What is a Statutory Demand? - (Sometimes called a Stat Demand) - Definition and implications

Section 123 (1) (a) of The Insolvency Act 1986

Legal Definition of "what is a statutory demand"?

Strangely the relevant insolvency law where reference to Statutory Demands is first made refers just to a "Demand" rather than a "Statutory Demand".  If your company (A Ltd)  owes money to another company (B Ltd) there are various ways set out in Section 123 of The Insolvency Act 1986 for B Ltd to prove that your company A Ltd is unable to pay its debts. The "Demand" is defined in a circular way in Rule 4.4 (2)  of The Insolvency Rules 1986 where it is provided:

"A written demand served by a creditor on a company under Section 123 (1) (a) of The Insolvency Act 1986 is known as "the statutory demand".

As intimated above we then have to look at the definition of "inability to pay debts". That is found at Section 123 of The Insolvency Act 1986. That Section lists six different ways in which a Court will accept that A Ltd is unable to settle its liability to B Ltd. Section 123 (1) (a) refers to Statutory Demands where it provides:

"A company is deemed unable to pay its debts:

If a creditor to whom a company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a written Demand (in the prescribed form) requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor".

From the above you as the owner of A Ltd will know that if you receive a Statutory Demand satisfying the above requirements it will legally prove your company's inability to pay its debts and then B Ltd will be able to issue a winding up petition against your company A Ltd.

Serving a statutory demand

Some of the relevant components of a successfully served Statutory Demand can be seen to be that:

-  The sum that A Ltd must owe to B Ltd must be £750 or more.

- The Demand must be in a "prescribed form".  When The Insolvency Act 1986 refers to the word "prescribed" it usually means a reference to The Insolvency Rules 1986 or other Statutory Instruments issued since 1986 that refer to insolvency matters, In this instance the "form and content" of the Statutory Demand is described in Rule 4.5 of The Insolvency Rules 1986 and the "information to be given in a Statutory Demand" is listed in Insolvency Rule 4.6 and there are other requirements in Rule 4.4 If you wish to have the exact wording of those Insolvency Rules please email me, Chris Parkman. The gist of those three Insolvency Rules is that specific details of the debt must be recorded on the Statutory Demand form and that if the demand is not complied with then B Ltd may issue a winding up petition on A Ltd after three weeks has elapsed.

- The Stat Demand has to be served (ie left at - and best usually signed for) at the registered office of A Ltd.

What you should particularly note is that a Statutory Demand is not issued by a Court. B Ltd therefore had to pay no Court fees or suffer any delays whatever in getting the Statutory Demand process going. All B Ltd had to do was to make sure that the Demand was in the proper form and then drive to A's registered office to serve the form.

What to do about a statutory demand

If you have been threatened with a Statutory Demand and you are then served with that document you have three weeks to either:

- pay the demand,

- or settle the outstanding sum

- or apply for an injunction to restrain presentation or advertisement of a winding up petition (Insolvency Rules 1986 Rule 4.6A). There is therefore no procedure as such to apply for a Statutory Demand to be set aside other than making an Application to Court should the person who issued the Demand does not withdraw the Demand on the basis that the underlying debt is disputed.

- or take alternative insolvency action. We can help in that connection if requested. Case study links are shown on a separate web page.

The issue of a winding up petition against your company is recorded  in both the Court records and in the London Gazette and as such is a publicly available document. If your bank gets to hear of its existence they will freeze your company bank account. If a Statutory Demand is served on your company therefore you need to take immediate advice to address the options available as if 3 weeks is left to elapse then a winding up petition can be issued.