What is the difference between a Statutory Demand and a Winding Up Petition?

The difference between a statutory demand and a winding up petition

If you have been issued or threatened with a statutory demand or a winding up petition, you may be wondering what this means for the future of your company. While the two processes are different, both are extremely serious actions taken by creditors and pose a very real threat to the future of your business.

What is a Statutory Demand?

A statutory demand is a formal request for payment issued from an outstanding creditor to an individual or company. A statutory demand is often a pre-cursor to legal action; action which could see your company liquidated if you do not respond appropriately, therefore if you have been served with a statutory demand you cannot simply ignore it.

Statutory demands are typically only served after a creditor has exhausted all other avenues of recovering the money you owe them. If a statutory demand is served on your limited company you must respond within 21 days. You can either pay the money you owe in full, or otherwise come to a mutually agreeable plan on how you will clear this debt.

Failure to pay what you owe, or make to arrangements to repay this money, could be seen as proof of your company's insolvency and puts you at risk of the creditor serving you with a Winding Up Petition which could lead to the liquidation of your company.

Creditors often view a statutory demand as a pre-cursor to serving you with a winding up petition; be warned that if a creditor has gone to the trouble of issuing a statutory demand, it is likely they will not hesitate to wind up your company should payment not be forthcoming.

“Spoke with Chris who put me at ease straight away. He was very knowledgeable and listened intently to all my worries and concerns. Will definitely be using Real Business Rescue and advise anyone with business issues to give them a call.”

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Chris Bristow
Business Debt Expert

What is a winding up petition?

A winding up petition is often the next step after a statutory demand has gone unanswered, however, it is not necessary for a creditor to issue a statutory demand prior to a winding up petition if they do not choose to.

A winding up petition is the most serious action a creditor can take against a non-paying company. Any creditor you owe at least £750 to and have failed to pay the amount due within 21 days, can petition the courts to wind up your company. By issuing a winding up petition (WUP), the creditor is asking the courts to liquidate your company in order for any proceeds realised to be put towards settling its outstanding debts. 

Once a WUP has been issued against your company, your options are few and far between unless you are able to pay the amount asked of you or negotiate a mutually-agreeable repayment plan. Failure to respond to a winding up petition will see your company forced into compulsory liquidation.

It may be possible to propose a Company Voluntary Arrangement (CVA) in order to restructure your liabilities, although time is very much of the essence so you must act quickly. Company administration is another tool which may help if your business is viable going forwards. For either of these options you will need to contact a licensed insolvency practitioner as a matter of urgency to kickstart the process before your company is wound up.

Failure to respond to the WUP will result in a winding up order being issued, at which point there is nothing you can do to prevent your company being forcibly liquidated.

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How is a statutory demand served?

The Insolvency Act, 1986, sets out the requirements for issuing a statutory demand. These include:

• The debt must be more than £750, and not in dispute
• The creditor must be able to prove the demand has been served correctly
• Your creditor must not have security over assets to the value of, or exceeding, the debt
• The money due is not already part of a payment arrangement
• Your creditor does not owe you money
• The demand is made using the correct forms

How a statutory demand is served is an important part of the process. If not served correctly, there may be grounds to have it set aside. Statutory demands are often served in person by the creditor, a bailiff or other third party, but can also arrive through the post.

What does a statutory demand mean for sole traders?

If you are a sole trader, then your business operations are not distinct from your personal finances. Any debts you run up through running your business are your own personal responsibility. Therefore if a business customer wants to issue a statutory demand against you, this will be served on you as an individual rather than your company leaving you facing the prospect of bankruptcy should you not be able to settle the debt.

If you have been served with a statutory demand, speaking to an insolvency practitioner is vital in order for you to understand the situation you find yourself in and to plan your next move.

If your company is experiencing financial difficulties

Neither a statutory demand, nor a winding up petition will come out of the blue. Rather these are the final steps in what is often a lengthy process chasing up a non-paying customer or client. If you owe a company money and are unable to pay it, you should be proactive at an early stage to stop the situation escalating out of control. Speak to your creditor and see if you can come to an arrangement to pay back the money you owe in a way which is affordable and sustainable going forwards.

If you feel your company’s debt situation has spiralled out of control, you should make it a priority to speak to an insolvency practitioner at the first available opportunity. Continuing to trade and increasing your level of debt is a breach of your duties as a company director which can carry severe repercussions.

How Real Business Rescue can help

Real Business Rescue’s team of licensed insolvency practitioners can help you understand the options available to your company and advice you as to the most appropriate course of action. Regardless of whether you are looking to close your company, or would like to investigate all possible rescue options, we can help. Call our expert advisers today to arrange a free no-obligation consultation at any one of our 100+ offices.