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Statutory demand against a company: what happens next, and how to stop a petition

A statutory demand is a creditor's written demand for a company debt of more than £750. If the company does not pay it, secure it or agree a settlement within 3 weeks, the creditor can present a winding up petition. Once that petition is advertised in the Gazette, the bank usually freezes the company account, so the demand is the earliest point to act. I am Femi Ogunshakin, an insolvency solicitor. Your first 30-minute consultation is free.

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What is a statutory demand against a company?

The demand

A statutory demand is a formal written demand from a creditor, left at the company's registered office. It is not an order of the court. It must be headed as a demand under section 123(1)(a) of the Insolvency Act 1986. It must be dated and signed, and state the debt and what it is for.

It must tell the company it has 21 days to pay, after which the creditor may petition. It must also name a person the company can deal with to secure or settle the debt. And it must state the company's right to ask the court for an injunction to stop a petition.

What it leads to

The court can wind a company up if it is unable to pay its debts. An unpaid statutory demand is one way the law treats a company as unable to pay. The demand itself starts nothing at court. The creditor must still choose to present a petition.

If more than 4 months pass between the demand and the petition, the petitioner must explain the delay to the court in a witness statement. Read how a winding up petition then runs, step by step.

The three numbers on a statutory demand

Most of what matters about a company statutory demand comes down to a sum, a deadline and a time limit.

£750

The demand route applies only where the creditor is owed more than £750. In my experience the court will reject a petition for a debt below that figure.

21 days

The company has 3 weeks from service to pay the sum, secure it, or compound for it to the creditor's reasonable satisfaction. The demand must say so in terms.

4 months

GOV.UK tells creditors they have 4 months to apply to wind up the company after a demand. A creditor who petitions later than that must explain the delay to the court.

A creditor does not have to serve a statutory demand first. It can instead prove to the court that the company cannot pay its debts as they fall due. HMRC, for example, does not need to serve one.

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What should a company do in the 21 days after a statutory demand?

Use the 3 weeks. GOV.UK lists four responses: pay the debt, agree with the creditor to pay it later, enter administration, or apply to wind the company up yourself. If the debt is disputed, the company cannot apply to set the demand aside. Its route is to ask the court to stop the creditor presenting a petition. Which route fits depends on whether the debt is owed, and on what the company can pay.

If the debt is owed

Pay it, or agree terms before the 3 weeks run out. The demand names a person at the creditor the company can deal with to secure or settle the debt.

  • Check the amount against your own records and note the date the demand arrived.
  • Work out what the company can pay now and what it can pay over time.
  • Make a written offer to the named contact, and keep a copy.
  • If the creditor is HMRC, this is the stage to ask for Time to Pay. HMRC usually only agrees it before it presents a petition.
  • Call me. The consultation is free and you do not need to send papers first.

If you have been served today, get in touch today. The window is measured in business days.

If the debt is disputed

GOV.UK says the company can apply to the court to restrain its creditors from applying to wind it up. It says to do so within 21 days of getting the demand. The application goes to a court with power to wind the company up.

The court does not let a winding up petition be used to decide a substantial dispute raised in good faith. Holding back money the contract does not let you hold back is not a genuine dispute. The application is decided on the evidence and can fail.

Read more on disputing a winding up petition.

What happens if a statutory demand is ignored?

The demand is the first step in a set sequence. The freeze usually happens at step five.

Empty boardroom table set with a row of blank documents
  1. Demand served The creditor leaves the written demand at the company's registered office
  2. 3 weeks pass The debt is not paid, secured or compounded for, so the law treats the company as unable to pay its debts
  3. Petition presented The creditor files the petition, the court fixes a hearing, and the creditor serves it on the company
  4. Advertisement Not less than 7 business days after service, the petition appears in the Gazette and becomes public knowledge
  5. Freeze Banks usually freeze the account on the day of the notice or within about 48 hours

If the petition has already been presented

From the day the petition is presented, any payment the company makes is void if a winding up order follows, unless the court orders otherwise. The company can apply for a validation order so that payments out of its bank account are not void. That order deals with the payments. It does not settle the debt or stop the hearing.

Before the advert

The notice cannot appear until 7 clear business days after service, not counting the day of service. HMRC usually waits until the last permitted date. Other petitioners sometimes advertise as soon as they can. A validation order applied for now can be in place before the bank freezes the account.

Before the advert, the court can allow the petitioner to withdraw the petition. It can do so only if the company consents and no other creditor has given notice.

At the hearing

The court can dismiss the petition, adjourn it or make a winding up order. A validation order is not a defence to the petition. If the debt is left unpaid, the court can still wind the company up.

If payroll is days away, say so when you call. I will tell you straight away whether the timing works.

Statutory demand questions

What happens if I cannot pay a statutory demand within 21 days?

After 3 weeks the law treats the company as unable to pay its debts, and the creditor can present a winding up petition. GOV.UK lists the ways to respond: pay, agree terms, put the company into administration, or apply to wind it up yourself. If a petition follows and the debt stays unpaid, the court can make a winding up order at the hearing.

Can a creditor petition to wind up a company without a statutory demand?

Yes. The Act does not make a statutory demand a precondition of a petition. A creditor can instead prove the company cannot pay its debts as they fall due, or rely on an unsatisfied judgment. See HMRC winding up petitions for how HMRC proceeds.

Can I ignore a statutory demand if I think the debt is unfair?

No. The Insolvency Service warns that ignoring a demand risks a petition, and credit being affected once others learn of it. A company cannot apply to set the demand aside. It can ask the court to stop the creditor presenting a petition, and GOV.UK says to do so within 21 days.

How do I show the debt in a statutory demand is genuinely disputed?

The court asks whether there is a substantial dispute raised in good faith, not a device to hold back money the contract does not allow. It decides on the evidence, so the contract, the invoices and the correspondence matter. The application can fail if the dispute is not shown to be substantial.

Does paying part of the debt stop a statutory demand?

Not on its own. The Act requires the company to pay the sum, or to secure or compound for it to the creditor's reasonable satisfaction. A part payment the creditor has accepted in settlement is one thing. A part payment it has not agreed to leaves the demand open. Agree terms with the person named in the demand, and get them in writing.

Is a statutory demand the same as a County Court Judgment?

No. A statutory demand is the creditor's own document, dated and signed by the creditor or someone acting for it. No court has looked at the debt. A judgment is a court's decision, and an unsatisfied judgment is a separate route to a petition. Where a demand is based on a judgment, the demand must give details of it.

Can a statutory demand be withdrawn?

The demand is met if the company pays the sum, or secures or compounds for it to the creditor's reasonable satisfaction within 3 weeks. Otherwise the creditor decides whether to petition, and must explain any delay of more than 4 months. Get any agreement with the creditor in writing before the 3 weeks end.

What is the difference between a statutory demand and a winding up petition?

A statutory demand is a creditor's written demand left at the registered office. It gives the company 3 weeks to pay, secure or compound for the debt. A winding up petition asks the court to wind the company up. It is filed at court, given a hearing date and served on the company. The petition is then advertised in the Gazette, which is usually when the bank freezes the account.

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First consultation

Free

A free 30-minute consultation with me to explore your options and protect your business.

What the consultation covers

  • Where the demand or petition is in the process and how much time you have
  • Whether a validation order would help, and whether an application is likely to succeed
  • Whether an adjournment can be sought while you consider how to settle the debt
  • Your other options: a Time to Pay arrangement with HMRC, raising finance to settle the petition debt, or placing the company into voluntary liquidation
  • What happens next if you decide to instruct me

The fixed fee for a validation order application is £10,000 to £15,000 plus VAT, depending on the size of the petition debt. See the full fee breakdown.

Femi Ogunshakin, insolvency solicitor

Who you will deal with

Femi O. Ogunshakin

Solicitor, Tax Adviser and Former HMRC Inspector

Validation order applications are a large part of my practice. Most of the petitions I deal with are brought by HMRC, and my time as an HMRC inspector means I know how the petitioning side builds and runs these cases.

You will deal with me directly rather than with an introducer or a case handler. The work is carried out through Nexa Law, where I practise. The first 30 minutes are free.

Received a statutory demand?

If your company has received a statutory demand, the 3 weeks are the time to act. Call or email me to talk through the demand, the petition that can follow, and a validation order if one is needed. I offer a free 30-minute consultation to help you explore your options and protect your business.

07867 795 439

Email femi@loftusstowe.com
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