TRW & Co · Restructuring and insolvency
How to Respond to a Statutory Demand
A statutory demand gives a debtor 21 days to pay, secure or settle a debt before the creditor can petition for bankruptcy or winding up. Individuals who dispute the debt must apply to set it aside within 18 days. Companies cannot set aside a demand, but can seek an injunction to stop a petition on a genuinely disputed debt.
Key pointThe remedy depends on who was served: individuals apply to set the demand aside, while companies must seek an injunction restraining a winding-up petition. Using the wrong route, or acting after the deadline, can turn a winnable dispute into a frozen bank account.
At a glance
Time to comply
The debtor has 21 days, or three weeks, from service to pay, secure or compound the debt before the creditor can rely on the demand to petition.
Individuals: 18 days
An individual who disputes the debt must apply to court on form IAA within 18 days of service, with longer periods if the demand was served abroad.
Companies: injunction
A company cannot set aside a demand; it can apply for an injunction restraining a winding-up petition where the debt is disputed on substantial grounds.
Thresholds
A company demand requires a debt over £750, and a bankruptcy petition requires a debt at or above the £5,000 bankruptcy level under the Insolvency Act 1986.
Grounds to challenge
Courts set aside or restrain demands where the debt is genuinely disputed, a cross-claim equals or exceeds it, or security has been ignored or undervalued.
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The short answer: how to respond to a statutory demand
A statutory demand is a formal written demand for payment of a debt that, if ignored, lets the creditor petition to bankrupt an individual or wind up a company. You should never ignore one. The right response depends on whether the demand was served on you personally or on your company, and on whether you genuinely owe the money.
If you owe the debt, you have 21 days from service to pay it, secure it or agree terms with the creditor. If you dispute it and you are an individual, you can apply to court to set the demand aside, but the application must be made within 18 days of service. A company cannot apply to set aside a demand; instead, it can ask the court for an injunction to stop the creditor presenting a winding-up petition on a disputed debt.
Time is the critical factor. The deadlines run from service, not from when you read the document, and they are short. Take advice as soon as the demand arrives.
The legal framework in England and Wales
The procedure comes from the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. There are two separate regimes.
Demands against companies
Under section 123 of the Insolvency Act 1986, a company is deemed unable to pay its debts if a creditor owed more than £750 serves a written demand in the prescribed form at its registered office, and the company neglects for three weeks to pay, secure or compound the debt to the creditor's reasonable satisfaction. That deemed inability to pay is a ground for a winding-up petition.
Demands against individuals
For individuals, including sole traders and partners, section 268 lets a creditor serve a demand for a debt payable now, or for a future debt the debtor appears to have no reasonable prospect of paying. A creditor can only present a bankruptcy petition where the debt is at least the bankruptcy level, currently £5,000 under section 267, is unsecured and is for a liquidated sum.
The 18-day and 21-day clocks
The Rules require a demand on an individual to state that any application to set aside must be made within 18 days of service, and that if the debtor does not apply or otherwise deal with the demand within 21 days they could be made bankrupt. Longer periods apply where a demand is served outside the jurisdiction. The GOV.UK guidance on statutory demands summarises the process and forms.
What a valid demand must contain
The Rules prescribe the contents of a demand on an individual in detail. It must identify the debtor and creditor, state the amount of the debt and how it arose, separately identify any interest or other charges not previously notified, and name a person the debtor can contact to settle. If the creditor holds security, the demand must state its nature and value and claim only the balance. It must also tell the debtor about the right to apply to set it aside and which court to apply to.
Checking these details is worthwhile, but a defect alone rarely wins the day. The court asks whether the debtor has been misled or prejudiced, and whether a real debt at or above the relevant threshold remains unpaid. Treat defects as supporting points, not a complete answer.
How long the demand stays live
GOV.UK guidance states that a creditor has four months from service to apply to bankrupt or wind up the debtor, and must explain any lateness to the court. The same guidance says a creditor cannot usually serve a demand for a debt more than six years old, reflecting the general limitation period for contract debts.
Scotland has its own forms and procedures, and Northern Ireland has separate legislation. This guide covers England and Wales.
First steps when the demand arrives
Whatever your view of the debt, the first 48 hours matter. Work through these steps quickly.
- Record the date of service. Note when and how the demand was delivered, and keep the envelope or any process server's details. Every deadline runs from service.
- Identify who it is against. Check whether the demand names you personally or a company. The remedies are completely different.
- Check the debt. Compare the amount with invoices, contracts, payments and correspondence. Note any element that is disputed, any interest or charges not previously notified, and any security the creditor holds.
- Look for a cross-claim. Consider whether you have a genuine counterclaim, set-off or cross-demand, such as damages for defective goods or services, that equals or exceeds the sum demanded.
- Take advice and decide the route. Choose between paying, negotiating, applying to set aside (individuals) or seeking an injunction (companies). If you dispute the debt, write to the creditor setting out the dispute with evidence.
- Diarise and act before the deadline. For an individual, file any set-aside application within 18 days. For a company, seek an undertaking not to petition and, if none is given, apply for an injunction without delay.
A creditor does not need to serve a demand before presenting a winding-up petition. It can instead prove that the company is unable to pay its debts as they fall due. If a creditor's letter threatens winding up over a disputed debt, the same injunction route may be available even where no statutory demand has been served.
Setting aside a statutory demand against an individual
An individual applies using form IAA, supported by a witness statement explaining when they became aware of the demand, the grounds for setting it aside and the supporting evidence. Filing the application stops the time for complying with the demand from running, subject to the court's orders.
The court may dismiss a weak application on paper without notice to the creditor. Otherwise it lists a hearing. Under rule 10.5 of the Insolvency Rules, the court may set the demand aside if:
- the debtor appears to have a counterclaim, set-off or cross-demand that equals or exceeds the debt;
- the debt is disputed on grounds that appear to the court to be substantial;
- the creditor holds security and has not properly stated and valued it in the demand, or the security is worth at least the full debt; or
- the court is satisfied on other grounds that the demand ought to be set aside.
"Substantial" means a genuine, arguable dispute supported by evidence, not a bare assertion. Where the demand is based on a court judgment, the court will not usually go behind the judgment; the debtor's remedy is normally to appeal or apply to set the judgment aside.
Technical defects, such as an overstated amount, do not automatically defeat a demand. If part of the sum is undisputed and at least the bankruptcy level, the court may decline to set it aside. If the application fails, the court can authorise the creditor to present a bankruptcy petition.
How a company responds: restraining a winding-up petition
A company has no procedure to set aside a demand. If the company owes the money, it should pay, secure or agree terms within 21 days. If it disputes the debt, its remedy is to ask the creditor for a written undertaking not to present a petition and, failing that, to apply for an injunction under rule 7.24 of the Insolvency Rules.
The courts have long held that winding-up proceedings are not a proper way to resolve a genuine dispute about a debt. A petition presented on a debt disputed on substantial grounds is treated as an abuse of process, and the court will restrain it. A genuine and serious cross-claim exceeding the debt may also justify an injunction, although that is a matter for the court's discretion.
Speed matters because the consequences of a petition are severe. Once a petition is presented, section 127 makes dispositions of company property after that date void if a winding-up order is later made, unless the court validates them. Banks often freeze accounts when a petition is advertised, which can cripple a solvent business. Our guide to winding-up petitions explains what happens next.
The quickest way to lose a dispute you should win is to let a statutory demand expire. A company that disputes the debt must act before the creditor presents a petition, not after.
Your options compared
| Situation | Recommended response | Deadline | Main risk |
|---|---|---|---|
| Individual owes the debt | Pay, offer security or agree a repayment plan in writing | Within 21 days of service | Bankruptcy petition if the debt is at least the bankruptcy level |
| Individual disputes the debt or has a cross-claim | Apply to set aside on form IAA with a witness statement | Within 18 days of service (longer if served abroad) | Late application needs the court's permission |
| Company owes the debt | Pay, secure or compound to the creditor's reasonable satisfaction | Within three weeks of service | Winding-up petition, frozen bank accounts |
| Company disputes the debt on substantial grounds | Seek an undertaking not to petition; apply for an injunction if refused | Before any petition is presented, as soon as possible | Petition advertised before the injunction is obtained |
| Company cannot pay any of its debts | Take insolvency advice on a CVA, restructuring, administration or liquidation | Immediately | Director liability for continuing to trade |
Illustrative scenario: a disputed invoice
This scenario is illustrative only and does not describe any real party or case.
A London logistics company receives a statutory demand from an IT contractor for unpaid invoices. The company says the system was delivered late and never worked as specified, and that it has spent significant sums on a replacement. It has said so in emails over several months.
The finance team's instinct is to leave the demand until the director returns from holiday. That would be a serious mistake. After three weeks the contractor could present a winding-up petition, and once advertised the company's bank might freeze its accounts.
Instead, the company writes to the contractor within days, setting out the dispute with documents and asking for an undertaking that no petition will be presented. When no undertaking arrives, it applies for an injunction. Because the emails show the dispute existed long before the demand and is supported by evidence, the court is likely to restrain the petition and may order the contractor to pay the costs. The underlying dispute then proceeds, if at all, as an ordinary contract claim.
Risks and common mistakes
Missing the 18-day set-aside deadline
Individuals often wait to see whether the creditor follows through. By the time a bankruptcy petition arrives, the 18-day window has passed. An extension can be sought, but the court will want a good explanation and evidence of a real defence. The safer course is to diarise the deadline on the day the demand is served and to prepare the form IAA and witness statement promptly, even while negotiating with the creditor.
Applying to set aside a demand served on a company
Directors sometimes try to use the individual set-aside procedure for a company. It does not apply. The company's remedy is an injunction to restrain presentation of a winding-up petition. Using the wrong procedure wastes time and money and may leave the company exposed when the three weeks expire. If the demand names the company, focus on the dispute evidence and on obtaining an undertaking or injunction.
Raising a dispute only after the demand
Courts are sceptical of disputes that appear for the first time once a statutory demand lands. A complaint about quality or delivery that was never raised while the contract was running will carry less weight. Contemporaneous emails, meeting notes and expert evidence help show that a dispute is genuine. Businesses should raise performance issues in writing as they arise, not only when payment is demanded.
Paying part of the debt without a written agreement
Part payment may reduce the debt but does not stop the clock unless the creditor agrees in writing to hold off or accept instalments. If the undisputed balance still exceeds the relevant threshold, the creditor can usually still petition. Any settlement should be recorded in writing, setting out the payment plan and confirming that the demand is withdrawn or will not be relied on while payments are made.
Overlooking the creditor's side of the risk
Creditors who use statutory demands to pressure payment of a genuinely disputed debt can face adverse costs, sometimes on an indemnity basis, and potentially damages claims. For creditors, a statutory demand is a powerful tool for undisputed debts, but a claim through the courts is usually the right route where liability is contested. Our guide to recovering unpaid invoices compares the options.
Cross-border points
Demands are often served on directors, guarantors or companies with links abroad. Where the debtor is served outside England and Wales, the 18-day and 21-day periods are extended by reference to a table of countries in the civil procedure rules, so the deadline should be checked carefully.
A creditor serving a demand overseas must comply with both the English rules and the law of the place of service. Debtors in Bangladesh, the Gulf or Asia who receive a demand from London should not assume it can be safely ignored: an English bankruptcy or winding-up order can have wide practical consequences, including for UK assets and future business in the UK.
Personal guarantees are a frequent source of demands against individuals. A guarantor who receives a demand should review the guarantee terms and any defences, as explained in our guide to personal guarantees.
What to do next: a checklist
- Write down the date and method of service today.
- Confirm whether the demand is against you personally or against a company.
- Gather the contract, invoices, payment records and any correspondence about the dispute.
- Diarise the 18-day deadline (individuals) and the 21-day deadline (everyone).
- If you dispute the debt, put the dispute in writing to the creditor with evidence.
- Companies: request an undertaking not to petition and prepare for an urgent injunction application.
- If the company cannot pay its debts generally, take advice on restructuring or insolvency options straight away.
TRW & Co's London lawyers in contentious insolvency and debt recovery act for debtors and creditors on demands, set-aside applications and urgent injunctions. Where advocacy in the higher courts is required, we instruct specialist counsel. If you have received a demand, contact our London office as soon as possible.
Frequently asked questions
01What happens if I ignore a statutory demand?
If you do not pay, secure or settle the debt within 21 days, and you have not applied to set the demand aside, the creditor can rely on it as evidence that you cannot pay your debts. For an individual, that can lead to a bankruptcy petition if the debt is at least the bankruptcy level. For a company, the creditor can present a winding-up petition, and once that is advertised the company's bank may freeze its accounts. Ignoring a demand is almost always the worst option.
02Can a company set aside a statutory demand?
No. The procedure for setting aside a statutory demand applies only to individuals. A company that disputes the debt should write to the creditor explaining the dispute and asking for an undertaking not to present a winding-up petition. If the creditor refuses or does not respond, the company can apply to court for an injunction restraining presentation of the petition. The court will usually grant one where the debt is disputed on genuine and substantial grounds.
03How long do I have to respond to a statutory demand?
You have 21 days from service to pay, secure or agree terms for the debt. An individual who wants to challenge the demand must apply to set it aside within 18 days of service. If the demand was served outside England and Wales, both periods are extended according to a table of countries. Weekends and bank holidays can affect the last day for filing. Because every deadline runs from service, record the service date as soon as the demand arrives.
04Can a creditor serve a statutory demand for a disputed debt?
A creditor can serve one, but it is risky. If the debtor shows the debt is disputed on substantial grounds, an individual's demand is likely to be set aside, and a company can obtain an injunction stopping a winding-up petition. The creditor may then have to pay the debtor's costs, sometimes on an indemnity basis. Where liability is genuinely contested, creditors are usually better served by issuing an ordinary court claim and enforcing any judgment.
05Is there a minimum debt for a statutory demand?
For a company, the debt must exceed £750 for the demand to found the statutory presumption of inability to pay under section 123 of the Insolvency Act 1986. For an individual, a creditor can only present a bankruptcy petition if the unsecured debt is at least the bankruptcy level, currently £5,000. Several creditors may combine debts to reach that level. Smaller debts are usually pursued through the county court instead.
06Can I get a statutory demand set aside if part of the debt is owed?
Possibly not. If the undisputed part of the debt is still at or above the bankruptcy level, the court may refuse to set the demand aside even if the creditor has overstated the total. The same logic applies to companies: an injunction is less likely where an undisputed balance above the threshold remains unpaid. Paying the undisputed element and disputing the rest in writing often puts the debtor in a much stronger position.
Sources and official materials
- Make and serve a statutory demand, or challenge one (GOV.UK) — Official guidance on forms, service, deadlines and challenges
- Insolvency Act 1986, section 123 — When a company is deemed unable to pay its debts
- Insolvency Act 1986, section 268 — Statutory demands against individuals
- Insolvency (England and Wales) Rules 2016, rule 10.5 — Grounds on which the court may set aside a statutory demand
- Insolvency (England and Wales) Rules 2016, rule 7.24 — Injunctions to restrain presentation of a winding-up petition
- Insolvency Act 1986, section 127 — Avoidance of dispositions of company property after a petition
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.