Statutory demands: a guide for small businesses

If your business is owed money and the debt is undisputed, sending a statutory demand can be an effective debt collection strategy. It proves you are serious about debt collection and demonstrates that you are prepared to take matters further if payment is not forthcoming. This article explains what a statutory demand is and guides you through the process of making and serving one on your debtor. 

Serving a statutory demand is just one option open to you when dealing with debt recovery. For guidance about other steps your business can take and for initial chasing letter templates you can send to your debtor, see our Q&A on Dealing with late payments without going to court. Our Debt collection toolkit contains the documents and guidance you need to strengthen your business’s approach to debt collection, including step-by-step guides to filling in statutory demand forms. 

Statutory demands: The basics

For further guidance, see our Q&A on Using court proceedings to prompt payment.

Should I consider sending a statutory demand to a person or business who owes me money?

It is cheaper and quicker to send a statutory demand than to take any enforcement step requiring formal court procedures. It is also potentially more serious for your debtor than receiving chaser letters or contact from a debt collector, because of the risk that you will bring bankruptcy or winding up proceedings against them if the debt is large enough.

Note, however, that the Government changed the law to void statutory demands sent to companies between 1 March 2020 and 30 September 2021, to help businesses navigate the financial disruption caused by COVID-19. This means that any statutory demands sent during that time period could not be used to try to wind up a company if it did not pay up. Commercial landlords continue to be restricted from bringing winding up proceedings against companies for non-payment of rent due to the coronavirus pandemic until 25 March 2022, except in relation to ‘ringfenced debt’ where a further extension is intended. For further guidance, see our Q&A on Tenants affected by COVID-19.  

Individuals (including sole-traders, freelancers and the self-employed) are not covered by the COVID-19 exceptions set out above, so the normal rules explained in this article will continue to apply to any statutory demands you send to them. 

You should be cautious of sending a statutory demand if you think that your debtor may dispute whether the debt is payable. They can challenge it in court if they disagree with it and if they are successful in doing so, you could have to pay their legal costs. 

If the debt is disputed, see Resolving disputes proactively for more information about what action you can take.

Making a statutory demand

Which form should I use for an individual?

The particular form you need to complete depends on the nature of the debt you are owed (and if you are sending a demand to a partnership, you will need to fill in a separate form for each partner):

• Form SD2 should be used if the debt is payable immediately (see here for free guidance notes to complete the form: Step-by-step guide to form SD2);
• Form SD3 should be used if the debt is not payable immediately, but where you believe that your debtor has no reasonable prospect of paying it when it falls due. You will need to provide details about why you believe that your debtor has no reasonable prospect of paying the debt in the future (see here for free guidance notes to complete the form: Step-by-step guide to form SD3); and
• Form SD4 should be used if the debt is payable following a judgment or order of the court (therefore this should only be used if you are sending a statutory demand after you have been to court and you are seeking to enforce your court order) (see here for free guidance notes to complete the form: Step-by-step guide to form SD4).

Which form should I use for a company?

Use Form SD1 if you want to send a demand to a company. Free guidance notes for completing Form SD1 can be found here: Step-by-step guide to form SD1.

Service of a statutory demand: Individuals

How do I send a statutory demand to an individual?

To send a statutory demand to an individual for a debt (including partners in a partnership and sole traders) you must:

• Fill in the right form
  
  See above for which form to fill in and guidance on how to do it.
• Give the form to your debtor (this is called ‘serving’ the demand)
  
  You must do everything that you reasonably can to bring the statutory demand to your debtor’s attention and, wherever it is practical to do so, you must give it to them in person.
  
  If you think that you will have difficulties giving the form to your debtor, you can ask a process server to do this for you. A process server is a specialist at serving court or official docments personally on people or to a specified address. They will either charge you a fixed fee or an hourly rate to bring your statutory demand to your debtor’s attention and will usually provide you with evidence of service (which you will need if you choose to escalate the matter—see below) once they have successfully delivered it. You can search for a process server online.
• Get evidence that you gave the form to your debtor
  
  It is important to ensure you have evidence that you have brought the statutory demand to your debtor’s attention, particularly if you intend on later bringing bankruptcy proceedings against them. You must keep:

1. a copy of the statutory demand;
2. a record of the time, date and address where you handed the statutory demand to your debtor; and
3. anything else that confirms that your debtor has received the statutory demand, eg any correspondence in which they acknowledge receipt (note you should be keeping any correspondence from your debtors anyway).

What happens after I have sent a statutory demand to an individual?

Once your debtor has been seved with the statutory demand, one of the following three things will happen:

1. They pay up
   
   You are either paid the money you are owed or your debtor seeks to reach a settlement agreement with you (eg by offering to pay by instalments).
2. They say they do not owe you the money
   
   They have 18 days after being served with your statutory demand to formally challenge it, and the court will either dismiss their challenge or fix a hearing to consider it with your input. If this happens, you should instruct a lawyer to represent you. For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service. Bear in mind that if your debtor is successful in getting the statutory demand set aside, you may have to pay their legal costs.
3. They ignore the statutory demand or otherwise do not repay you
   
   If the debt is £5,000 or more, your debtor fails to pay it or challenge the demand, and at least three weeks have passed since you delivered it to them, you can bring bankruptcy proceedings against them (see our Q&A on Using court proeedings to prompt payment for more information about making someone bankrupt). If the debt is for less than £5,000, you will need to consider alternative debt collection steps. 

Service of a statutory demand: Companies

How do I send a statutory demand to a company?

To send a statutory demand to a company you must:

• Fill in the right form
  
  Use Form SD1 if you want to send a statutory demand to a company. Guidance notes for completing Form SD1 can be found here: Step-by-step guide to form SD1.
• Deliver the form to the company (this is called ‘serving’ the demand)
  
  You must deliver your statutory demand to your debtor by:
  • leaving it (not by posting) at the company’s registered office if your debtor is a registered company (you can find any company’s registered office using the Companies House search function); or
  • if your debtor is an unregistered company, by leaving it at your debtor’s principal place of business or delivering it to the secretary, a director or other person holding a senior position within the company.
• If you wish, you can ask a process server to do this for you. They will either charge you a fixed fee or an hourly rate to leave your statutory demand in the right place and will usually provide you with evidence of service (see below) once they have done so.
  
  
• Get evidence that you gave the form to the company
  
  It’s important to ensure you have a record of delivery of the statutory demand, particularly if you intend on later bringing winding up proceedings.You must keep:

1. a copy of the statutory demand; 
2. a record of the time, date and address where you served the statutory demand; and 
3. anything else that confirms that your debtor has received it eg any correspondence in which they acknowledge receipt (note you should be keeping any correspondence from your debtors anyway).

What happens after I have sent a statutory demand to a company?

Once your debtor has been served, one of three things will happen:

1. The company pays up
   
   The company pays you the money you are owed or seeks to reach a settlement agreement with you (eg by offering to pay in instalments).
2. The company says it does not owe you the money
   
   The company contacts you to dispute the debt and request that you refrain from applying to wind it up (this may ultimately lead to them asking a court for an injunction to prevent you from trying to wind them up), in which case you should instruct a lawyer to represent you. For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service. See our Q&A on Using court proceedings to prompt payment for more information about winding up proceedings.
3. The company ignores the statutory demand or otherwise does not repay you
   
   If the company fails to pay and at least three weeks have passed since you delivered the statutory demand, you can commence winding up proceedings (see our Q&A on Using court proceedings to prompt payment for more information about bringing winding up proceedings).

For detailed guidance on debt recovery, including steps you can take to prevent issues of non-payment occurring, see our Q&A on Chasing payments and enforcement. Our Debt collection toolkit contains template documents and guidance to help you strengthen your business’s approach to debt collection.

The content in this article is up to date at the date of publishing. The information provided is intended only for information purposes, and is not for the purpose of providing legal advice. Sparqa Legal’s Terms of Use apply.

Frankie Mundy

Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.