A statutory demand is a formal written demand for payment of a debt. It's one of the most serious steps you can take to recover money owed, because ignoring it can lead to bankruptcy (for individuals) or winding up (for companies).
Minimum debt thresholds
The minimum debt depends on who owes you money:
- Companies: £750 or more
- Individuals: £5,000 or more
The higher threshold for individuals was introduced in October 2015 to prevent bankruptcy being used for smaller debts.
When to use a statutory demand
Use a statutory demand when:
- The debt meets the minimum threshold (£750 for companies, £5,000 for individuals)
- The debt is undisputed (they don't have a valid reason to contest it)
- You have clear evidence the money is owed
- Other attempts to collect have failed
It's not suitable for disputed debts or debts that you think are likely to be disputed. If there's any genuine argument about whether the money is owed, use small claims court instead.
How it works
1. You prepare and serve the statutory demand You deliver the formal document to the debtor. For individuals, personal service is required (it must be handed to them directly, unless this is impracticable. It is customary to use process servers to do this and this is safer than you trying to do it yourself). For companies, you can post it to their registered office though, again, it is usually best to use a process server.
Bear in mind that there are different statutory demands forms to complete depending on whether the debtor is an individual, company or other type of business. For individuals, there are different forms depending on whether the debt is already payable, is already payable pursuant to a judgment or order, or will become payable in the future. Also, if you are serving a statutory demand on a business partnership, you normally need to serve a form on each partner.
2. They have 21 days to pay The debtor has 21 days to pay the debt or reach an agreement with you. If an individual wants to challenge the demand, they must apply to set it aside within 18 days (not 21).
3. If they ignore it After 21 days without payment, you can file a bankruptcy petition (for individuals) or winding up petition (for companies). This is a very serious step with significant consequences for the debtor.
Statutory demand vs letter before action
| Letter Before Action | Statutory Demand | |
|---|---|---|
| Minimum debt | Any amount | £750 (companies) / £5,000 (individuals) |
| Response time | 14-30 days | 21 days to pay (18 days to challenge) |
| Next step | Small claims court | Bankruptcy/winding up |
| Best for | Most debt recovery | Large, undisputed debts |
| Disputed debts | Yes | No |
What happens if they don't pay?
If a statutory demand is ignored:
For individuals: You can apply for a bankruptcy petition. The court can declare them bankrupt, which destroys their credit rating and may force the sale of their assets.
For companies: You can apply for a winding up petition. This can force the company into liquidation, closing it down entirely.
These are extreme outcomes. Often, the threat alone is enough to prompt payment.
Risks to consider
- High costs: Filing petitions is expensive:
- Bankruptcy petition: ~£1,850 (£343 court fee + £1,500 Official Receiver deposit)
- Winding up petition: ~£3,000+ (£302 court fee + £2,600 deposit + advertising costs)
- Plus legal fees if you use a solicitor (often £3,500-6,000+)
- Recovery: If the debtor has no assets, you may still not recover your money
- Disputed debts: If the debt is disputed, the court will reject your petition and you may have to pay the debtor's costs, and then have to issue proceedings in the small claims court
- Set aside: The debtor can apply to have the demand set aside if they have grounds
When small claims court is better
For most debts under £10,000, small claims court is often the better option:
- Lower risk if the debt is disputed
- Lower costs
- Simpler process
- Results in a legally enforceable judgment
Use a statutory demand for larger, clear-cut debts.
How Garfield helps
Garfield handles debt recovery through the small claims court process, which is appropriate for most unpaid invoices and business debts. We automate Letters Before Action, court filings, and the entire recovery process.
For debts that are clearly owed and where small claims is suitable, Garfield gets results through an efficient, automated process.