��������Ƶ

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Statutory demands are a powerful tool for debt collection, but they must be used with caution as they come with certain risks. At ��������Ƶ, we know that understanding these risks and why statutory demand matters is essential for an effective debt collection process. A statutory demand is a formal request for payment of debt, usually issued by a creditor to an individual or business who owes them money. It is sent via post or hand-delivered and outlines the exact amount owed and the deadline for payment; failure to respond in time results in the creditor being able to take legal action to recover their debt.

Statutory demands are typically used as a last resort when all other attempts at collecting a debt have failed, however there are still certain risks associated with them that should be carefully considered before issuing one. If the debtor is insolvent then it can render the demand unenforceable, and if it is not issued correctly it may also be invalidated - meaning no amount will be recovered even if the debtor does not respond or pay their debt. Furthermore, sending this kind of document could damage the relationship between creditor and debtor - making further cooperation less likely - so discretion should always be taken into account when dealing with such delicate issues.

At ��������Ƶ we believe knowledge is power; we provide free access to our market-standard template library full of millions of datapoints which teach our AI what makes a successful statutory demand form; allowing anyone to draft and customize high quality documents without paying legal fees. Our team works tirelessly to ensure everyone has easy access to all necessary resources needed when attempting debt collection, as well as step-by-step guidance on how best to use them; so whether you’re just getting started or already experienced in writing up your own documents, take advantage of our community today!

Definitions

Insolvency Act 1986: A law passed in the UK in 1986 that sets out the rules and regulations for dealing with insolvency and bankruptcy.
Winding Up Order: An official document issued by a court that orders the forced closure of a business.
Bankruptcy Order: A legal order issued by a court that declares an individual or business bankrupt.
Debtor: A person or business that owes money to another person or business.
Creditor: A person or business to whom money is owed.

Contents

1. What is a Statutory Demand?
2. When Can a Statutory Demand be Used?
3. Who Can Issue a Statutory Demand?
4. What are the Requirements for a Valid Statutory Demand?
5. Check the amount claimed
6. Include the correct information
7. Ensure the demand is in the correct form
8. Clearly set out the amount owed
9. Include a statement that court action will be taken if the demand is not complied with
10. How to Serve a Statutory Demand
11. Serve the demand personally
12. Serve the demand on the debtor’s registered address
13. Serve the demand on any additional addresses
14. Ensure the demand is served within the prescribed time limit
15. Responding to a Statutory Demand
16. Contesting the debt
17. Negotiating payment of the debt
18. What Happens if the Debtor Fails to Respond to a Statutory Demand?
19. The creditor may apply to the court for a bankruptcy order
20. The creditor may apply to the court for a winding up order
21. The Consequences of Failing to Comply with a Statutory Demand
22. The debtor may become bankrupt
23. The debtor may face a winding up order
24. The debtor may be liable for the creditor’s costs
25. How to Set Aside or Vary a Statutory Demand
26. Apply to court
27. Provide evidence to support the application
28. Ensure the application is made within the time limit
29. Practical Tips for Issuing a Statutory Demand
30. Be aware of the time limit
31. Ensure the demand is served correctly
32. Consider the debtor’s circumstances
33. Know the penalties for non-compliance
34. Be aware of the consequences of non-compliance

Get started

What is a Statutory Demand?

• A Statutory Demand is a formal written request for payment of a debt that is owed
• It is a way to get money from someone who owes you, either an individual or a business
• It must be served in accordance with the rules of the Insolvency Act 1986
• A Statutory Demand can be used for any debt that is over £750
• If payment is not made within 21 days, you can use the Statutory Demand as evidence of insolvency; this could be used as grounds for a creditor to make a winding up petition or bankruptcy petition against the debtor
• You can check off this step when you are satisfied that you understand what a Statutory Demand is and how it can be used.

When Can a Statutory Demand be Used?

• A Statutory Demand can be used when a debt is due and payable and the debtor is unable to pay it.
• You will need to ensure that the debt is not disputed in any way.
• It is important to ensure that the debt is properly owed and that all legal requirements are met.
• You should check that the debt is valid, up-to-date and not subject to any set-off or counterclaims.
• Once you have confirmed that the debt is valid, you can proceed to the next step.

Who Can Issue a Statutory Demand?

• A statutory demand can be issued by a creditor against an individual or a company
• A creditor can be any individual or organisation, such as a bank or a business, who is owed money
• The creditor is usually the individual or organisation who has provided goods or services to the debtor
• The debtor is the individual or company that is responsible for paying the debt
• A creditor must ensure they are entitled to issue a statutory demand and should take legal advice to ensure they meet the requirements

Once you’ve confirmed you meet the criteria to issue a statutory demand, you can check this off your list and move on to the next step.

What are the Requirements for a Valid Statutory Demand?

• The demand must be in writing
• It must specify the nature of the debt
• The amount demanded must not be more than £5,000 or, if the debt is a liquidated sum due under a judgment, the amount of the judgment
• It must state the period of time in which the debt must be paid
• It must give the name and address of the creditor
• It must be signed by the creditor or their authorised representative

Once you have checked that your demand meets all the criteria above, you can move on to the next step - checking the amount claimed.

Check the amount claimed

• Make sure that the amount claimed is correct and is based on the debtor’s liability to you
• Check that the amount claimed is no more than £750,000, or whatever amount is applicable under the relevant law
• Include the total amount of the debt, including any interest and costs
• Make sure you have evidence of the debt and the amount due
• When you’re sure that the amount claimed is correct, you can move on to the next step.

Include the correct information

• Include full name and address of the debtor
• Include the amount owed
• Include the date the demand was issued
• Include the date by which the debtor must pay
• Include name, address and contact details of the creditor
• Include your name, address and contact details
• Include a statement which says the demand is made under section 123 of the Insolvency Act 1986
• Include a statement which says the demand will be enforced unless payment is made within 21 days
• Include a statement which says that if payment is not made, the creditor may start court proceedings to recover the amount
• Check that all the information is correct and complete
• When you are sure you have included all the necessary information, you can move on to the next step.

Ensure the demand is in the correct form

• Obtain the appropriate forms from the government’s website, or get copies from your local County Court.
• Complete the information on the form, including the amount owed and the deadline for payment.
• Be sure to include the full name and postal address of the person you are sending the demand to.
• Sign and date the form.
• When you have completed the form, you can check this step off your list and move on to the next step.

Clearly set out the amount owed

• Carefully calculate the total amount of the debt owed and write it down, including any interest and any costs that have been incurred
• Include the total amount on the face of the demand and include the breakdown of how the amount was calculated
• Ensure that the amount is accurate and up-to-date so that the debtor can easily understand the amount that is due
• Once the amount of the debt has been clearly set out, you can move on to the next step of including a statement that court action will be taken if the demand is not complied with.

Include a statement that court action will be taken if the demand is not complied with

• Include a statement that informs the debtor that court action will be taken if the demand is not complied with
• This statement must be written in a way that informs the debtor that if they do not pay the amount in full within the specified time period, further action will be taken
• Ensure that the statement is clear and unambiguous
• Make sure to include the deadlines for payment, including the date and time
• Once the statement is included, you can check this off your list and move on to the next step of serving the statutory demand.

How to Serve a Statutory Demand

• Arrange for a process server to personally serve the demand on the debtor
• Ensure that the process server records the date and time of service
• Verify that the debtor has been served with the demand
• Obtain a signed statement of service from the process server
• Once the Statutory Demand has been served on the debtor, the task is complete!

Serve the demand personally

• Serve the demand by hand delivery to the debtor’s registered address or the debtor’s last known address
• Make sure you give the demand directly to the debtor, or to someone over the age of 16 living at the address
• If the debtor is a company, you can also serve the demand by leaving it at their registered address with an appropriate person
• Take a witness with you when you serve the demand
• Keep a copy of the demand and proof of service
• Once served, you can check this off your list and move on to the next step of serving the demand on the debtor’s registered address.

Serve the demand on the debtor’s registered address

• Obtain the debtor’s registered address (this can be found on Companies House).
• Send the Statutory Demand by post to the debtor’s registered address.
• Make sure you keep a copy of the Statutory Demand for your records.
• You can check this step off your list once you have posted the Statutory Demand to the debtor’s registered address.

Serve the demand on any additional addresses

• Check the Companies House records for any additional addresses for the debtor where the demand should be served
• Contact the debtor to find out if there are any additional addresses where the demand should be served
• If the debtor does not respond, undertake a search of the Land Registry to see if there are any other addresses registered
• Serve the demand at each of the additional addresses
• Keep a record of the addresses you have served the demand to
• You will know when you can check this off your list and move on to the next step when all of the additional addresses have been served with the demand.

Ensure the demand is served within the prescribed time limit

• The demand must be served within 21 days after it was made
• The debtor must be given a copy of the demand
• The demand should be served to the debtor by post or personal delivery
• If you choose to serve the demand by post, you should allow an extra 2 days for the demand to be delivered
• The demand is considered to be served on the day it is received or on the day it was sent, whichever is later
• You should keep a record of when and how the demand was served

Once you have served the demand to the debtor, you can check off this step and move on to the next step: Responding to a Statutory Demand.

Responding to a Statutory Demand

• Ascertain who the Statutory Demand was served to: if it was served to the wrong person or company, then the demand is invalid
• Determine whether the debt is genuinely owed: if it is not, then the demand can be challenged in court
• Negotiate with the creditor if the debt is owed: if an agreement can be reached, a repayment plan or lump sum can be proposed
• Respond to the Statutory Demand within the specified time limit: if no response is received, the creditor can file for bankruptcy
• Check off this step when you have responded to the Statutory Demand within the required timeframe.

Contesting the debt

• Research the legal basis of the debt: Review the original agreement, any documents connected to the agreement, and any other evidence that the debt is legally valid and owed by you.
• Consider disputing the debt: If you have evidence that the debt is not owed by you, or is incorrect in some way, you could dispute it.
• Write to the creditor and explain why you are disputing the debt: Include copies of any evidence, and request that the creditor provide an explanation or evidence of the debt.
• Receive the creditor’s response: If the creditor does not dispute your claim, or provide any evidence to show why the debt should be paid, you may be able to challenge the Statutory Demand.
• Take legal advice: Seek advice from a lawyer, or contact a debt advice charity, to discuss whether you can challenge the Statutory Demand.

You’ll know you’ve completed this step when you have received the creditor’s response, and made an informed decision about whether to challenge the Statutory Demand.

Negotiating payment of the debt

• Contact the debtor to discuss the debt and renegotiate payment terms
• Prepare a repayment plan with the debtor, including payment schedule, interest rate, and any other payment arrangements
• Make sure to document the repayment plan and send a copy to the debtor
• Monitor the debtor’s compliance with the repayment plan and take action if the debtor fails to meet their obligations
• Once the repayment plan is complete, you can check it off your list and move on to the next step of sending a statutory demand.

What Happens if the Debtor Fails to Respond to a Statutory Demand?

• If the debtor fails to respond to a statutory demand within 18 days, then the creditor can apply to the court for a bankruptcy order or winding up petition.
• The court will consider the evidence and make a decision.
• If the court agrees, then the debtor is deemed insolvent and the creditor can take steps to recover the debt.
• Once you have received the court’s decision, you can check this step off your list and move on to the next step.

The creditor may apply to the court for a bankruptcy order

• Download the bankruptcy petition form from the HMCTS website
• Fill out the form with details of the debtor, the amount of debt, the date the statutory demand was issued and a summary of the demand
• Make two copies of the completed form
• Attach the statutory demand and proof that the debtor has been served to the form
• Submit the form to the court and pay the fee
• Once the form has been processed, the court will issue a bankruptcy petition to the debtor
• You will know when you can check this off your list and move on to the next step when you receive confirmation from the court that the bankruptcy petition has been issued.

The creditor may apply to the court for a winding up order

• Complete the winding up petition form (Form 4.1) - available on the government website
• Make sure to include all the required information on the form, such as the name and address of the debtor, the nature of the debt, and the amount of the debt
• Ensure the form is signed by a creditor or their authorised representative
• Include an affidavit stating the facts of the debt
• File the petition at the appropriate court
• Pay the court fee for filing the petition
• You will know when you have completed this step when you have filed the petition at the court.

The Consequences of Failing to Comply with a Statutory Demand

• If the debtor fails to comply with a statutory demand within 21 days, the creditor can presume that the debtor is unable to pay their debt and can take further legal action.
• The creditor may apply to the court for a winding up order, which could result in the company being closed down and its assets being sold off.
• The debtor may become bankrupt, which could mean they will be subject to a bankruptcy order, and any assets they own could be seized and sold to pay off their debts.

You will know you can check this off your list and move on to the next step when you have read and understood the consequences of failing to comply with a statutory demand.

The debtor may become bankrupt

• Consider how to proceed if the debtor fails to pay or make a satisfactory arrangement to settle the debt within 21 days
• Seek legal advice if you decide to proceed with bankruptcy
• Compile a statutory demand which is accompanied by a bankruptcy petition
• Serve the statutory demand on the debtor
• Give the debtor 21 days to pay the debt or make a satisfactory arrangement to settle the debt
• File the bankruptcy petition at court if the debtor does not comply
• Check with the court to confirm that the bankruptcy petition has been accepted
• Once the court has accepted the bankruptcy petition, the debtor is considered bankrupt

Once you have served the statutory demand and filed the bankruptcy petition at court, you will have completed this step and can move on to the next step.

The debtor may face a winding up order

• Serve the debtor with the statutory demand form at least 21 days before you can apply for a winding up order.
• Make sure the statutory demand form is properly completed and meets the requirements of the Insolvency Rules.
• You must include the full name, address and principal trading address of the debtor.
• Attach copies of any invoices, contracts or documents to prove the debt is due and owing.
• Ensure that the debtor is served with a copy of the statutory demand form.
• Once the 21 day period has elapsed, you can apply to the court to present a winding up petition against the debtor.

You will know when you can check this off your list when the statutory demand form has been served to the debtor and the 21 day period has elapsed.

The debtor may be liable for the creditor’s costs

• Research the debtor’s financial position to assess their ability to pay
• Calculate the amount of costs the debtor is liable for
• Make sure to include the costs within the Statutory Demand
• If the Statutory Demand is not paid within the 21 day period, the creditor can pursue the debtor for the costs in court
• Once the creditor has established that the debtor is liable for the costs, check off this step and move on to the next which is ‘How to Set Aside or Vary a Statutory Demand’.

How to Set Aside or Vary a Statutory Demand

• Check to see if there are grounds to set aside or vary the demand, such as a mistake, lack of details or if the debt is disputed
• If there are grounds, fill out the form N244 – Application notice and send it to the court with the necessary fee
• A court hearing will be held and if successful, the court will make an order to set aside or vary the demand
• Once the order is made, you must provide a copy of the order to the creditor and make sure it is registered at the county court
• You will know this step is complete when you receive confirmation that the order has been registered at the county court.

Apply to court

• Visit a court website, such as the HM Courts and Tribunals Service website, to find the relevant forms and instructions
• Complete the application form with the necessary details, such as the debtor’s name and address, the amount of debt owed and the type of debt
• Attach any supporting documents to the application
• Submit the application form and relevant documents to the court
• Pay the court fee to process the application
• You will know you can move on to the next step when you have submitted the application form, attached the documents and paid the court fee.

Provide evidence to support the application

• Gather all relevant evidence and documents to support your claim, such as proof of the debt and evidence of attempts to recover the debt
• Prepare copies of all documents to send along with your application
• Make sure the copies are certified as true copies of the original documents
• Ensure that all documents are dated and signed
• Make sure to include a covering letter, which should include details of the debtor and a brief summary of the claim
• Check that the application form and all supporting documents are complete and accurate before sending

Ensure the application is made within the time limit

• Check that the application is made within the time limit of 21 days from when the debtor was served with the statutory demand
• Check that the application is made before the debtor makes a payment, or a composition or arrangement with their creditors
• Ensure that the application is sent to the court in time for it to be heard
• Once the application is sent to the court, wait for a decision from the court on whether or not the application was successful
• When the court has made a decision, you can move on to the next step

Practical Tips for Issuing a Statutory Demand

• Make sure the Statutory Demand form is properly filled out
• Include the correct amount and interests, if applicable
• Ensure the creditor’s address for service is correct
• Sign the document and have it witnessed
• Send two copies of the Statutory Demand to the debtor, one by post and one by email
• Keep a copy of the original Statutory Demand and proof of service
• You will know you have completed this step when you have sent the Statutory Demand to the debtor, and have kept a copy of the original and proof of service.

Be aware of the time limit

• A Statutory Demand must be served within three weeks of the date of issuance
• The date of issuance is the date the creditor sends the demand
• After three weeks, the demand is no longer valid
• You’ll know you’ve completed this step when the demand has been served within the three-week time period

Ensure the demand is served correctly

• Check that the demand is prepared correctly and includes all the required information
• Serve the demand by sending it to the debtor by post
• Check that the letter is addressed correctly and contains a return address
• Get proof of postage, such as a signed and dated certificate of posting
• Keep a copy of the demand for your records
• You will have completed this step when you have proof of postage and a copy of the demand for your records.

Consider the debtor’s circumstances

• Research the debtor’s financial situation to ensure they are able to pay the debt
• Consult the latest accounts or other documents available to review their ability to pay
• Consider whether a bankruptcy petition may be an appropriate next step
• Once you have considered the debtor’s circumstances, you are ready to move on to the next step in the process

Know the penalties for non-compliance

• Find out the full details of the penalty for non-compliance of the statutory demand, as this may vary depending on the type of debt and the circumstances of the debtor.
• Be aware that failure to comply with a statutory demand can result in the debtor being made bankrupt, or a winding-up petition being made against them.
• Note that this could have serious consequences for the debtor, including the loss of assets and reputational damage.
• Check that the debtor is aware of these potential consequences, as this can be a strong incentive for them to comply with the demand.

You can check this off your list and move on to the next step when you have read up and familiarised yourself with the potential penalties for non-compliance.

Be aware of the consequences of non-compliance

• Understand the legal ramifications of not responding to a statutory demand.
• Failure to respond to the demand can result in your creditor applying to the court for a winding up order or bankruptcy petition.
• If a winding up order is made, a court official will be appointed as liquidator and all of the debtor’s assets will be frozen and sold to pay off the debt.
• If a bankruptcy petition is made, the debtor’s property and assets may be sold to pay off the debt.
• The debtor will also be subject to statutory restrictions and may not be able to obtain credit or travel abroad.

How you’ll know when you can check this off your list and move on to the next step:

• Once you are aware of the potential consequences of non-compliance, you can move on to the next step.

FAQ

Q: What is the main difference between statutory demands in the UK, USA, and EU?

Asked by Matilda on 6th February 2022.
A: Statutory demands are a formal written request for payment of a debt from a creditor to a debtor. The UK, USA, and EU all have their own distinct rules and regulations surrounding the issuing of statutory demands. In the UK, statutory demands are governed by the Insolvency Act 1986 and must comply with the provisions of Section 123 of this legislation. In the USA, statutory demands are typically issued under the Uniform Commercial Code (UCC) and vary by state. In the EU, statutory demands are generally regulated by Council Regulation (EU) 848/2015 on insolvency proceedings.

Q: Are there any specific requirements for a statutory demand in the UK?

Asked by Mary on 2nd May 2022.
A: Yes, there are certain requirements that must be met when issuing a statutory demand in the UK. The demand must be in writing, specify the amount of money owed to the creditor, set out how it has come to be owed, and contain a warning that if it is not paid within 21 days then court proceedings may be taken against the debtor. The demand must also include a statement that if payment is not made within 18 days of service of the demand then it shall be presumed that the debtor is unable to pay their debts. The demand must also be served on both parties by an authorised agent.

Q: What happens if I receive a statutory demand?

Asked by Samuel on 15th June 2022.
A: Receiving a statutory demand can be an intimidating experience and it should not be taken lightly as it can lead to insolvency proceedings if it is not paid or responded to within 21 days. If you receive a statutory demand then it is important to immediately seek professional advice from an insolvency practitioner or solicitor as they will be able to advise you on your rights and obligations under insolvency legislation. If you are unable to pay the debt then you may be able to negotiate with the creditor or seek an alternative form of dispute resolution such as mediation or arbitration.

Q: Can I challenge a statutory demand?

Asked by Robert on 4th April 2022.
A: Yes, it is possible to challenge a statutory demand if there are grounds to do so. If you feel that you have been wrongly accused of owing money or if there are errors in the demand then you can file an application to set aside the statutory demand with your local court within 18 days of being served with it. If successful, this will render the statutory demand void and any subsequent court action will not be able to proceed against you until any errors have been rectified or any disputes resolved.

Q: Can I refuse to pay a statutory demand?

Asked by Vivian on 17th August 2022.
A: Refusing to pay a statutory demand can have serious legal consequences, as unpaid statutory demands can lead to insolvency proceedings being taken against you or your business. It is important that all unpaid debts are addressed as soon as possible in order to avoid further complications down the line. If you do choose to refuse payment then you should ensure that you have taken independent legal advice first and explored all other alternatives such as negotiation or mediation before doing so.

Q: How long does a creditor have to take legal action after issuing a statutory demand?

Asked by Mark on 1st July 2022.
A: A creditor has three months from when they serve a debtor with a valid statutory demand before they can take legal action against them for non-payment. This gives debtors time to assess their financial situation and explore other options such as negotiation before taking further action against them. If payment is made within three months then no further action needs to be taken and any existing legal action will cease automatically.

Q: What happens after I send out a statutory demand?

Asked by Richard on 10th January 2022.
A: After sending out a valid statutory demand, there are several things that you should keep in mind depending on whether or not your debtor responds within 21 days or not. If payment is made within 21 days then there is no need for further action and any existing legal proceedings will cease automatically; however, if payment is not made within 21 days then creditors have three months from when they served their debtor with the valid statutory demand before they can take further legal action for non-payment against them.

Q: What happens if I don’t comply with a statutory demand?

Asked by Abigail on 9th November 2022.
A: Failure to comply with a validly served statutory demand can lead to serious financial consequences for debtors, including insolvency proceedings being taken against them or their business if payment is not received within 21 days or made within three months from when they were served with it. It is important that all unpaid debts are addressed as soon as possible in order to avoid further complications down the line; therefore, it is advisable for debtors to seek professional advice from an insolvency practitioner or solicitor if they need assistance with challenging or negotiating their debt repayment terms before refusing payment outright.

Q: Can I negotiate repayment terms once I have received a Statutory Demand?

Asked by Eliza on 12th December 2022.
A: Yes, it is possible for debtors who have received a validly served Statutory Demand to negotiate repayment terms with their creditors before any further legal action is taken against them for non-payment of their debts; however, it is important that debtors seek professional advice from an insolvency practitioner or solicitor prior to entering into negotiations as they can assist them in understanding their rights and obligations under insolvency legislation and exploring alternative forms of dispute resolution such as mediation or arbitration which may ultimately lead to more favourable repayment terms being agreed between both parties without having recourse to court proceedings for non-payment of debts owed.

Q: How do I know if my Statutory Demand meets legal requirements?

Asked by Thomas on 28th August 2022.
A: When issuing Statutory Demands in England & Wales, creditors must ensure that they meet certain requirements set out under Section 123 of Insolvency Act 1986 in order for them to be legally valid and effective; failure to do so could result in creditors having difficulty enforcing them through court proceedings should debtors choose not to pay their debts within 21 days of being served with them. It is therefore important that creditors seek professional advice from an insolvency practitioner or solicitor prior to issuing Statutory Demands in order for them confirm that all necessary information has been included within them and that they meet all applicable legal requirements which must be adhered too when issuing this document in England & Wales

Example dispute

Suing a Company for Breach of Contract

• Plaintiff must show that they were owed a contractual obligation by the defendant and that they failed to fulfill it.
• Plaintiff must show that the defendant received legal notice of the statutory demand and failed to respond or pay the debt or remedy the breach.
• Plaintiff may be entitled to monetary damages, including interest, for the breach of the contract.
• The court may also require the defendant to perform the contractual obligation as agreed upon in the contract.
• The court may also award the plaintiff attorney fees, court costs, and other costs associated with bringing the suit.
• Settlement may be reached by the parties out of court or through mediation.
• If the court finds in favor of the plaintiff, damages may be calculated based on the terms of the contract and the laws governing breach of contract.

Templates available (free to use)

Rule 7 3 Statutory Demand Compulsory Liquidation Case Study
Standard Statutory Demand For Overdue Rent
Witness Statement To Prove Service Of Statutory Demand Compulsory Liquidation

‍