A statutory demand is the pre‑litigation tool with the sharpest teeth in UK commercial debt recovery. It is also the tool most often used badly. This guide sets out when a statutory demand is the right move on an unpaid invoice, when it is the wrong one, the twenty‑one‑day window it triggers, and the path from demand to winding‑up petition.
What a statutory demand is
A statutory demand is a formal notice, served under section 123 of the Insolvency Act 1986, requiring a debtor to pay a specified sum within twenty‑one days. If the debtor does not pay or apply to set the demand aside within that window, the creditor is entitled to present a winding‑up petition against the debtor company in the Companies Court.
It is not a court order. It is a procedural step that, by operation of statute, deems the debtor to be unable to pay its debts if the deadline passes without payment or substantive challenge. That deemed inability is the trigger for winding‑up jurisdiction.
The conditions that must be met
The debt must exceed £750
Statutory demands against companies require the debt to be at least £750. Below that threshold the procedure is not available and the matter must be pursued by ordinary money claim.
The debt must be undisputed
This is the critical limiting condition. A statutory demand is appropriate only where the debt is genuinely undisputed on substantial grounds. If the debtor is able to show the court that there is a real dispute on the merits, the demand will be set aside and the creditor is likely to face a costs order. The threshold for "real dispute" is not high. Manufactured complaints raised after the demand are usually disregarded; pre‑existing documented disputes are not.
The debt must be presently due and payable
The invoice must have fallen due before the demand is served. Future‑dated obligations cannot be the subject of a statutory demand until they crystallise.
The debtor must be a company or LLP
Statutory demands against individuals exist as a parallel procedure (under section 268 Insolvency Act) and trigger bankruptcy rather than winding up. The procedure for company and LLP debtors is described here.
When you should use a statutory demand
A statutory demand is the right tool in narrow circumstances:
- The debt is genuinely undisputed and provable on the documents.
- It exceeds £750, comfortably.
- The debtor has the means to pay but is choosing not to. A statutory demand against an insolvent debtor is functionally pointless because winding up will recover little or nothing.
- The earlier escalation steps have been exhausted. Letters before action ignored. Direct correspondence with the debtor's directors unsuccessful. The matter has reached a point where a procedural escalation is justified.
- The creditor accepts that the relationship with the debtor is over. A statutory demand is publicly traceable and broadly perceived as nuclear; the commercial relationship rarely survives.
When you should not
The risks of misusing a statutory demand are real.
Where any genuine dispute exists
If the debtor has previously raised, in writing, an issue going to the merits of the debt (defects in the goods, performance failures, set‑off claims), the statutory demand is procedurally vulnerable. The court will set the demand aside on the application of the debtor and is likely to award the debtor's costs, which can be substantial.
Where the debtor is plainly insolvent
A winding‑up petition against an insolvent company puts the creditor in line with all other unsecured creditors in the liquidation. Recovery is typically pennies in the pound, after lengthy delay. Pursuing a statutory demand in this situation may achieve nothing more than terminating the company, which is not the creditor's goal.
Where the relationship has commercial value
A statutory demand is not subtle. If the creditor and debtor have a continuing commercial relationship that has commercial value (an ongoing supply contract, a strategic account), the statutory demand effectively ends it. Choose accordingly.
Where the matter is small
For debts under several thousand pounds, the small claims track is generally a more proportionate route. Statutory demands are best reserved for sums where the cost of the procedure is justified by the recovery potential.
The twenty‑one‑day window
Once a statutory demand is properly served, the debtor has twenty‑one days to do one of three things.
Pay
The most common outcome on undisputed debts. The threat of a winding‑up petition concentrates the mind. Many directors who have ignored multiple LBAs respond to a statutory demand within a working day. Payment of the debt in full, including the statutory entitlements added under the Late Payment Act, ends the matter.
Apply to set the demand aside
The debtor can apply to court to have the demand set aside, on the grounds that the debt is disputed, that there is a counterclaim, or that the demand was procedurally defective. The application must be made within eighteen days of service. A successful application leaves the creditor exposed to costs.
Do nothing
If the debtor does neither, the creditor is entitled, after twenty‑one days, to present a winding‑up petition. The petition must be advertised in The Gazette and is publicly searchable, which has consequences for the debtor's banking and commercial relationships.
About eighty‑five percent of properly grounded statutory demands result in payment within twenty‑one days. Of the remainder, most are settled or compromised before a winding‑up petition is heard. A small minority proceed to liquidation.
From statutory demand to winding‑up petition
If the debtor neither pays nor sets aside, the creditor's options are:
Present a winding‑up petition. The petition is filed at the Companies Court (in London at the Rolls Building, or at a designated district registry outside London). The court fee, presently around £2,000, plus deposit for the Official Receiver, is recoverable from the debtor if the petition is successful. The petition is then advertised in The Gazette seven business days before the hearing.
Withdraw and pursue by ordinary claim. If circumstances have changed, the creditor can withdraw and recover by money claim instead. This is rare; usually the value of the statutory demand approach is its credibility, and stepping back undermines that.
Negotiate. Many statutory demand cases are settled in the days between expiry and presentation of the petition. The debtor's directors realise that advertisement is imminent and reach for a settlement.
Service of the statutory demand
Service at the registered office is the standard method. Personal service on a director is also permitted. Postal service to the registered office, with proof of delivery, is sufficient and is the most common approach in practice.
Improperly served statutory demands are a procedural gift to the debtor. Always serve at the registered office as recorded at Companies House on the date of service. Trading addresses, branch addresses, or correspondence addresses are not equivalent.
Statutory demand vs Letter Before Action vs County Court claim
Three pre‑litigation routes are available for an undisputed commercial debt. Each has a different cost, speed, and consequence profile.
Letter Before Action
Cheapest, most common, governed by the Practice Direction on Pre‑Action Conduct. Fourteen‑day window. Ends in court proceedings if ignored. See our LBA template for the structural details.
Statutory demand
Higher procedural cost, but materially sharper teeth. Twenty‑one‑day window. Ends in winding‑up petition if ignored. Reserved for undisputed, well‑documented debts where the relationship is over.
Money claim
Issued through the County Court (or Money Claim Online for small claims). Court fee scales with the claim value. Defended claims can take months to a year to reach trial. Default judgment is the usual outcome on undisputed debts where the defendant does not file a defence.
The right tool depends on the debt size, the dispute risk, and the creditor's appetite for procedural escalation. For most undisputed B2B debts of £1,000 to £25,000 with no genuine dispute, the LBA into county court claim sequence is proportionate. For undisputed debts above £10,000 where the debtor has the means but is refusing to pay, the statutory demand sequence is materially faster and more effective.
Frequently asked questions
Can a statutory demand be used against a sole trader?
Statutory demands against individuals exist under a parallel procedure leading to bankruptcy. The mechanics differ. We do not act on individual debtors as a matter of policy.
What is the cost of presenting a winding‑up petition?
Court fee plus Official Receiver deposit, currently around £2,000 to £2,500 in total. Solicitor's costs in addition. Recoverable from the debtor if the petition is successful.
Can the debtor add interest charges to the disputed amount to take it under £750?
No. The threshold relates to the principal, not to a netted‑down figure after counterclaims. A debtor cannot defeat the threshold by manufacturing a set‑off.
How quickly can I get from statutory demand to winding up?
The minimum sequence: 21‑day demand window plus 7‑business‑day advertisement plus the time to a hearing, which depends on court availability. Typically eight to twelve weeks from service of demand to first hearing. Many debtors settle before that point.
What happens if the debtor pays after I present the winding‑up petition?
The petition can be withdrawn or dismissed by consent, with the creditor's costs paid. The petition's existence may already have caused the debtor's bank to freeze accounts; the debtor's commercial reputation may already have been affected. The creditor is generally indifferent to that, having recovered the debt.