Statutory Demands

Statutory Demands: A Powerful Debt Recovery Tool #

A statutory demand is a formal legal notice requiring a debtor to pay within 21 days. If ignored, it can lead to bankruptcy (for individuals) or winding-up proceedings (for companies).

When to Use a Statutory Demand #

  • Debt is undisputed – The amount owed is clear and not challenged.
  • Meets minimum threshold – £750 for companies, £5,000 for individuals.
  • The debtor can pay – But is refusing or delaying payment.
  • Strategic legal step – Often used before bankruptcy or liquidation threats.
  • Strong evidence available – Invoices, contracts, and payment records proving debt.

How to Prepare a Statutory Demand #

  • Step 1: Choose the Correct Form
    • Form SD1 – Individual debtors
    • Form SD2 – Company debts with security
    • Form SD3 – Company debts without security
  • Step 2: Complete the Demand
    • Full debtor details – Name, registered address (for companies), personal address (for individuals).
    • Exact debt amount – Clearly stated principal + any interest.
    • Creditor details – Your full legal name and contact address.
    • Supporting documents – Copies of invoices, agreements, and previous payment demands.
    • Mandatory legal warning – Clearly stating the consequences of non-payment.
  • Step 3: Serve the Demand Correctly
    • For individuals → Personal service (hand-delivered by a process server or solicitor).
    • For companies → Serve at the registered office (via process server, recorded delivery, or in person).
    • Keep proof of service → Signed delivery confirmation, witness statements, or court affidavits.

Statutory Demand Deadlines & Next Steps #

Action Deadline Details
Debtor must respond 21 days Must pay or negotiate settlement.
Debtor can apply to set aside (individuals only) 18 days Can file a challenge in court if they dispute the debt.
Creditor can escalate to court 4 months Must file bankruptcy/winding-up petition within this period.

What Happens After Issuing a Statutory Demand? #

1. If the Debtor Pays or Negotiates #

  • Case resolved. Ensure you get written confirmation of payment terms.

2. If the Debtor Disputes the Demand #

  • They may apply to set it aside (for individuals) or challenge it in court.
  • If the court finds the demand was issued improperly, you may face costs.

3. If the Debtor Ignores It (No Response in 21 Days) #

  • For companies: You can file a winding-up petition (forcing them into liquidation).
  • For individuals: You can apply for bankruptcy proceedings.

If unsure, seek legal advice before escalating. Insolvency proceedings can be costly.

Use this template to draft a statutory demand for an individual.

STATUTORY DEMAND (Under Section 268(1) of the Insolvency Act 1986)

To: [Debtor’s Full Name] Address: [Debtor’s Address]

From: [Your Full Name / Business Name] Address: [Your Address]

Amount Owed: £[Total Amount] Due Date: [Original Due Date]

Details of Debt: This demand is made for payment of the sum of £[Amount], which is immediately due and payable by you to the creditor under:

  • Invoice No: [Invoice Number], dated [Date]
  • Contract Ref: [Contract Number], signed on [Date]

Take Notice That:

  1. You must pay the full amount within 21 days from the date of service.
  2. If you fail to do so, the creditor may commence bankruptcy proceedings against you in the court.
  3. You have 18 days from service to apply to set aside this demand if you believe it is incorrect.

Signed: [Your Name] Date: [Date of Service]

For a company, use Form SD2 or SD3 instead.

Common Mistakes to Avoid #

  • Incorrect Form – Use the right statutory demand form for individuals vs. companies.
  • Improper Service – Serving incorrectly can invalidate the demand in court.
  • Disputed Debt – If the debt is not 100% clear, a statutory demand is risky (may lead to costs).
  • No Follow-Up Plan – If the debtor ignores it, be ready to escalate within 4 months.

Quick-Action Checklist #

  • Confirm the debt is undisputed (above £750 for companies, £5,000 for individuals).
  • Use the correct statutory demand form (SD1, SD2, or SD3).
  • Ensure all debtor and creditor details are accurate.
  • Serve the demand properly (personal service for individuals, registered office for companies).
  • Track the 21-day response deadline.
  • If unpaid, decide on the next step: enforcement, court proceedings, or insolvency action.

Key Takeaways #

  • Statutory demands are a fast and powerful debt recovery tool.
  • Must be served correctly to be valid.
  • If ignored, can lead to bankruptcy or winding-up proceedings.
  • Legal strategy is critical – plan your next steps carefully.

If you’re unsure, seek professional advice to avoid costly mistakes!