Setting Aside a Statutory Demand: 2026 Defence Guide

Last updated: 4 May 2026

Quick answer

To set aside a statutory demand under the Insolvency (England and Wales) Rules 2016, file an application notice (under rule 1.35 of the Insolvency Rules 2016) at the appropriate court — usually the County Court hearing centre with insolvency jurisdiction, or the Insolvency and Companies Court at the Rolls Building for higher-value London matters — within 18 days of the demand being served on you. Use one of four grounds: (a) you have a genuine cross-claim or set-off equal to or exceeding the demand; (b) you dispute the debt on substantial grounds; (c) the demand fails procedural requirements (defective service, defective form, wrong amount); or (d) the creditor holds security worth more than the unsecured balance claimed. The court applies a low threshold — you only need to show your defence is not "frivolous" — but you do need a witness statement, the demand itself, and any supporting documents in a paginated bundle.

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What a statutory demand actually does

A statutory demand is the formal first step a creditor must usually take before issuing a bankruptcy petition for an individual debt of £5,000 or more (Insolvency Act 1986, section 267(2)(a) — the bankruptcy level — and section 268(1)(a) — proof of inability to pay). It is also a route to demonstrate inability to pay before a creditor's winding-up petition against a company under sections 122–123 of the same Act, where the threshold for an individual statutory demand is £750.

The demand says: "Pay this within 21 days, or I will issue a bankruptcy petition against you."

If 21 days pass without payment or set-aside, the creditor can present a bankruptcy petition. The court will treat the unanswered demand as evidence of inability to pay debts as they fall due — section 268.

This is why setting aside the demand matters. Once the petition is presented, your options narrow, the costs grow, and you may already be on a path you did not choose.

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The 18-day window

You have 18 days from the date the demand was served on you to apply to set it aside (Insolvency Rules 2016, rule 10.4(1)).

That deadline is calculated from the date of service, not the date of the demand. Service is usually by personal delivery or by post to your last known address. If you cannot show when service happened, the court will work it out from the creditor's certificate of service.

If you miss the 18 days, you can still apply — but you will need to ask the court to extend time, with reasons. The court can do this under rule 10.4(7), but it is discretionary and not guaranteed. Far better to file on time.

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The four grounds for set-aside

Insolvency Rules 2016, rule 10.5(5) sets out the grounds. Each works differently in practice.

Ground (a): cross-claim or set-off

You have a genuine claim against the creditor that equals or exceeds the demand. The classic example: a builder demands £20,000 for unpaid invoices, but you have a £25,000 claim against them for defective work that you have not yet pursued.

The court does not need to decide who would win the cross-claim — it just needs to be satisfied the cross-claim is genuine and is for an amount equal to or greater than the demand. Re a Debtor (No 32 of 1991) [1993] 1 WLR 314 (Hoffmann J).

What works:

• A cross-claim documented in writing (invoices, complaint letters, expert reports)
• A counterclaim that has not been previously waived or settled
• Quantified: the court needs a number, not "a lot"

What does not work:

• "I think I might have a claim somewhere"
• A claim already settled or fully accounted for
• A claim against a different person (you cannot set off your claim against Company B against Company A's debt, even if they share directors)

Ground (b): debt disputed on substantial grounds

You dispute the debt itself — you say you do not owe it, or do not owe that amount, or do not owe it now.

"Substantial grounds" means more than a nominal or hopeless defence. The court applies a similar test to summary judgment: is there a real prospect that you would defeat the claim? Re a Debtor (No. 1 of 1987) [1989] 1 WLR 271. You do not need to prove your defence — just show it is genuine.

Common substantial-grounds defences:

• Limitation: the contractual debt is more than six years old (Limitation Act 1980, section 5) and you have not made any payment or written acknowledgement
• Breach of contract: the supplier failed to deliver, or the work was defective, or the goods were not fit for purpose
• Misrepresentation: the contract was induced by a false statement
• Wrong amount: the demand claims £40,000 but the actual outstanding balance is £18,000 once payments and credits are accounted for
• Wrong debtor: the debt was incurred by your ex-partner / business / former employer — not you personally
• No personal guarantee: the debt was a company's, you did not sign a personal guarantee, the creditor cannot trace the debt to you

Ground (c): the demand is procedurally defective

The form itself is wrong. Common defects:

• Wrong form: must be Form SD1 (individual) or SD2/SD3 (company), with the right rule references
• No information about set-off: rule 10.1(7) requires the demand to flag the set-off and security warnings
• No method-of-payment guidance: the creditor has not explained how you can pay
• Wrong creditor name: demand issued in the trading name when the contracting party was a limited company
• No supporting evidence: for a judgment debt, the demand must reference the judgment; for a contractual debt, the basis must be clear

The Insolvency Rules require strict procedural compliance. Even small defects can be enough — Re a Debtor (No. 784 of 1991) [1992] BCLC 386. But the court has a saving discretion under rule 12.64: if the defect is technical and causes no injustice, the court can excuse it. So procedural defects are useful, but rarely a winner on their own.

Ground (d): security exceeds the unsecured claim

The demand must accurately state any security the creditor holds and the value of that security (Insolvency Rules 2016, rule 10.1(3)). If the creditor holds security (a charge over property, a fixed charge over plant) worth more than the debt claimed, the creditor cannot use a statutory demand for the unsecured balance — there is none.

This ground is most often used where a lender has a charge over a buy-to-let property and wants to chase the personal element on top.

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What you file

You file three things at the County Court hearing centre with insolvency jurisdiction:

1. Application notice under rule 1.35 of the Insolvency Rules 2016. Identify the creditor, the demand, the date of service, and the ground(s) you rely on
2. Witness statement — your evidence in support, signed with a statement of truth (CPR Practice Direction 32)
3. Exhibits — copy of the demand, copy of any underlying documents (invoices, contracts, letters), copy of any cross-claim documents

Pay the application fee (£308 in 2026; check current fees on gov.uk). Fee remission is available on form EX160 if you receive certain benefits.

The court allocates a hearing date — usually 6-12 weeks ahead in most centres, longer in London.

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The witness statement — what works

A good set-aside witness statement does five things:

1. Identifies you, the creditor, and the demand. Date served, amount claimed.

2. Sets out the history of the debt. When it was incurred, what services were provided, what payments were made, what disputes arose.

3. States your ground(s) clearly. "I rely on rule 10.5(5)(b) — the debt is disputed on substantial grounds — because [X]." Use the rule numbers.

4. Quantifies. If you say the debt is £18,000 not £40,000, show the calculation. If you say a cross-claim equals the demand, give the basis for the figure.

5. Exhibits the documents. Invoices, contracts, emails, expert reports. Reference each by exhibit letter — "Exhibit AB1 is a copy of the demand", "Exhibit AB2 is the contract dated 12 March 2024".

The statement should be paragraph-numbered, double-spaced, signed at the end with a statement of truth. CPR Practice Direction 32 is the rulebook for format. Keep it short — a strong witness statement is rarely more than 8-10 pages.

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The hearing

A set-aside hearing is short, usually 30-60 minutes. The District Judge or Insolvency and Companies Court Judge will:

• Confirm jurisdiction (right court, right rules)
• Hear the creditor's response
• Read your witness statement and exhibits
• Decide whether one of the four grounds is made out

If a ground is made out, the demand is set aside. The creditor cannot petition on this demand. They can issue a fresh one or pursue the underlying debt by ordinary County Court claim.

If no ground is made out, the demand stands. You have 21 days from the dismissal to pay or face a bankruptcy petition.

The court can also:

• Adjourn for further evidence
• Make a costs order (against the loser, usually the loser of the application)
• Refer the matter to a judge if there is a complex point of law

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What it costs to lose

A failed set-aside is usually accompanied by a costs order. Expect £1,500-£4,000 in adverse costs depending on the creditor's representation. That is on top of your own costs (court fee, any solicitor or McKenzie Friend fees, time off work) and the underlying debt.

But — this is important — the cost of not applying when you have a genuine ground is far higher. A bankruptcy order means £680 in fees, a 12-month restriction on directorships, asset realisation, and a public register entry that affects credit for six years. The maths usually favours filing the application if the grounds are genuine.

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Common mistakes that lose set-aside applications

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How BundleCreator helps

A set-aside application bundle is a CPR Part 32 court bundle. The court expects:

• Application notice (Form IAA)
• Witness statement, paragraph-numbered, signed
• Exhibits, individually indexed
• Pagination throughout
• Hyperlinked index for the judge to navigate

BundleCreator produces this in around 15 minutes. The Bankruptcy / Insolvency template includes the right document slots (statutory demand, witness statement, contracts, invoices, correspondence) in the order the Insolvency Practice Direction expects.

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Frequently asked questions

Can I set aside a demand on a CCJ debt?

Not usually under ground (b). A County Court Judgment is treated as conclusive evidence of the debt. To dispute the debt itself, you would need to apply to set aside the CCJ first under CPR rule 13. You can still set aside the demand under ground (a) cross-claim or ground (c) procedural defects.

What if the demand is for a joint debt?

The creditor can serve a demand on each joint debtor for the full amount. Each can apply to set aside individually. Setting aside one demand does not affect the others.

Can I negotiate while the application is pending?

Yes. Many statutory-demand disputes settle by negotiation while the set-aside application is in train — instalment plans, lump-sum settlements, write-offs. If you settle, withdraw the application by consent before the hearing to avoid an adverse costs order.

What if the creditor presents a petition before my set-aside is heard?

A creditor cannot present a bankruptcy petition based on the demand while a set-aside application is pending or before the 18-day period has expired (Insolvency Rules 2016, rule 10.4(1) and the procedural framework in Part 10). If a petition is presented improperly during that window, you apply to dismiss it on that ground.

Can I represent myself?

Yes. Set-aside applications are commonly run by litigants in person. The forms, the rules, and the witness statement are within reach of a debtor with no legal training. A McKenzie Friend can attend the hearing for moral support and quiet advice. For complex commercial debts (six-figure sums, multiple cross-claims, regulatory overlay), instruct a specialist insolvency solicitor.

What if the demand is from HMRC?

HMRC statutory demands follow the same rules. The cross-claim (ground (a)) and disputed-debt (ground (b)) grounds are common — HMRC frequently demands tax that is provisionally assessed and subject to appeal. The First-tier Tribunal (Tax) decides the underlying tax liability; the County Court hearing centre handles the set-aside application.

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Further reading

• Insolvency (England and Wales) Rules 2016 — particularly Rule 10.4 and 10.5
• Insolvency Act 1986 — section 268
• Insolvency Proceedings Practice Direction
• Bankruptcy Petition vs Debt Relief Order: How to Choose in 2026
• How to Apply for Your Own Bankruptcy: Online Application Walkthrough