A statutory demand is a formal written demand for payment of a debt, served on your company by a creditor under the Insolvency Act 1986. It is not a court order, but it starts a strict 21-day clock: if the debt is not paid, secured or challenged in that time, the creditor can ask the court to wind up your company.
For directors, receiving a statutory demand company creditors have sent is often the first formal sign that a debt dispute has become an insolvency risk. Understanding what the document does — and does not — mean is the first step to responding calmly and correctly.
What a statutory demand is and who can serve one on a company
A statutory demand is a prescribed-form document, usually served by post or in person, demanding payment of an undisputed debt. For a company, the debt must currently be at least £750, and it must not be genuinely disputed on substantial grounds.
Any creditor owed money by your company can serve one, including:
- Trade suppliers or landlords owed unpaid invoices or rent
- Lenders following a default on a loan or facility
- HMRC, for unpaid VAT, PAYE or corporation tax
- Other businesses with a judgment debt or a clear contractual sum owed
Unlike a court claim, no judge approves the demand before it is served — the creditor simply completes and sends it. That makes the document easy to issue, which is exactly why directors should not assume it carries less weight than a court letter.
The 21-day and 18-day time limits explained
Two time limits matter once a statutory demand has been served on a company:
- 21 days — the debt must be paid in full, or arrangements made, before this period expires. After 21 days, the creditor may present a winding-up petition to the court without further warning.
- 18 days (in some published guidance, generally within the first phase of the 21-day period) — a practical internal deadline directors often use to act early: taking advice, gathering evidence of dispute, or opening negotiation, so there is still time to respond before the full 21 days run out.
There is no automatic extension. The clock runs from the date of service, not the date the demand is opened or read, so post handling and internal escalation matter.
Why it's a serious step, not a routine chaser
Statutory demands look plain — often a single printed form — but they carry legal consequences a normal reminder letter does not. Under section 123 of the Insolvency Act 1986, an unanswered statutory demand allows a creditor to treat the company as deemed unable to pay its debts, which is the legal test the court uses when deciding whether to wind up a company.
This matters because the creditor does not need to prove the company is genuinely insolvent in the wider sense. The unanswered demand itself becomes the evidence, regardless of the company's actual cash position or trading strength.
What happens if you ignore it
If the 21 days pass with no payment, no agreement and no challenge, the creditor can present a winding-up petition to the court. From that point:
- The petition is typically advertised in The Gazette, the official public record, usually around seven business days after service on the company.
- Once advertised, banks routinely search The Gazette and may freeze the company's account, since continuing to trade on a frozen account can create personal risk for directors.
- A court hearing date is set, at which the court can make a winding-up order if the debt remains unresolved.
Our article on Winding-Up Petition: What Happens Next? sets out that later stage in full, including how banking and trading are affected once a petition is advertised.
Your response options
A statutory demand is not automatically fatal to the company, and directors have several genuine options within the 21 days:
- Pay or settle the debt in full, or agree a payment plan the creditor accepts in writing.
- Dispute the debt, where there are substantial grounds — for example an ongoing contractual disagreement — and set out that dispute clearly and promptly to the creditor.
- Negotiate directly with the creditor for more time, a reduced settlement, or staged repayments.
- Seek an application to court in limited circumstances (an injunction restraining presentation of a petition is the company route, distinct from the individual's right to apply to set aside a demand).
- Take specialist advice early on the company's wider financial position, including whether a formal insolvency process may better protect directors and creditors.
Because the right option depends heavily on the facts, our guide How to Respond to a Statutory Demand walks through each of these paths in more detail.
How a statutory demand links to a future winding-up petition
A statutory demand is best understood as the upstream warning, not the final event. It exists specifically so a creditor can establish, cleanly and quickly, the legal grounds needed to petition for winding up if the debt stays unpaid.
Not every statutory demand leads to a petition — many are paid, settled or withdrawn once a dispute is raised. But once the 21 days expire, the creditor has cleared the main legal hurdle, and a petition becomes straightforward to bring. For a full walk-through of how one stage leads into the other, see Statutory Demand to Winding-Up Petition Explained.
Frequently asked questions
Is a statutory demand a court order?
No. A statutory demand is issued by the creditor, not the court, and no judge reviews it before service. It only becomes a court matter if the debt is unpaid after 21 days and the creditor presents a winding-up petition.
Does a statutory demand affect my company's credit rating?
The demand itself is not a public record and is not typically reported to credit reference agencies. However, if it leads to an advertised winding-up petition in The Gazette, that is public and can significantly affect credit standing, supplier terms and banking.
Can I negotiate after a statutory demand has been served?
Yes. Creditors often prefer a workable payment plan to the cost and uncertainty of court proceedings. Contacting the creditor promptly, in writing, to propose terms is a common and reasonable first step.
What is the minimum debt for a statutory demand against a company?
The debt must currently be at least £750. Government guidance on statutory demands sets out the formal requirements for serving one correctly.
Can HMRC serve a statutory demand?
Yes. HMRC can and does serve statutory demands for unpaid tax debts such as VAT, PAYE or corporation tax, using the same 21-day process as any other creditor.
This article is general information, not legal, financial or insolvency advice, and does not consider your company's specific circumstances.
If you would like to talk through a statutory demand your company has received, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor — start an enquiry.