CAN A DEBTOR SET ASIDE A STATUTORY DEMAND?
- Tracenet Legal Services
- 3 days ago
- 5 min read
Introduction
A statutory demand is a powerful tool for creditors: it signals that a debt is serious, undisputed, and must be settled within a strict time frame or insolvency proceedings may follow. However, debtors are not without defences. UK insolvency law provides a mechanism for a debtor to set aside a statutory demand if they can show that the demand is defective, the debt is genuinely disputed, or other grounds apply.
Understanding how debtors can set aside a demand — and how to guard against it — is essential for creditors and legal professionals alike. This guide examines the law, procedure, and practical steps creditors should take to protect their position.
We serve Statutory Demands, Nationwide.
Telephone 0800 048 5684 or Request a Quote
Contents
• Introduction
• What Does ‘Set Aside’ Mean?
• Legal Basis for Setting Aside a Statutory Demand
• Grounds on Which a Debtor Can Apply
• Procedural Requirements and Deadlines
• What Happens at the Set-Aside Hearing
• How Creditors Should Respond
• Practical Tips for Creditors
• Relevant Case Law
• FAQs
• Real-World Example
• Conclusion
What Does ‘Set Aside’ Mean?
‘Setting aside’ a statutory demand means a court formally cancels it, treating it as if it were never served. If successful, this prevents the creditor from relying on the demand to petition for the debtor’s bankruptcy.
It is available to individuals only under the Insolvency Act 1986; companies cannot apply to set aside but can apply to restrain a winding-up petition if they have grounds.
Legal Basis for Setting Aside
The legal basis for setting aside is found in:
• Insolvency Act 1986, s. 268 — governs statutory demands for individuals.
• Insolvency (England and Wales) Rules 2016, Part 10 — covers procedure.
• Relevant case law clarifies the principles the court applies, including the need for a genuine and substantial dispute.
Grounds on Which a Debtor Can Apply
A debtor may apply to set aside a statutory demand on one or more of these grounds:
1️⃣ Genuine Dispute
The most common ground is that the debt is genuinely disputed on substantial grounds. The court does not decide the dispute in full; it assesses whether there is a real prospect of success.
Example: A debtor argues they never received goods or services, or that the invoice is inflated.
2️⃣ Counterclaim or Cross-Demand
If the debtor has a counterclaim that equals or exceeds the demand, the court may set it aside.
Example: The debtor says the creditor owes them money for damages which cancels out the debt.
3️⃣ Defect in the Demand
A procedural defect alone is not always enough unless it would cause substantial injustice.
Example: Using the wrong form, miscalculating the amount, or incorrect details.
4️⃣ Other Reasons
The court has residual discretion to set aside a demand for other compelling reasons, such as if it is oppressive or an abuse of process.
Procedural Requirements and Deadlines
✅ Time limit:
The debtor must apply within 18 days of personal service.
✅ Filing:
They must file an application at the appropriate court using Form IAA, supported by a witness statement explaining the grounds.
✅ Service:
A sealed copy must be served on the creditor.
✅ Hearing date:
The court will set a hearing, usually within a few weeks.
Failure to act within 18 days usually removes the right to apply, but the court may allow late applications in exceptional cases.
What Happens at the Set-Aside Hearing
The court does not decide the whole debt dispute but checks whether there is a genuine triable issue. The creditor must show the debt is clear, undisputed, and properly served.
Possible outcomes:
• Demand set aside — creditor must start a normal debt claim instead.
• Application dismissed — creditor is free to petition for bankruptcy.
If the debtor loses, they may be ordered to pay the creditor’s costs.
How Creditors Should Respond
• Prepare evidence:
Keep a complete paper trail: contracts, invoices, correspondence, proof of service.
• Show no genuine dispute:
Be ready to show the debt is clear, the demand is correctly drafted and properly served.
• Use a process server:
A well-documented statement of service can shut down claims that the debtor never received the demand.
• Seek legal advice early:
If a debtor files to set aside, respond promptly and follow court directions.
Practical Tips for Creditors
✅ Draft carefully: Ensure the demand is clear, accurate, and includes the required statutory wording.
✅ Confirm debt status: Statutory demands are for undisputed debts — never use one as leverage for disputed or partially unpaid invoices.
✅ Use professionals: Instruct a solicitor and process server to handle service and evidence properly.
✅ Be proactive: If an application to set aside is filed, act swiftly — missing deadlines can weaken your position.
✅ Document everything: Keep full records of payment history, communications, and attempts to settle.
Relevant Case Law
📜 Re a Debtor (No. 1 of 1987) — clarified that a debtor must show a genuine and substantial dispute, not a frivolous defence.
📜 BNP Paribas v Wockhardt EU Operations [2009] — reaffirms that statutory demands should not be used to pressure payment of disputed debts.
📜 Hammonds v Pro-Fit USA Ltd [2007] — shows the importance of serving at the correct address.
FAQs
1️⃣ Can a company apply to set aside a statutory demand?
No. Companies cannot apply to ‘set aside’. They may instead apply to restrain a winding-up petition if served with one.
2️⃣ What happens if the debtor applies late?
Applications must be filed within 18 days of service. Late applications are only allowed in rare, justified circumstances.
3️⃣ Can a debtor still pay after applying to set aside?
Yes — if the debt is paid in full, the demand becomes redundant. Costs may still be owed to the creditor.
4️⃣ What happens if the demand is set aside?
The creditor cannot use it to petition for bankruptcy but may pursue the debt through normal litigation.
5️⃣ Can the creditor recover costs?
If the debtor’s application is unsuccessful, the creditor can ask the court to order them to pay legal costs.
Real-World Example
A contractor served a statutory demand for £20,000 unpaid fees. The debtor filed a set-aside application arguing the work was defective. The court found enough evidence of a genuine dispute, set aside the demand, and ordered the parties to resolve the dispute in a civil claim. The creditor lost time and had to pay additional legal fees — showing why demands must only be used for clear, undisputed debts.
Conclusion
Setting aside a statutory demand is an important safeguard against abuse, but it is not a free pass for debtors. Creditors who use statutory demands properly, serve them correctly, and keep clear evidence are well-placed to resist set-aside attempts.
Tracenet Legal Services helps law firms and creditors across the UK prepare, serve, and enforce statutory demands properly — with the documentation courts expect.
📞 Contact Tracenet Legal Services for expert support.
Welcome to Tracenet Legal Services. Since 2015, we have managed and effected the service of thousands of Statutory Demands upon debtors across the Country. We are a multi-award-winning and industry-leading UK Process Server of Statutory Demands, providing Business-to-Business Support, Litigation, and Insolvency Support Services to UK Debt Recovery professionals and Legal Teams. If you need assistance in serving a Statutory Demand upon an Individual or Company, please call us on 0800 048 5684 or contact us for a fixed fee, Nationwide service.
We serve Statutory Demands, Nationwide.
Hozzászólások