Statutory Demands for Advisers
A statutory demand is a powerful tool against a company that owes an undisputed debt — but it is not a collection letter, and misuse carries real risk.
In this guide
- Distinguish a statutory demand from an ordinary demand
- Understand when a statutory demand may be appropriate
- Recognise the consequences for a company that ignores one
- Appreciate the risk of using one for a disputed debt
- Know when to direct a client to legal advice
7 min read
What it is
A statutory demand is a formal demand made under corporations law against a company for a debt that is due and payable. If the company neither pays nor successfully applies to set the demand aside within the statutory period, it can be presumed insolvent — which opens the door to a winding-up application. That presumption is what gives the demand its weight.
Because of this power, a statutory demand is a serious step, not a routine reminder. It is generally used against companies for clear, undisputed debts above the prescribed minimum, and is commonly prepared with legal assistance.
When it fits
A statutory demand suits a debt that is genuinely owed and not the subject of a real dispute. It is the wrong tool where the debtor has a legitimate cross-claim, or where the amount or liability is genuinely in question. It also applies only to companies; for individuals and sole traders, a different instrument applies. Matching the tool to the debtor and the debt is the first thing to check.
Why care is needed
Statutory demands are technical. They must meet form, content, and service requirements, and the time limits for responding and for applying to set aside are short and strictly enforced. Using a statutory demand to pressure payment of a disputed debt can backfire: the company may apply to set it aside and seek costs against the creditor. A defect in the demand, or a missed step, can render it ineffective.
Where it sits in recovery
For many ordinary commercial debts, a statutory demand is heavier than the situation warrants, and a structured recovery referral is more proportionate. Clients can refer a debt for that path. Where a statutory demand is genuinely on the table, it is an area for tailored legal advice, not a do-it-yourself step.
A note on advice
This is general information only and not legal advice. Statutory demands and winding-up proceedings are governed by detailed rules and tight deadlines that change over time and turn on the facts. A client considering — or served with — a statutory demand should get advice promptly, because the window to respond or to apply to set a demand aside can be short and is strictly applied. For advisers, the practical takeaway is to recognise the instrument when it appears, resist treating it as a routine collection letter, and steer the client toward timely, tailored advice rather than an improvised response.
Key takeaways
- A statutory demand applies to companies and can support a presumption of insolvency.
- It is only appropriate for clear, undisputed debts above the minimum amount.
- Using one for a disputed debt can result in a costs order against the creditor.
- The rules and deadlines are strict and unforgiving of error.
- For ordinary commercial debts, a recovery referral is often more proportionate.
Frequently asked questions
Can a statutory demand be served on a sole trader?
No. Statutory demands apply to companies. A different instrument applies to individuals. This is general information, not legal advice.
What happens if the company ignores it?
If the company neither pays nor sets the demand aside within the statutory period, it may be presumed insolvent, which can support a winding-up application.
What if the debt is disputed?
A statutory demand is generally inappropriate for a genuinely disputed debt, and pursuing one can expose the creditor to costs. Seek advice.
Add real value for your clients
Refer your clients' overdue debts and we recover them commission-only — you stay the trusted adviser.