Statutory demand: what it is and the 21 days

Short answer

A statutory demand is a written demand in the prescribed form for payment of a debt. Its force comes from the Insolvency Act 1986. For an individual, section 268(1)(a) provides that the debtor appears unable to pay a debt that is immediately payable where a creditor has served a statutory demand, at least three weeks have elapsed since service, and the demand has been neither complied with nor set aside. For a company, section 123(1)(a) deems a company unable to pay its debts where a creditor owed more than £750 then due has left a written demand in the prescribed form at the registered office and the company has for three weeks neglected to pay, secure or compound for the sum. The three weeks are the 21 days people search for. Nothing is seized and no court is involved at the demand stage; the demand sets up the petition that may follow.

The law

Individuals. Section 267(2) of the Insolvency Act 1986 provides that a creditor's bankruptcy petition may be presented only if, at the time of presentation, the debt or aggregate of debts is equal to or exceeds the bankruptcy level, the debt is for a liquidated sum payable immediately or at a certain future time and is unsecured, the debt is one the debtor appears unable to pay or to have no reasonable prospect of being able to pay, and there is no outstanding application to set aside a statutory demand in respect of it. Section 267 states the bankruptcy level as £5,000, adjustable by order. Section 268(1) supplies the "appears unable to pay" test: a statutory demand unanswered for three weeks, or execution or other process on a judgment returned unsatisfied in whole or part. Section 268(2) deals with a debt not yet payable: a demand requiring the debtor to establish to the creditor's satisfaction a reasonable prospect of paying when it falls due, unanswered for three weeks.

Setting aside. Rule 10.4 of the Insolvency (England and Wales) Rules 2016 provides that an application to set aside a statutory demand must be made within 18 days from the date of service, to the court determined under rule 10.48 (or the named court where the creditor is a government department or similar). On filing, the time within which the debtor must comply with the demand ceases to run, subject to any order under rule 10.5.

Companies. Section 123(1)(a) is the written demand route, with its £750 minimum and three-week period. Section 123(1)(e) deems a company unable to pay its debts where that is proved to the court's satisfaction as they fall due, and section 123(2) where the value of its assets is proved to be less than its liabilities, taking into account contingent and prospective liabilities. The £750 is adjustable by order under section 416.

The costs

The demand itself has no court fee. A creditor's bankruptcy petition carries a court fee of £352 and a winding-up petition £352, before the deposit the official receiver requires. By comparison a third party debt order application costs £139 and a charging order application £139, which is why insolvency is a last resort rather than a first step.

What happens next

1. Service. For a company the demand is left at the registered office (section 123(1)(a)). For an individual it is served in the manner the rules prescribe, and the three weeks run from service.
2. The debtor's three choices. Pay; secure or compound for the debt to the creditor's reasonable satisfaction; or, for an individual, apply within 18 days to set the demand aside under rule 10.4, which stops the clock while the application is decided. Ignoring the demand is what gives the creditor the section 268 or section 123 ground.
3. After three weeks. The creditor may present a petition if the other conditions are met: for an individual, a debt at or above £5,000, unsecured, for a liquidated sum, with no set-aside application outstanding (section 267(2)); for a company, a debt above £750 under section 123(1)(a). Statutory demand against winding-up petition and bankruptcy against winding-up petition set the next steps side by side.
4. Why it is not enforcement. A petition does not pay the creditor directly; it puts the debtor's estate into a collective process where every creditor shares. A creditor who wants payment from identified assets usually does better with a writ of control, a third party debt order or a charging order: see insolvency against enforcement and enforcement orders explained.

Where to get help

An individual served with a statutory demand has 18 days to apply to set it aside and should take advice immediately from National Debtline on 0808 808 4000, Citizens Advice or a solicitor. A company served with a demand should speak to its accountant or an insolvency practitioner within days, not weeks, because section 123 runs from service.