A statutory demand is a formal written demand for payment of a debt, issued under the Insolvency Act 1986. If the debtor does not pay or agree terms within 21 days, you can apply to bankrupt an individual or wind up a company. It is a powerful way to prompt payment of a clear debt, and it is also easy to get wrong.
This guide explains when you can use a statutory demand, which form you need, how to serve it, what happens after the 21 days and what to do if you have received one. It is written for businesses in Manchester and across the UK.
What Is a Statutory Demand?
A statutory demand is not a court claim. It is a formal notice that tells the debtor to pay a fixed sum within 21 days, or to agree a payment arrangement, or face insolvency proceedings. Anyone who is owed money can make one, and GOV.UK confirms you do not need a lawyer to do so.
The law behind it depends on who owes the money. For an individual debtor, a statutory demand under section 268 of the Insolvency Act 1986 is the step that normally comes before a bankruptcy petition. For a company, an unpaid demand over £750 is treated as evidence that the company cannot pay its debts, which supports a winding-up petition. Commentators point out that a company winding-up petition does not strictly need a demand first, but a demand gives the debtor a clear warning and a chance to settle.
When Can You Use a Statutory Demand?
A statutory demand only works in the right circumstances. The debt must meet three conditions.
It must be a fixed sum. The debtor needs to know exactly what to pay to stop further action, so an estimate or an unquantified claim for damages does not qualify.
It must be due. The payment date must have passed, unless you use the form for a debt that falls due in future.
It must be undisputed. If there is a genuine dispute about whether the debt exists or how much it is, a demand is the wrong tool. Our commercial disputes advice covers the options for a contested debt.
There are also thresholds. To bankrupt an individual after an unpaid demand, the debt must be £5,000 or more. To wind up a company, it must be £750 or more. GOV.UK also says that if a debt is over six years old you cannot usually make a statutory demand, because the usual time limit for a simple contract debt is six years.
Be careful about motive. The courts do not accept a statutory demand used only as a debt collection lever. Serving one with no intention of going on to petition is treated as an abuse of process, and using one against a genuinely disputed debt risks a costs order.
Which Statutory Demand Form Do You Need?
The form must be the right one, and using the wrong form is a common reason for a demand to fail. For a limited company you use form SD 1. For an individual, including partners in a partnership, the form depends on whether the debt is payable now, payable now following a judgment or court order, or payable in future. Partnerships need a separate form for each partner.
Every form must state the amount, how the debt arose, the 21-day period and a clear warning of what can follow. Use the exact registered name and address for a company and include only interest that you can justify from the contract or from statute. Small errors can make a demand invalid.
Thinking of Serving a Statutory Demand?
The right form, correct service and an undisputed debt decide whether a demand works. MAR Legal can review whether your debt qualifies and explain your options. Contact us for a no obligation consultation.
How to Serve a Statutory Demand
Serving the demand is as important as drafting it. GOV.UK sets out the methods:
Give it to the individual who owes you money, trying all their known addresses.
Leave it at the registered office of the company or partnership, or at the main place of business if there is no registered office.
Give it to the company’s director, company secretary, manager or principal officer.
Use a process server to serve it for you.
You can only send it by registered post or put it through a letterbox if it cannot be delivered in person. Some commentators describe email service as common, but others warn against relying on it, so do not use email unless you have taken advice.
Keep a copy of the demand and anything that proves when it was served and that the debtor received it, such as a postage receipt or confirmation from your process server. You will need this evidence if the demand is ignored, and you go on to a petition.
The 21 Day Deadline and What Happens Next
Once the demand is served, the debtor has 21 days to pay the debt or reach an agreement to pay. Here is how the timeline runs.
Day 0: the demand is served.
Day 18: for an individual in the UK, the last day to apply to the court to set the demand aside.
Day 21: the compliance period ends. If the debt is still unpaid and no agreement is reached, you can apply to bankrupt an individual or wind up a company.
Within four months of service: you must apply for the bankruptcy or winding-up order. If you are late, you need to explain why to the court.
Applying for a bankruptcy or winding-up order is court work. It is handled by appropriately regulated litigation professionals, not by MAR Legal.
If You Receive a Statutory Demand
If you are the debtor, the clock has already started. Do not ignore the demand. You can be made bankrupt, or your company wound up, if you do nothing.
Check the amount, the interest, the form used and how it was served. Then decide on a response. If the debt is correct and you can pay, paying or agreeing terms ends the matter. If you disagree, the options depend on who you are.
Individuals
You can apply to the court to set the demand aside within 18 days of service if you were in the UK when you received it. Typical grounds are that the debt has already been paid, the debt is genuinely disputed, or you can pay within a short time or can compound for or secure the debt. A demand based on a court judgment is much harder to set aside, because the court will not look behind a judgment that remains in force.
Companies
A company cannot apply to set a statutory demand aside. Instead, it can apply to stop the creditor from winding it up, usually by seeking an injunction to restrain a petition, or it can tell the creditor that the debt is disputed and that any petition will be opposed. Because a company cannot simply set the demand aside, the 21 days matter even more.
Risks and Costs of Using a Statutory Demand
A statutory demand can backfire. If the debt turns out to be disputed on substantial grounds, you may be ordered to pay the debtor’s costs. If the demand is defective, a court may set it aside, and you will have lost time. Serving a demand is generally cheaper than issuing a court claim, but the costs rise if it is challenged or if you go on to a petition. Before you serve one, ask four questions. Is the debt undisputed? Is the evidence clear? Can the debtor pay? Would you really present a petition?
Alternatives to a Statutory Demand
A statutory demand is not always the best route, especially where the debt is small, the debtor may dispute it, or you want to keep a commercial relationship.
A letter before action is a lower-cost formal step that often prompts payment without insolvency threats.
Negotiation and a written settlement or payment plan can be faster and more amicable.
A court claim is the route where the debt is disputed, because the court decides who is right and a judgment can then be enforced.
Mediation or another form of alternative dispute resolution helps where there is a real disagreement.
How MAR Legal Can Help
Our Manchester team advises businesses across the UK on unpaid debts. Our solicitors can review whether your debt qualifies for a statutory demand, advise on the correct form and service and explain what follows if it is ignored. We can also advise on alternatives such as a letter before action or a payment plan. This is pre-litigation advice only. Where a matter involves reserved legal activities, including court applications, we work alongside appropriately regulated professionals. See our debt recovery lawyers in Manchester page for the full service. To talk it through, contact us for a no obligation consultation.
Final Thought
A statutory demand is a serious step. Used on a clear, undisputed debt with the right form and proper service, it can bring a stubborn debtor to the table quickly. Used carelessly, it can cost you time and money. Check the debt, choose the right route and keep your proof of service.