UK · EU · US · InternationalStatutory demand: when it works, and when it backfires
Short answer: a statutory demand is the most powerful pre action instrument available on an undisputed debt, and the most dangerous one to use on a disputed debt. Getting that distinction right before serving is the whole job.
What it actually is
A statutory demand is a formal written demand under the Insolvency Act 1986. It is not a court document and it is not a claim. Its power is what follows if it is ignored: after twenty one days an unpaid demand is evidence that the debtor is unable to pay its debts, which founds a winding up petition against a company or a bankruptcy petition against an individual.
The thresholds
Against a company the debt must be at least £750. Against an individual the bankruptcy threshold is £5,000. Below those figures the demand cannot ground a petition, and serving one anyway is an empty threat that a competent adviser will identify immediately.
Why it works on an undisputed debt
Because the consequence is existential rather than financial. A winding up petition, once advertised, freezes the company's bank accounts under section 127 and is usually terminal for its banking relationships. Directors and their advisers know this, and on a genuinely undisputed debt most demands are paid within the twenty one days.
Why it backfires on a disputed debt
This is the part that costs people money. Where the debt is disputed on substantial grounds, or the debtor has a genuine cross claim, the insolvency process is not the right forum and its use is treated as an abuse of process.
The debtor can apply to restrain presentation of a petition. Injunctions in these circumstances are routinely granted and the creditor is routinely ordered to pay the costs, frequently on the indemnity basis. You can set out to collect £20,000 and end up paying more than that in costs with the debt still outstanding.
The test is not whether you think the dispute is any good
It is whether the dispute is genuine and substantial, which is a low bar for the debtor to clear. An invoice queried in writing, a counterclaim about defective work, a set off argument that is arguable rather than winning, any of these can be enough. Confidence in the merits is not a defence to an abuse of process finding.
The order that usually works
A letter before action first, from £595, which flushes out whether a dispute exists. If the reply raises nothing substantial, the statutory demand becomes a far safer instrument because you serve it knowing the debtor's position rather than guessing at it. Skipping that step to save a fortnight is how creditors end up on the wrong end of an injunction.
Common questions
What is the minimum debt for a statutory demand?
£750 against a company and £5,000 against an individual. Below those thresholds the demand cannot support a petition.
How long does the debtor have?
Twenty one days from service. An individual may apply to set the demand aside within eighteen days. A company has no equivalent set aside procedure but can seek an injunction restraining a petition.
What if the debtor disputes the debt?
Stop. Where the dispute is genuine and substantial, using the insolvency route is an abuse of process. Expect an injunction application and an adverse costs order, often on the indemnity basis.
Do you serve statutory demands?
We draft and prepare them, and advise first on whether the debt is suitable. Presenting a petition is conduct of litigation and is referred to instructed counsel or litigation solicitors at that gate.
Fixed fee agreed in writing before any work begins, written reply within twenty four hours, handled entirely in writing. Send your matter.