Statutory Demands

A statutory demand is a formal demand made under the Insolvency Act 1986. It is a document served by a creditor requiring you to:

• Pay the amount demanded in full; or
• Secure the debt to the creditor's reasonable satisfaction; or
• Compound for the debt (agree a settlement) to the creditor's reasonable satisfaction

The demand must be for a liquidated (fixed and ascertained) sum and at least £5,000 for individuals. It must be served personally (handed to you directly), though courts may allow substituted service in some circumstances.

There are prescribed forms for statutory demands — if the demand does not follow the correct form (Form 6.1 for a debt due immediately, Form 6.2 for a debt payable in the future, Form 6.3 for a judgment debt), this may be grounds to set it aside. The demand must also contain specific information including the amount owed, the basis of the debt, and the consequences of non-payment.

Statutory demands are commonly used by creditors as a precursor to bankruptcy proceedings because a demand that goes unanswered for 21 days creates a presumption of insolvency — making it easier to petition for bankruptcy.

On receiving a statutory demand, you have 21 days to respond. Do not ignore it. Your options are:

1. Pay in full: If you owe the debt and can pay it, do so and obtain written confirmation from the creditor that the demand is satisfied.
2. Negotiate: Contact the creditor immediately and propose a repayment arrangement. If the creditor agrees, obtain written confirmation. This does not automatically cancel the demand — ensure you get clear written agreement that bankruptcy proceedings will not be pursued while the plan is being maintained.
3. Apply to set aside the demand: If you dispute the debt, have a valid counterclaim that equals or exceeds the amount demanded, or the creditor holds security worth at least the value of the debt, you can apply to the court to set the demand aside. You must act within 18 days of service (not 21) to allow time for the court process.
4. Apply for Breathing Space: Entering Breathing Space pauses any bankruptcy petition that has not yet been presented, but does not set aside the demand itself. It gives you time to seek advice.

Even if you intend to pay or negotiate, it is worth taking immediate advice from a solicitor or debt charity to assess whether there are grounds to set the demand aside.

An application to set aside a statutory demand is made at the court using Form IAA (Insolvency Application). You must apply within 18 days of service. The application is heard by a district judge, usually at a short hearing. The legal aid is not generally available for this, but many solicitors offer a short fixed-fee initial consultation.

Grounds to set aside include:

• You have a genuine dispute about whether the debt is owed — for example, you never agreed to pay the amount claimed, the debt is statute-barred, or there has been a mistake in the amount
• You have a counterclaim, set-off, or cross-demand that equals or exceeds the amount of the statutory demand
• The creditor holds adequate security for the debt (for example, a mortgage over your property)
• The demand is technically defective — for example, the wrong form was used, the figures are incorrect, or service was irregular

The standard for setting aside is relatively low — you do not need to prove you will win; you only need to show that there is a genuine and substantial dispute about the debt. The court's approach is that a statutory demand should not be used as a debt collection tool where the underlying debt is disputed.

If you do not pay, negotiate a satisfactory arrangement, or apply to set aside the statutory demand within 21 days, the creditor may present a petition to the court for your bankruptcy. Key points about bankruptcy:

• A bankruptcy order means your assets (including potentially your home) are handed to a trustee in bankruptcy to be sold to pay your debts
• You will lose control of your finances and bank accounts during the period of bankruptcy
• Bankruptcy is recorded on your credit file for six years and on the Individual Insolvency Register for 15 months
• Certain professions and roles (solicitors, accountants, company directors, magistrates) may be barred to you during bankruptcy
• After one year you are automatically discharged from most debts and restrictions

Bankruptcy is not always the worst outcome — for some people with significant unmanageable debts and no assets, it provides a genuine fresh start. However, it should be entered into with full knowledge of the consequences. Always seek free advice from Citizens Advice, StepChange, or a licensed insolvency practitioner before allowing bankruptcy proceedings to progress.