A statutory demand is a formal, written demand for payment from a creditor. It’s often the first legal step taken before more serious action, such as a winding-up petition. For company directors, receiving a statutory demand means the situation has reached a point where creditors are considering forcing your business into liquidation.
In the UK, a creditor can issue a statutory demand if your company owes them at least £750 and the debt is undisputed.
Why creditors issue a statutory demand
From a creditor’s perspective, a statutory demand is a quick and powerful way of putting pressure on a debtor. It doesn’t require court action to issue but it creates a legal paper trail that can be used later to prove insolvency.
Creditors issue statutory demands to:
- Signal they are serious about collecting the debt
- Put pressure on a debtor to pay quickly
- Lay the groundwork for a winding-up petition if the debt isn’t paid within the required timeframe
For many directors, this demand is the first clear warning that Compulsory Liquidation is a very real risk.
The statutory demand timeline
When your company receives a statutory demand:
- You have 21 days to pay the debt, reach an agreement with the creditor, or apply to have the demand set aside (if there are genuine grounds to dispute it).
- If you do nothing, the creditor can use the unpaid demand as evidence that your company is insolvent.
- This evidence can then be used to apply to the court for a winding up petition, which could lead to compulsory liquidation.
This makes the 21-day window critical. If you ignore the demand, you may lose control of what happens next.
Can you dispute a statutory demand?
Yes, if you have solid grounds. Valid reasons to dispute might include:
- The debt is genuinely in dispute (for example, because of poor goods or services)
- The amount claimed is incorrect
- The demand was not issued correctly or served to the right address
- You have a valid counterclaim against the creditor
If you want to challenge a statutory demand, you’ll need to act quickly and get professional advice on whether your grounds are strong enough.
What happens if you ignore a statutory demand?
Ignoring a statutory demand is the worst option. If the debt isn’t paid or challenged within 21 days:
- The creditor can file a winding up petition with the court.
- Once the petition is advertised, your company’s bank accounts could be frozen.
- If the petition succeeds, the court will issue a winding-up order and your company could be forced into Compulsory Liquidation.
During a Compulsory Liquidation, the Official Receiver (or a court-appointed liquidator) takes over to sell off company assets to repay creditors and officially close the company. The company is then officially removed from the Companies House register.
Your options if you can’t pay the debt
If your company genuinely can’t pay the debt, there are still options before matters escalate:
Negotiate with the creditor – Sometimes creditors issue statutory demands to pressure you into a settlement. If you act fast, you may still agree a payment plan.
Company Voluntary Arrangement (CVA) – This is a formal repayment deal supervised by a licensed insolvency practitioner. This allows you to pay off debts in affordable instalments and avoid liquidation.
Administration – In this case, the company could be given protection from creditor action while an insolvency practitioner works out a recovery plan or sale.
Creditors’ Voluntary Liquidation (CVL) – If recovery isn’t realistic, you may choose to close the company voluntarily. A Creditors’ Voluntary Liquidation gives you more control over when the liquidation process begins and shows you’re taking a responsible path in dealing with the company’s debts.
We can help you respond to a statutory demand
Directors who act inside the 21-day window of the statutory demand timeline can often:
- Negotiate affordable settlements
- Explore formal rescue processes
- Close the company in a managed, compliant way
If you’ve received a statutory demand, don’t panic. But don’t ignore it either. You have the time to take professional advice. Getting help to make the right decision now could protect you, your business and your future.
Our licensed insolvency practitioners can help you:
- Review the demand and check if it’s valid
- Negotiate with creditors to buy more time or reduce the pressure
- Assess whether a CVA, administration or voluntary liquidation could help
- Protect your personal position as a director if insolvency is unavoidable
Contact us today for free, confidential advice. The sooner you act, the more options you’ll have to take control before matters are taken out of your hands.
