I've Received a Statutory Demand
A statutory demand is a formal demand for payment of a debt of at least $4,000 served on a company under section 459E of the Corporations Act 2001. If you do not comply with it or apply to have it set aside within 21 days, the creditor can use it as the basis for a winding up application against your company. If that application is made within three months after the failure to comply, the court must presume your company is insolvent unless the company proves otherwise. This is not a debt collection letter: it is the first step toward having your company wound up.
Statutory Demands under the Corporations Act: the complete legal guide (ss 459E-459J)
What You Need To Know
You have exactly 21 days from the date of service to either pay the debt, reach an agreement with the creditor or file an application to set the demand aside. The court cannot extend this deadline.
If you do nothing, the creditor can file a winding up application in the Federal Court or the Supreme Court of Queensland. A creditor that applies within three months after the failure to comply has the benefit of a presumption that the company is insolvent and the company then has to prove that it is solvent.
To have a statutory demand set aside under section 459H, your company must show a genuine dispute about the existence or amount of the debt or an offsetting claim against the creditor. If what is left once the disputed part and any offsetting claim are taken out is below $4,000, the court must set the demand aside; otherwise it may vary the demand, which then has effect as varied from the day it was served.
The threshold for a 'genuine dispute' is relatively low: you do not need to prove your case, only that there is a plausible basis for disputing the debt.
The application to set aside must be filed in court AND served on the creditor within the 21-day period. Filing alone is not sufficient.
Statutory demands are frequently used tactically in commercial disputes. They can be set aside if served for an improper purpose or if there is a defect that would cause substantial injustice.
What To Do Right Now
Note the date of service immediately
The 21-day clock starts from the date the demand was served on your company, not the date you personally saw it. Check how it was served and calculate the exact deadline.
Do not ignore it
Ignoring a statutory demand is one of the most dangerous things a director can do. If the 21 days pass without compliance, a creditor that applies within the following three months to wind the company up can rely on a presumption that the company is insolvent. Once a winding up application is filed, your options narrow dramatically.
Assess whether the debt is genuinely disputed
Is there a genuine reason to dispute the debt? Were the goods or services defective? Is there a contractual dispute? Do you have a cross-claim or set-off? These are grounds to set the demand aside.
Consider your director duties
If your company is or may become insolvent, you have personal duties under the Corporations Act not to allow the company to incur further debts. Trading while insolvent exposes directors to personal liability.
Get legal advice within days, not weeks
Given the 21-day hard deadline and the need to both file and serve any application, you need legal advice as early as possible. Leaving it to the last few days creates avoidable risk.
Your Four Options in the 21 Days
Pay the debt in full. If the debt is genuinely owed and you have the money, paying is usually cheaper than fighting. Get written confirmation from the creditor that the demand is satisfied.
Negotiate. Many demands resolve commercially: a payment plan, a reduced lump sum or security over an asset. Any deal must 'secure or compound' the debt to the creditor's reasonable satisfaction within the 21 days and it must be documented: a verbal promise does not stop the clock.
Apply to set the demand aside. Your company can apply where there is a genuine dispute about the debt, an offsetting claim or a defect in the demand that would cause substantial injustice. An application filed and served within the 21 days leaves the demand in place but moves the end of the time to comply to 7 days after the application is finally determined, unless the court orders a later date. Setting aside is a technical exercise with strict evidence rules, so this decision needs to be made in the first week, not the third.
Do nothing. That is a decision too and almost always the wrong one. After day 21 the creditor can apply to wind your company up and on an application made within three months after that day the court must presume the company is insolvent. Continuing to trade can also expose you personally as a director.
Practical Mistakes That Sink Companies
Treating the demand as just another collection letter and putting it in the 'deal with later' pile. The 21 days runs from service on the registered office, which may be your accountant's address, adding days of delay before you even see it.
Negotiating in good faith past the deadline. Settlement discussions do not pause the clock and creditors know it. If a deal is not signed with time to spare, file the set-aside application anyway to protect your position.
Paying part of the debt without agreement. Part payment does not comply with the demand and the creditor can still rely on the demand to apply to wind the company up.
Filing the application but forgetting to serve it on the creditor within the 21 days. Filing alone is not compliance with section 459G. This single slip is fatal every year for companies that try to handle it themselves.
How We Can Help
We act for companies that have received statutory demands and for creditors seeking to enforce them. We prepare and file applications to set aside statutory demands, negotiate settlements within the 21-day window and defend winding up proceedings where necessary. We also advise directors on their personal exposure and duties when the company's solvency is in question.
Frequently Asked Questions
What is a statutory demand?
A statutory demand is a formal demand under section 459E of the Corporations Act 2001 (Cth) requiring a company to pay a debt of at least $4,000 within 21 days. If the company does not pay, secure or compound the debt or apply to set the demand aside within that period, the creditor can apply to wind it up and on an application made within the next three months the court must presume the company is insolvent.
Can the 21-day statutory demand deadline be extended?
No. The High Court has confirmed the deadline is absolute and cannot be extended by the court or by agreement. Both the application to set aside and the supporting affidavit must be filed and served within 21 days of service of the demand.
What happens if my company ignores a statutory demand?
Once the 21 days pass without compliance, the creditor can file a winding up application. If it applies within three months after that failure, the court must presume the company is insolvent under section 459C(2) and the company bears the difficult and expensive burden of proving it is solvent. Directors who let the company keep trading also face personal exposure for insolvent trading.
Can I issue a statutory demand to recover a debt owed to my business?
Yes, if the debtor is a company and the debt is at least $4,000, due and payable and not genuinely disputed. The demand must be in the prescribed form with a verifying affidavit. Once served, it gives the company 21 days to pay, secure or compound the debt or to apply to set the demand aside. Used against a disputed debt, it will likely be set aside with costs against you.
You have 21 days from service. The court cannot extend this deadline.
Don't wait until your options narrow.
We can usually assess your position within a single consultation. Call us or send an enquiry and we will get back to you promptly.