A statutory demand is often served before a winding up petition, but it is not legally required. A creditor may present a petition without first serving a statutory demand, provided the debt is due, payable and undisputed.
Where a statutory demand has been served and remains unpaid for 21 days, it may create evidence that the company is unable to pay its debts under section 123 of the Insolvency Act 1986. However, it does not prevent the company from arguing that the debt is genuinely disputed.
Understanding the relationship between a statutory demand and a winding up petition is important for both creditors and companies.
At a Glance
- A statutory demand is not legally required before a winding up petition.
- Failure to pay within 21 days may be evidence of insolvency.
- A genuinely disputed debt can still defeat a petition.
- The court looks at substance, not form.
Is a statutory demand required before issuing a winding up petition?
No.
There is no legal requirement to serve a statutory demand before presenting a winding up petition. It is a common practice, but not a mandatory step.
A petition may be issued where:
- The debt exceeds the statutory minimum.
- The debt is clearly due and payable.
- The company is unable to pay its debts.
You can read more about the statutory minimum in our guide on the minimum debt for a winding up petition.
What does the 21-day period mean?
When a statutory demand is served on a company, it gives the company 21 days to:
- Pay the debt in full; or
- Secure or compound for the debt to the creditor’s satisfaction.
If the debt remains unpaid after 21 days, the creditor may rely on that failure as evidence that the company is unable to pay its debts.
However, the 21-day period does not convert a disputed debt into an undisputed one. If there is a genuine dispute on substantial grounds, the court may still dismiss a subsequent petition.
Why do some creditors use a statutory demand first?
Serving a statutory demand can:
- Demonstrate seriousness.
- Trigger engagement or payment.
- Create evidential support for insolvency.
It may reduce, but does not eliminate, the risk of a petition being challenged.
In some cases, creditors choose to proceed directly to petition without serving a statutory demand, particularly where the debt is clearly established or already subject to judgment.
What risks arise if no statutory demand is served?
If a creditor proceeds directly to petition without a statutory demand, the company may argue that the debt is disputed or that insolvency has not been properly established.
Where a debt is genuinely disputed, the petition may be dismissed as an abuse of process. You can read more about this in our guide on winding up petition misuse and abuse of process.
The court’s focus is not on whether a statutory demand was served. It is on whether the debt is undisputed and whether the company is unable to pay.
What should companies do if they receive a statutory demand?
If a statutory demand is served, it should not be ignored.
Although companies cannot apply to “set aside” a statutory demand in the same way as individuals, they may respond by disputing the debt, seeking an injunction or preparing for potential petition proceedings.
If a petition is later presented, strict winding up petition time limits will apply.
If you have received a statutory demand or a petition, you may wish to read our guide on how to defend a winding up petition.
Speak to our team
If you are considering issuing a petition or have received a statutory demand and are concerned about the next steps, we can advise on the safest course under the law of England and Wales.
