How To Respond to a Statutory Demand

A statutory demand is a written warning and formal notice from a creditor to a debtor, indicating that the creditor will commence legal proceedings to prove that the debtor is insolvent unless the debt is paid off or a payment plan is agreed. 

While not necessarily a debt recovery tool, it’s often used as one, but its proper purpose is to show that a person or company can’t keep up with their bills and liabilities, indicating that they’re insolvent. There are strict timelines involved when it comes to responding to a statutory demand, so you’ll need to act quickly as soon as you receive one. 

This guide will walk you through the steps you’ll need to take to respond to a statutory demand so you can navigate the process confidently, whether you plan to pay, dispute, or negotiate the debt. For expert help and advice with your response, contact Helix Law today.

How Long Do You Have To Respond to a Statutory Demand?

When you receive a statutory demand, you have 21 days from the date of service to make payment or 18 days to refer the matter to the court.

This means that you need to ensure that your payment, application, or response reaches its destination within the 21-day timeframe. Realistically, everything needs to happen much earlier to ensure we have sufficient time to prepare court proceedings if necessary to issue a court application. 

If you fail to respond within 21 days, the creditor can start bankruptcy proceedings against you if you’re an individual or winding-up proceedings against you if you’re a company.

Responding to a Statutory Demand

Since ignoring a statutory demand is not a viable option, you have three options for responding: you can either pay the debt, allege a counterclaim set off, or dispute the debt. To avoid insolvency proceedings, you can also consider offering security for the debt against an asset, but we won’t consider that further here.

Paying Back the Debt

If you acknowledge the debt and can pay it, this is the simplest way to resolve a statutory demand in England and Wales. Paying the amount in full before the end of the 21 days will prevent further legal action. You must obtain a receipt from the creditor so that you have a record of the settlement.

In many circumstances, this isn’t appropriate, such as when you dispute the alleged debt and don’t consider you to owe any money.

Alleging a Counterclaim

The courts also recognise situations where you might admit or deny that you owe someone else money but also claim they owe you money or damages. This is usually referred to as a counterclaim. 

If you have a valid counterclaim and are owed money yourselves, the court will be conscious not to allow insolvency to proceed and recognise this by setting off against what you owe and what you claim the other side owes you. 

As a worked example, if a company serves a statutory demand on you for £20,000, which you admit, but you allege you are owed £25,000 by the same creditor, the court will set off your £25,000 against the £20,000 claimed as owed by you. Clearly, this must be properly provable and able to be evidenced by you to be successful. 

Disputing the Debt

The most common response to a Statutory Demand is to dispute the debt. If you believe that the stated debt is incorrect or have other reasons to dispute it, you’ll need to act quickly. 

The first step is to review the content of the Statutory Demand and consider if there are any technical arguments or ‘easy wins’. Was the correct form used? Is the demand legally valid? Are there any defects we can rely on? 

Simultaneously, you should consider whether you admit the debt or dispute it for any reason. 

Keep in mind that any admissions can later be used against you. So, ensure you consider your position before blindly making offers to pay unless you can afford to do so immediately. Otherwise, you might essentially be admitting you’re insolvent.

As soon as you’re clear on your position, write to the creditor to clarify it. Even if it appears certain there’s a need for a court application, responding swiftly shows the court that you’ve acted reasonably. Attempting to avoid the need for court time and processes should position you favourably to try to recover your costs.

If there is no agreement, you may need to make a court application. The application will be different depending on whether you’re an individual or a company that has received the Statutory Demand.

Where an Individual Receives the Statutory Demand

For an individual, this means considering making an application to set aside the statutory demand. You’ll have to file an application using the correct form, Form IAA (which is also called an Insolvency Act Application Notice). This application must be made within 18 days and must be supported by evidence.

You can dispute the demand if:

• You genuinely believe you don’t owe the debt, or there’s a serious argument about the amount.
• You have a claim against the creditor that’s equal to or greater than the debt that they’re claiming—a counterclaim, as above.
• The creditor didn’t follow the proper procedure when serving the statutory demand to you.
• The statutory demand contains significant errors that would cause serious problems or unfairness if not corrected.

These grounds cover the most common reasons for disputing a statutory demand, but other grounds can exist depending on the specifics of your case. Obtaining expert legal advice is invaluable if you’re considering disputing the debt or are unsure whether or not you have grounds to dispute.

Where we are instructed to apply for a statutory demand to be set aside, we additionally seek recovery of your legal costs from the creditor in the application. 

It is essential that your application be thorough and properly drafted, with well-considered evidence in support. Once you’ve submitted your application and supporting evidence, you’ll usually hear back from the court within ten working days, and there will usually be at least one hearing.  

If the court agrees with your application, a bankruptcy registrar will arrange a hearing for your case, which you or your solicitor must attend. If the court doesn’t agree with your application, the creditor will obtain permission to issue a bankruptcy petition against you.

The courts don’t approve of people being ordered bankrupt where there are genuine triable issues in dispute. It’s not uncommon for the first hearing to include directions – essentially, the court setting out a timetable for you to prepare your case and to illustrate and evidence why (and how) there is a dispute. 

Where a Company Receives the Statutory Demand

If a company receives a statutory demand it’s not possible to make an application to set aside the demand; that applies to individuals only.

The correct approach for a company response is first to set out the nature of the issues in dispute, giving the creditor time to give undertakings (legally binding forms of promise) that they will not rely on the Statutory Demand. 

Failing the receipt of undertakings, it’s necessary to apply to the court for an injunction, requesting that the creditor be restrained (or prevented by court order) from issuing a winding-up petition against the company.

An injunction is a serious step but necessary to protect the company from the irreparable harm that a winding-up petition would cause.  

Frequently Asked Questions

What Happens if I Receive a Statutory Demand?

If you receive a statutory demand, you have 21 days to either pay the debt or 18 days to issue a court application if you dispute it. Ignoring the demand can result in the creditor commencing bankruptcy or winding-up proceedings against you. This could lead to significant financial consequences, including damage to your credit rating and loss of assets.

Can You Negotiate a Statutory Demand?

Yes, you can negotiate the money demanded within the statutory demand, and creditors are generally open to this as it avoids the hassle of court proceedings. To be clear, however, if you have legitimate disputes regarding the content of a demand, you should not delay taking steps to protect and improve your position, including issuing an application if necessary. 

Need Advice? Contact Helix Law.

Responding to a statutory demand quickly and correctly can help you avoid severe financial impacts and the consequences of insolvency. Whether you need to pay, negotiate, or dispute a debt, it’s essential to know your options and how each might affect you.
For expert advice and assistance, contact Helix Law. Our experienced litigation team is ready to help you navigate the statutory demand process.