Challenges are issued when a combat is chosen during Step 1.1 of the Choose Combat & Fight sub-phase. Only one challenge can be issued per combat. The active player has the opportunity to issue a challenge first. If they choose not to, the inactive player can issue a challenge.
To issue a challenge, a player must nominate an eligible character or champion to be the challenger. To be eligible, the model must be within, or adjacent to, the fighting rank. If a player does not have an eligible model, no challenge can be issued.