Setting Aside a Statutory Demand Against a Company

When a statutory demand lands at your registered office, the clock does not start ticking politely. You have 21 days to pay, secure, or compound the debt. If you do not, the creditor can rely on your unpaid demand as evidence that the company is unable to pay its debts, and move directly to a winding-up petition.

Companies, unlike personal debtors, cannot apply to “set aside” a statutory demand. The personal-insolvency route that many directors think applies to them does not exist for corporate debtors, and relying on it is one of the most common mistakes we see in this territory.

What follows sets out the real, time-critical options available to your company once a statutory demand has been served: when you can seek an injunction, how you negotiate payment or compounding, and the specific mistakes we see directors make in the 21-day window that close off better options further down the line.

Statutory Demands Against Companies Explained

A statutory demand against a company is a formal demand for a debt of £750 or more, served under section 123(1)(a) of the Insolvency Act 1986. Unpaid for 21 days, it creates a rebuttable presumption that the company cannot pay its debts, which is the statutory gateway to a winding-up petition.

Two features matter above all others:

• It is a gateway, not a judgment. A statutory demand is not itself a court order. It does not enforce anything. Its significance lies entirely in what it enables the creditor to do after 21 days.
• No “set aside” procedure exists for companies. Personal debtors can apply to set aside a statutory demand under Insolvency Rule 10.5. Companies cannot, the rule simply does not extend to them. Directors who believe they can set one aside are working from misinformation that costs them the 21-day window.

Why the 21-Day Statutory Demand Clock Matters

The 21 days run from proper service. What counts as proper service is defined in section 123 and in the Insolvency (England and Wales) Rules 2016: delivery to the company’s registered office is standard, and personal service on an officer of the company is also effective.

Inside the 21 days, the company has four realistic options:

• Pay the debt in full.
• Secure the debt to the creditor’s satisfaction (a charge over an asset, a guarantee, escrow arrangement).
• Compound the debt, reach an agreement with the creditor for payment on different terms, which the creditor accepts in writing.
• Apply for an injunction to restrain the presentation of a winding-up petition where the debt is genuinely disputed on substantial grounds, is subject to a cross-claim exceeding the debt, or where the demand is otherwise an abuse of process.

Beyond 21 days, your creditor can present a winding-up petition. Once the petition is advertised in The Gazette (typically 7 working days after presentation), your company’s bank accounts freeze automatically under section 127 of the Insolvency Act 1986.

Any disposition of company property after petition is void without court validation. Trading becomes practically impossible for you from that moment onward.

In the cases we take on after Gazette advertisement, the director is usually ringing from a landline because the Barclays app has stopped working, and the Friday payroll BACS run has bounced. By that point, administration is no longer a choice between options; it is the only tool left that restores a bank account.

Can a Company “Set Aside” a Statutory Demand?

No. Set-aside is a remedy for personal (individual) debtors under Insolvency Rule 10.5, and does not extend to companies. Relying on set-aside advice found online or recycled from personal-debt forums is the most expensive misconception in this territory, it costs the company 21 days of reaction time chasing a remedy that does not exist.

The corporate equivalent is an injunction to restrain the presentation of a winding-up petition. An injunction is a court application, not a summary procedure.

It succeeds where the court is satisfied that your debt is disputed on substantial grounds, is subject to a genuine cross-claim equal to or exceeding the debt, or that presentation of the petition would be an abuse of process. The threshold is real, the costs are material, and the timing is tight. Where the grounds exist, it is the right tool for you to reach for.

Statutory Demand Response Options Before Day 21

The practical actions inside the 21-day window, in priority order:

1. Verify proper service. The demand must comply with the prescribed form and have been served at the registered office (or personally on an officer). Defective service can buy time, but cannot be relied upon in isolation, creditors typically re-serve.
2. Assess the debt’s validity. Is there a genuine dispute? A cross-claim? A counter-claim? These are the grounds for an injunction. Weak disputes (pricing disagreements, service quality complaints without a contractual basis) do not meet the threshold.
3. Open negotiation with the creditor if the debt is genuine but the company cannot pay in full. Creditors routinely accept compounding, part payment now, structured repayment for the balance, to avoid the cost and delay of petition proceedings. The proposal must be specific, dated, and written.
4. Seek licensed insolvency practitioner advice where the statutory demand is evidence that the company is genuinely insolvent. An IP’s involvement changes the creditor’s calculation. And opens the formal-restructuring routes (CVA, administration) that a petition would otherwise block.
5. Prepare the injunction application where dispute grounds exist. This is specialist work, instruct a solicitor with insolvency-litigation experience early. The usual timescale from instruction to hearing is 1–2 weeks, meaning the decision to apply needs to be made inside the first 7–10 days of the 21-day window.

How to Seek an Injunction When the Debt Is Disputed

An injunction to restrain the presentation of a winding-up petition is made to the High Court (or, for smaller debts, the County Court). The grounds the court will consider:

• Substantial dispute, the debt is genuinely contested on grounds that require fuller investigation than winding-up proceedings allow. The classic authority is Mann v Goldstein [1968].
• Cross-claim, the company has a genuine and serious cross-claim equal to or exceeding the debt. Under Re Bayoil SA [1999], a valid cross-claim is usually sufficient to restrain a petition.
• Abuse of process, the demand has been used for collateral purposes (extracting payment of a disputed debt through insolvency pressure, where litigation would be the proper route).

The application is typically made without notice to the creditor initially, followed by a return date with both sides present. Evidence is by witness statement, supported by documents. The court weighs the grounds and either grants, refuses, or continues the injunction to trial.

Costs, Evidence and Risks of an Injunction

Injunctions are not cheap. Indicative costs:

• Court fee for an injunction application: £377 in the County Court on a Part 8 claim for something other than money (higher figures apply in the High Court; current fee schedule EX50, November 2025).
• Solicitor and counsel fees: typically £5,000–£15,000 for an urgent application, depending on complexity.
• Undertaking as to damages: the applicant company must usually give an undertaking to compensate the creditor if the injunction is later found to have been wrongly granted.

The evidence required is documentary, the contract, the invoice, the dispute correspondence, proof of any counter-claim. Oral evidence of the director’s recollection of conversations carries comparatively little weight without corroborating documents.

The risks: an injunction refused leaves the creditor free to present the petition immediately and sometimes with enhanced legitimacy. The costs consequences, the losing party pays the winner’s costs on the application, can be substantial.

Paying, Compounding or Negotiating the Debt

For undisputed debts, your practical choice is payment or compounding. Your negotiating leverage at this stage is specific: the creditor faces cost and delay in pursuing a petition, and usually prefers a structured payment arrangement over the uncertainty of winding-up proceedings.

Most creditors we negotiate with never intended to petition. The demand is the blunt instrument their credit-control policy required them to send. A written compounding proposal on the day signals that the instrument worked and gives them permission to stand down; silence or a vague “we’ll sort it” does not.

A credible compounding proposal looks like:

• An immediate part-payment (20–40% of the debt) offered on the day.
• A specific, dated schedule for the balance (typically 3–12 months, monthly instalments).
• Financial evidence supporting the timeline (management accounts, forecast).
• Written acceptance from the creditor, which stops the 21-day clock running.

Loose verbal arrangements do not stop the clock. A creditor that has agreed a payment schedule verbally can still present a petition if the company defaults on the agreed schedule.

What Happens If You Ignore a Statutory Demand

Ignoring a statutory demand is the single most destructive choice in the whole decision tree. The mechanical sequence:

1. Day 22, creditor can present a winding-up petition. Court fee £352 plus £2,600 deposit.
2. Petition advertised in The Gazette 7 working days after presentation. Bank accounts freeze automatically under section 127.
3. Hearing listed, typically 4–6 weeks after advertisement. Company director faces restraining creditor action (impossible once advertised), paying the debt in full (usually impossible at this point), or applying for administration.
4. Compulsory winding-up order. Official Receiver appointed, followed by a licensed IP as liquidator.

Director conduct is reported to the Insolvency Service. Disqualification proceedings under the Company Directors Disqualification Act 1986 follow where conduct is unfit. The personal consequences accumulate.

Frequent Mistakes Directors Make

• Confusing corporate set-aside with personal set-aside. It does not exist for companies. Chasing it wastes the 21-day window.
• Assuming ongoing negotiation stops the clock. It does not, only written acceptance of a compounding arrangement stops the clock.
• Treating the statutory demand as “just a letter”. It is the gateway to a petition. The consequences that follow are mechanical.
• Seeking legal advice on day 18. Injunctions take 1–2 weeks to prepare; negotiation needs time. Day 1–5 is when specialist advice buys the most value.
• Paying without checking the debt is properly owed. Once paid, the payment is hard to recover even if the debt turns out to be disputed.

21-Day Action Timeline for Directors

1. Day 1: Verify service. Identify the debt. Preserve all documents.
2. Day 2–3: Assess dispute grounds. Instruct insolvency-litigation solicitor if injunction is in view. Instruct licensed IP if broader insolvency advice is needed.
3. Day 4–7: Open creditor negotiation if the debt is valid. Propose payment or compounding with financial evidence.
4. Day 7–14: File injunction application if grounds exist. Otherwise, finalise written compounding agreement or arrange payment.
5. Day 14–21: Final settlement or injunction hearing. Documented resolution in place before day 21.

Your Next Step on a Statutory Demand Against a Company

If a statutory demand has arrived and your 21-day clock is running, the first two calls you need to make are to a licensed insolvency practitioner and an insolvency-litigation solicitor. Both conversations are typically free at initial consultation, and both need to happen before day 7 to preserve the full menu of options available to you.

Our licensed IPs and business rescue specialists can assess your position, explain the injunction, compounding, and formal-insolvency options, and guide your response through the 21-day window. Call us free on 0800 074 6757 for confidential advice.

FAQs on Statutory Demands Against Companies