Challenging a Statutory Demand: Your Three Options

Challenging a statutory demand starts with knowing what it is. A statutory demand is a document that formally requests payment of an overdue debt within 21 days. You can pay the debt, make arrangements to pay all or part of it, or dispute all or part of it. Whatever you choose, act early.

How do you set aside a statutory demand?

If you are an individual, you can apply to the court to set aside a statutory demand within 18 days of receiving it, if you were in the UK when you got it. A company cannot challenge a statutory demand this way. Instead, it can apply to the court to stop the creditor winding it up.

A statutory demand is a document that formally requests payment of an overdue debt within 21 days. Making a demand is usually the first step in the process when a creditor (a company or person you owe money) wants to:

• Recover the overdue debt
• Make you bankrupt
• Force your company into compulsory liquidation  

Creditors can make statutory demands to limited companies for debts that are:

• Less than six years old
• £750 or more

However, the threshold is £5,000 if the debt is owed by an individual.

Disputing a statutory demand: your three options

Essentially, there are three ways to challenge a statutory demand:

1. Pay the debt immediately
2. Make arrangements to pay all or part of the debt
3. Dispute all or part of the debt

Additionally, if you respond within 18 days and the debt is disputed or more than six years old, you can apply to the court for the statutory demand to be set aside and dismissed. Irrespective of the option you choose, it’s vital that you act early.

If you’re going to dispute the debt, you must respond to the statutory demand within 18 days in writing. Explain in detail the grounds for the dispute. The creditor must oblige if you follow up with an invitation to withdraw the statutory demand.

A limited company may apply for injunctive relief if the creditor doesn’t withdraw the statutory demand after you’ve notified them of a dispute.

Defending a statutory demand with a court injunction

If the court grants the injunction, your creditor will probably have to pay your legal expenses. Realistically, those costs could range from £5,000 to £15,000, or more if the injunction is unsuccessfully resisted.

Grounds for challenging a statutory demand

The legal grounds for challenging a statutory demand can be technical. As a result, it’s always a good idea to seek advice and guidance from an independent insolvency specialist.

Insolvency & Law can act on your behalf to communicate with your creditor or their solicitor, and seek the immediate withdrawal of a statutory demand. It may take some time to reach an agreement, depending on:

• Your company’s circumstances
• Your personal circumstances
• How you wish to proceed

Counterclaiming is another useful strategy when defending a statutory demand. A counterclaim may neutralise a difficult creditor if your claim for direct, indirect, or consequential loss is worth more than their claimed debt.

Dealing with debt and unsure of your options?

Sources

• Insolvency Act 1986, sections 123, 267 and 268, legislation.gov.uk
• Insolvency (England and Wales) Rules 2016, rule 10.4, legislation.gov.uk
• Limitation Act 1980, section 5, legislation.gov.uk
• Challenge a statutory demand, GOV.UK

Disclaimer: Insolvency & Law Ltd is not a firm of solicitors or licensed insolvency practitioners. We do not conduct any regulated legal or financial activities as defined under the Legal Services Act 2007 or the Financial Services and Markets Act 2000. We do not offer legal advice, financial advice, debt counselling, or conduct of litigation.