What to Do If You Receive a Statutory Demand
A statutory demand is a formal written demand under the Insolvency Act 1986, usually the precursor to bankruptcy or winding-up proceedings. You have 21 days to pay, secure, or compound the debt — or to apply to set it aside.
Quick Answer
A statutory demand is serious — it is the standard first step before a creditor petitions for your bankruptcy. You have 18 days from service to apply to the court to set it aside (if the debt is disputed or there is a valid cross-claim). If the debt is undisputed, you have 21 days to pay in full, offer security, or negotiate. Do not ignore a statutory demand.
Full Explanation
A statutory demand is a formal written demand served under rule 10.1 of the Insolvency (England and Wales) Rules 2016 and sections 267–268 of the Insolvency Act 1986. It must be in the prescribed form (Form SD1 for individuals) and must claim at least £5,000 (for individual insolvency). If not satisfied within 21 days of service, it creates a presumption of inability to pay debts — meaning the creditor can petition to make you bankrupt without any further prior warning.
A statutory demand is not a court order and does not require a court fee to serve. Any creditor owed more than £5,000 can serve one. It is therefore sometimes used as a debt collection tactic rather than a genuine prelude to bankruptcy proceedings — which is why it must be taken seriously but evaluated carefully.
The key question on receipt is: is the debt genuinely owed? If the debt is disputed on substantial grounds, you can apply to the court to set aside the demand under rule 10.5 of the Insolvency Rules 2016. You must apply within 18 days of service. Grounds for set-aside include: (a) the debt is disputed on substantial grounds; (b) the debtor has a cross-demand equal to or exceeding the debt; (c) the creditor holds adequate security; or (d) the court is satisfied on other grounds that the demand ought to be set aside. Application is made to the County Court Insolvency and Companies Court using Form IPO (Insolvency Proceedings — Application to Set Aside Statutory Demand).
If the debt is undisputed, the options within 21 days are: pay in full; reach an agreement with the creditor to pay by instalments or accept reduced payment in settlement; offer security for the debt; or enter a formal insolvency arrangement (IVA or DRO) if the debt is part of a wider financial problem.
If 21 days expire without satisfactory response and no set-aside application is pending, the creditor may petition for your bankruptcy. The petition is presented to the County Court (or Insolvency and Companies Court in London) and a hearing is listed. At that hearing you can still oppose the petition, but it is much harder than setting aside the demand, and costs will have accumulated significantly.
Legal Basis
- §Insolvency Act 1986, ss.267–268 (grounds for creditor's bankruptcy petition; statutory demand)
- §Insolvency (England and Wales) Rules 2016, rr.10.1–10.7 (statutory demands and set-aside)
- §Re A Debtor (No 1 of Lancaster) [1998] BPIR 677 (substantial dispute for set-aside)
- §Insolvency Act 1986, s.282 (annulment of bankruptcy — relevance where demand was improperly served)
What To Do
Check the Validity of the Demand
Check that the demand is in the correct form (Form SD1), correctly identifies you, states a debt of at least £5,000, and has been properly served (personal service or by leaving at your last known address). Defective service or an incorrectly completed form may be grounds for set-aside.
Assess Whether the Debt Is Genuinely Owed
Review your records carefully. Is the debt yours? Is it the amount claimed? Is it time-barred (more than 6 years since the last payment or written acknowledgement)? Do you have a cross-claim that equals or exceeds the debt? If any of these apply, you have strong grounds for set-aside.
Apply to Set Aside Within 18 Days If Disputed
If the debt is disputed or you have a cross-claim, apply urgently to the County Court to set aside the demand using the prescribed insolvency application form. Attach a witness statement setting out the grounds of dispute with supporting documents. The 18-day deadline is strict.
Negotiate With the Creditor If Debt Is Owed
If the debt is undisputed, contact the creditor or their solicitors immediately to negotiate payment in full, instalments, or a reduced settlement. Get any agreement in writing and pay within 21 days. Partial payment without an agreement does not satisfy the demand.
Take Debt Advice If the Debt Is Part of a Wider Problem
If the statutory demand is one of several debts you cannot service, take free debt advice from National Debtline, StepChange, or Citizens Advice. They can advise on IVAs, DROs, and other formal insolvency options that may be more appropriate than simply addressing this single demand.
Important Deadlines
Important Warnings
The 18-day deadline to apply to set aside the demand is strict — courts rarely extend it. Missing it does not prevent you opposing a subsequent bankruptcy petition, but it is much harder and more expensive to do so at that stage.
A statutory demand can be served on you even if the debt is statute-barred (more than 6 years since the last payment) — but limitation is a valid ground for set-aside. Take advice urgently if the debt appears old.
If the demand is a pressure tactic over a disputed debt and no set-aside application is made, the creditor may proceed to petition for bankruptcy even if the debt is not actually owed. Courts take a dim view of this practice, but it still causes significant disruption.