• the rules of statutory demand service on companies are strict but essentially, pursuant to Section 123(1)(a) of the Insolvency Act 1986 service must be done by leaving it at the registered office of the company;
• there are different rules if it is an unregistered company and we can help advise you on these.

We always recommend using a process server to properly serve the statutory demand. Failure to properly serve it can lead to the statutory demand being invalid and a statutory demand set aside application being made.

How long does a statutory demand last?

Statutory demands don’t last forever after service.

Unless further action is taken by the creditor within a set period of time – the statutory demand will become redundant and the creditor will have to start the statutory demand process all over again

Individual statutory demands

If the statutory demand is against an individual, that individual has 18 days in which to apply to set aside the statutory demand failing which the creditor can issue a bankruptcy petition against the debtor.

• however, a statutory demand itself is only effective for 4 months after the date of service;
• if the creditor has not taken any action to issue a bankruptcy petition within 4 months from the date of service, a new statutory demand will need to be served.

Company statutory demands

For a company statutory demand, the payment by the debtor must be made within 21 days of the date of service.

• if the debtor disputes the statutory demand, then it must seek an injunction against the creditor within that 21 day period to stop it from issuing a winding up petition at court;

failure to do so means that the creditor can proceed to the next stage i.e. a winding up petition at any stage.

Statutory demands and winding up petitions

Our team have dealt with many hundreds of statutory demands and winding up petitions over the last 20 years for our clients. 

If a creditor has a debt against a company, the normal route is to apply to court for judgment (often referred to a County Court Judgments or CCJs). Alternatively, if a debt due to the creditor is outstanding and is not disputed, then the creditor can present a statutory demand or a winding up petition against the company.

Statutory demands vs winding up orders

A statutory demand is a formal demand served under the insolvency laws for repayment of any debt over £750.

• if a statutory demand is ignored and not paid within 21 days, the company can be wound-up by the court as it is presumed that the company cannot pay its debts.
• following the winding-up of the company, directors may even become personally liable as a result of the company being placed into liquidation.

A winding-up order may be sought by a creditor following the presentation of a statutory demand or once a creditor has a CCJ. Winding up petitions are often issued against a company once the payment period under a statutory demand has expired (21 days), or the debtor has not applied to court for an injunction to stop the winding up petition being issued.

The method of obtaining a winding-up order is that the creditor must present at court and serve on the company a winding-up petition. This is now issued on-line.

The service of a winding up petition on a company can have enormous consequences for a business. If not dealt with properly it can

• lead to the company being wound up, shut down and the end of your livelihood.
• it is vital to take early control.
• if the winding up petition becomes public knowledge, this can quickly lead to the bank freezing accounts and suppliers refusing to supply.
• this often spells the end of the company as it is unable to trade.

Directors and managers of the business are often unaware that they can held personally liable for company debts if the company keeps trading after service of the winding up petition and is then later wound up. This is another reason to take early legal advice.

However, it is important to understand that a statutory demand doesn’t have to be served first against the debtor company before a winding up petition can be issued. It is possible to issue and serve a winding up petition after a letter before action has been sent – but it is more risky to do this.

Less risk proceeding with a statutory demand before a winding up petition

Statutory demands are often used as a means of debt recovery by individuals and companies against other corporate entities. 

• whilst it is possible to proceed directly with a winding up petition against a company in circumstances where a debt remains unpaid, it can in certain circumstances be sensible to serve a statutory demand first.
• by proceeding with a statutory demand first and then issuing a winding up order, it removes the need to prove, if required, that the debtor company is in fact insolvent;
• an unanswered statutory demand means that the creditor can deem the debtor company insolvent.

Our expert team can advise you on the best course of action and how you might avoid taking unnecessary risks. Expert advice is important when considering which approach to take and there are a range of factors to be taken into account.  Our team are happy to advise on this and how to minimise risk and maximise return.

Cost – a statutory demand is cheaper than a winding up petition

A statutory demand is definitely cheaper to proceed with rather than a winding up petition. 

• statutory demand costs do not involve a court issue fee and simply involve solicitors’ costs for completing them together with the process server fee for issue.
• this avoids potentially an expensive winding up petition fee at court for the issuing of the winding up petition;
• if payment is made on the back of a statutory demand, then it is often a cheaper up front way of recovering the debt, although technically, the creditor may have issues seeking to recover legal costs against the debtor if the statutory demand debt is paid;
• often it is a question of reviewing the underlying documentation and being advised as to the most appropriate course of action i.e. a statutory demand or a winding up petition in respect of a company.

If a statutory demand is used first and the debt is not paid after three weeks, then it is then possible on debts over £750 for the creditor to proceed with a winding up petition.

Defending a winding-up petition

Winding-up petitions can be successfully disputed and the petition dismissed. There are many reasons for this.

• the winding-up petition may be procedurally incorrect; or
• the debt legitimately disputed.

In any of these circumstances proper advice can lead to the winding-up petition being struck out

In very urgent cases we can apply to the court for what is called an injunction – a type of court order preventing the petition becoming common knowledge to the wider world whilst the underlying dispute is dealt with.

We have huge experience in this area having dealt with over a thousand winding up petition cases. Legal advice is vital in this area. It can make the difference between the life or death of your business, often built up over many years.

Validation orders – continue to trade whilst you resolve a winding up petition

A validation order is a legal mechanism that provides for companies to legitimately deal and dispose of its assets (money or otherwise) following receipt of a winding-up petition.

• continued trading in the absence of a validation order can lead to personal claims against the directors if the company is later wound up.
• Validation orders allow the breathing space needed to take stock – allowing the company to trade and repay the winding-up petition debt.

Negotiated settlements of a winding-up petition debt

At Francis Wilks & Jones we have a specialist team well versed in negotiating settlements of winding-up petitions.

• always remember that the creditor issuing the petition has probably done so in the hope that they will be repaid the debt. The alternative in the event of non-payment is that the company will simply be wound up – with little prospect of any payment being made at all to the person owed the money.
• it is often possible to structure payment settlements of the debt over a period of time and have the petition dismissed from court record.
• dismissal of the petition from court is very important. Until this time other creditors of the company can “support” the petition and the position can quickly snowball out of control and lead to the winding up of the company.
• once the petition is dismissed from court then it is no longer possible for other creditors of the company to support it.

Helping companies chase their own debts

One of the reasons a debtor company is served with a winding-up petition in the first place is often because it has not been collecting its own debts properly. This results in poor cashflow and an inability to pay its suppliers or other creditors like HMRC.

We often find that “blitzing” a company’s sales ledger can bring in the funds required to settle the petition debt and enable the company to continue trading normally.

At Francis Wilks & Jones we have a fully dedicated debt recovery team backed with a state of the art case management system. We can upload your entire ledger and send out letters before action for free. It could make the difference between the success or failure of your business.

Specialist restructuring / insolvency advice

Winding-up petitions are normally brought by a single disgruntled creditor in circumstances where the company might have many other creditors as well. However there are often better alternatives for the company, creditors and employees than the company simply being wound up.

These can include refinancing, restructuring or putting the company in to administration.

At Francis Wilks and Jones we have links to many trusted third party professionals whom we have developed relationships with over many years. We can take the risk out of choosing the right professional for your type of business. Contact our company rescue team to find out more.

A Director’s duties following service of a winding up petition

Following presentation of a winding-up petition, a director’s decisions (past and present) may be subject to great scrutiny if the company is later wound up by the court. It is vital that you take advice to avoid not only the company becoming insolvent, but also the risk of liquidator claims – the liquidator of the company may also come after you personally for repayment of company money / assets paid out after to service of the winding up petition.

Please visit our shareholders and directors advice page for assistance with director’s duties. You may also find it useful to review our claims against directors page.

How we can help

Our expertise in winding up petitions is as strong as it is with statutory demands. The two areas of law are often closely aligned – but expert knowledge of both sides is vital when dealing with often fast moving and high threat situations. Using our team means you can be sure that all your winding up petition and statutory demand issues are dealt with properly under one roof.

Statutory demand or claim form?

It can be critical to make the right decision between serving a statutory demand or issuing a more traditional Claim Form in the county court. Get it wrong and it could lead to a heavy costs penalty. Our experts can help.

The choice between using a statutory demand or a standard claim form is very important to get right.

When to use a statutory demand

A statutory demand is essentially an insolvency based process. It is used in circumstances where the debtor is unable to pay its debts and is to be deemed to be insolvent.

• it should however only also be used in circumstances where the debt claimed is undisputed;
• if the debt is subject to a dispute, then the matter should be litigated out in the normal court process. This is because ultimately, if a debt is disputed then the court will want to listen to evidence from individuals at a trial and that opportunity simply does not exist in the statutory demand process.

A creditor should always consider using a statutory demand as part of debt collection process if the debt is undisputed. The advantages over the small claims, county court or high court can be significant

• this is because the normal court system is much slower and can be very time consuming;
• it can also be quite costly if the debtor tries to defend the claim;
• there is the possibility of cutting that all out by using a statutory demand which in itself is also a relatively cheap process and can be less than the court issue fee in normal court claims.

How we can help

Making the right decision when kicking off a legal claim is so important. Our team can guide you through that process, using decades’ combined experience to make sure you choose the legal option which is right for you.

Can a statutory demand be withdrawn?

Statutory demands can be withdrawn – but much depends on what the position is with the debt being chased and whether it is genuinely due. Whatever your situation – we have the expert team to help you.

A statutory demand is not a formal court issued document. However, once the statutory demand is served then

• an individual has 18 days in which to apply to set it aside; and
• a company has 21 days in which to apply for an injunction to stop a winding up petition.

What happens if the Debtor disputes the demand?

If the debtor indicates that it is either going to apply to set aside the statutory demand, or apply for an injunction to stop a winding up petition, then it is possible to agree by consent to have the statutory demand withdrawn.

This would normally happen if the debtor shows that there is some form of genuine dispute or has a claim itself against the creditor which overreaches the amount claimed in the statutory demand.

Agreeing to withdraw the statutory demand can, in the right circumstances, avoid lots of potential legal cost exposure to the creditor if the debt is for example genuinely disputed.

The creditor can of course continue in the normal County Court or High Court with the debt claim.

Can I ignore a statutory demand?

Ignoring a statutory demand can have very dramatic consequences for an individual or a company. Failure to properly deal with can lead to bankruptcy or a winding up petition. Whatever your situation – our team has been advising individuals and companies for over 20 years.

The consequences of ignoring a statutory demand depends on whether it has been served against a company or individual.

Individuals

If an individual ignores a statutory demand and fails to either pay the debt, negotiate a settlement or set it aside within the 18 day prescribed period, then the creditor is at liberty to issue a bankruptcy petition against the individual. Bankruptcy petitions are very serious indeed and if the debt is still not paid, the individual will be made bankrupt. All of his / her assets will then belong to a trustee in bankruptcy (an officer of the State) whose job it is to then sell all of those assets and distribute any payments to various creditors. Bankruptcy is something which really should be avoided at all costs.

Some individuals do try and obtain their own help and guidance, especially if they are unable to afford legal fee to defend a statutory demand. Various agencies and bodies which might help include

• The Debt Respite Scheme
• Step Change
• Citizens Advice

Companies

If a statutory demand is received by a company, then the company should again seek to either pay it, negotiate settlement or apply for an injunction if the statutory demand is disputed within 21 days from the date of service.

Failure to deal with a statutory demand by a company will then lead to a winding up petition being issued against the company. These are very serious indeed. It can dramatically affect a company’s credit rating, the bank account can be frozen, suppliers will stop supplying goods or services if it becomes public knowledge and ultimately, if the debt is not paid the company is wound up and put into insolvency.

Following that, a liquidator is appointed and may investigate the affairs of the company including the directors personally.

Therefore, if you ever receive a statutory demand it is best not to ignore it. Even if the situation appears very bleak, there are always things which can be done to help you.