Debt Recovery for Small Business: Statutory Demand vs Tribunal

# Debt Recovery for Small Business: When to Use a Statutory Demand vs Tribunal

Your invoice is overdue. The debtor is not responding. You need to choose between a tribunal application, a statutory demand, or a letter of demand.

This guide explains the three main debt recovery tools available to Australian small businesses, when each one applies, and how to choose based on debtor type and debt size.

The three debt recovery tools compared

Letter of demand — A formal written notice demanding payment within a set timeframe (typically 7–14 days). Applies to any debtor, any amount. Not legally enforceable on its own, but often prompts payment and serves as evidence if you escalate.

Statutory demand — A formal demand under the Corporations Act requiring a registered company to pay a debt of $4,000 or more within 21 days, or face presumption of insolvency. Only applies to companies, not individuals or sole traders.

Tribunal application — A claim filed in your state or territory’s civil and administrative tribunal seeking a legally binding payment order. Applies to any debtor type, typically for debts under $10,000–$25,000 depending on jurisdiction.

The right tool depends on who owes you, how much they owe, and whether you have already demanded payment.

When to use a statutory demand

A statutory demand creates immediate commercial pressure against a registered company and opens the door to wind-up proceedings if the debt remains unpaid.

Requirements for a valid statutory demand

You can serve a statutory demand if:

• The debtor is a registered company (Pty Ltd, Ltd) — check the ASIC register
• The debt is $4,000 or more
• The debt is a liquidated sum — a specific, ascertained amount
• The debt is undisputed — the company has not raised a genuine dispute about the amount or liability
• You can swear an affidavit verifying the debt

If the debtor is a sole trader, partnership, or individual, a statutory demand does not apply. Use a letter of demand followed by a tribunal application instead.

What happens after you serve a statutory demand

Once served, the company has 21 days to either:

1. Pay the debt in full
2. Apply to set aside the demand (on grounds of genuine dispute, offsetting claim, or defect)
3. Do nothing

If the company does nothing and does not pay, you can apply to wind up the company after the 21-day period expires. The company is presumed to be insolvent under the Corporations Act.

Most companies pay rather than face wind-up proceedings. The reputational and operational consequences are severe.

When NOT to use a statutory demand

Do not serve a statutory demand if:

• The debt is genuinely disputed
• The debt is under $4,000
• The debtor is an individual, sole trader, or partnership
• You cannot prove the debt with documentary evidence

If any of these apply, use a letter of demand and tribunal application instead.

When to use a tribunal application

A tribunal application is the right tool for smaller debts, individual debtors, or any debt that does not meet the statutory demand criteria.

Tribunal jurisdiction limits by state

Each state and territory tribunal has a monetary limit for debt recovery claims:

• NSW (NCAT): up to $30,000 (General Division)
• Victoria (VCAT): up to $10,000 (small claims), up to $100,000 (civil claims)
• Queensland (QCAT): up to $25,000 (minor civil disputes)
• South Australia (SACAT): up to $25,000 (minor civil claims)
• Western Australia (SAT): up to $10,000 (small claims)
• Tasmania (TasCat): up to $5,000 (small claims), up to $25,000 (general)
• ACT (ACAT): up to $25,000 (general)
• Northern Territory (NTCAT): up to $25,000 (general)

If your debt exceeds the tribunal limit, you must file in the relevant Magistrates, District, or Supreme Court.

Who can be a respondent in a tribunal claim

Tribunals accept claims against:

• Individuals (including sole traders operating under their own name)
• Partnerships (name all partners as respondents)
• Companies (Pty Ltd, Ltd)
• Trusts (name the trustee as respondent)

Unlike statutory demands, tribunals do not require the debtor to be a registered company.

The tribunal process

1. File the application — complete the tribunal’s form, attach your evidence (invoices, contracts, correspondence), pay the filing fee (typically $50–$200)
2. Service — the tribunal serves the application on the respondent, who has 28 days to file a response
3. Directions hearing — the tribunal may schedule a preliminary hearing to clarify issues
4. Final hearing — both parties present evidence, the tribunal member makes a binding decision
5. Enforcement — if you win and the debtor does not pay, you can enforce through garnishee, warrant, or bankruptcy

Tribunal hearings are less formal than court, do not require a lawyer, and typically resolve within 3–6 months.

When to start with a letter of demand

A letter of demand is not legally required before filing a tribunal application or serving a statutory demand, but it is standard commercial practice and often resolves the matter without formal proceedings.

A demand letter:

• Demonstrates that you have made a reasonable attempt to resolve the dispute
• Provides a clear deadline and consequences for non-payment
• Costs less than tribunal filing fees or statutory demand preparation
• Can be sent to any debtor type, for any amount

Most debtors pay after receiving a properly drafted demand letter. If they do not, the letter becomes evidence in your tribunal application or supports your statutory demand affidavit.

How to choose the right debt recovery tool

Is the debtor a registered company?

• Yes, and debt is $4,000 or more → Use a statutory demand
• Yes, but debt is under $4,000 → Use a letter of demand, then tribunal if unpaid
• No (individual or sole trader) → Use a letter of demand, then tribunal if unpaid

Has the debt been genuinely disputed?

• Yes → Do not use a statutory demand; use tribunal instead
• No → Proceed with statutory demand if company debt over $4,000, or tribunal for all other debts

Is the debt over the tribunal limit?

• Yes → File in Magistrates or District Court
• No → File in tribunal

How ClaimDone helps with small business debt recovery

ClaimDone prepares statutory demands, tribunal applications, and letters of demand based on the evidence you upload.

For statutory demands, ClaimDone generates the Form 509H and supporting affidavit template, pre-filled with your debt details and the debtor’s company information. You swear the affidavit before a JP or solicitor, then serve it on the company. Fixed fee: $197.

For tribunal applications, ClaimDone drafts your application form, statement of claim, and witness statement based on your invoices, contracts, and correspondence. You file the documents with your state tribunal. Fixed fee: $97.

For letters of demand, ClaimDone drafts a professionally formatted demand letter and delivers it to the debtor automatically. Fixed fee: $79.

All services are completed within 60 minutes of uploading your evidence. No subscription, no hourly billing, no hidden fees.

Final steps: serve, file, or enforce

Once you have chosen the right debt recovery tool:

Statutory demand — serve Form 509H and affidavit on the company’s registered office (check ASIC register for address), wait 21 days, apply to wind up if unpaid

Tribunal application — file your application online or in person, pay the filing fee, attend the directions hearing and final hearing

Letter of demand — send via email and registered post, wait for the deadline, escalate to tribunal or statutory demand if unpaid

If the debtor still does not pay after a tribunal order, you can enforce through:

• Garnishee order (intercept wages or bank accounts)
• Warrant of execution (seize and sell assets)
• Bankruptcy notice (if debt over $10,000 against an individual)

Most small business debts are resolved at the demand letter or tribunal stage. Statutory demands are reserved for larger company debts where immediate commercial pressure is required.

Get your debt recovery documents prepared now

ClaimDone prepares statutory demands, tribunal applications, and letters of demand for Australian small businesses. Upload your invoices and evidence, and your documents are ready within 60 minutes. Choose the service that matches your debtor type and debt size.

Frequently Asked Questions

Can I serve a statutory demand on a sole trader?

No. Statutory demands only apply to registered companies (Pty Ltd, Ltd) under the Corporations Act. If the debtor is a sole trader or individual, use a letter of demand followed by a tribunal application instead.

What happens if the company disputes the debt after I serve a statutory demand?

The company can apply to set aside the statutory demand within 21 days if it can show a genuine dispute about the debt. If the court sets aside the demand, you cannot use it to wind up the company. You must then pursue the debt through tribunal or court proceedings.

Do I need a lawyer to file a tribunal application?

No. Tribunals are designed for self-represented parties. ClaimDone prepares the application documents for you based on your evidence, and you file them directly with the tribunal.

How long does it take to recover a debt through tribunal?

Most tribunal matters resolve within 3–6 months from filing to final hearing. If the respondent does not file a defence, you may get a default judgment within 4–8 weeks. Enforcement after judgment can take an additional 1–3 months depending on the debtor’s assets.

Can I use a statutory demand for a debt under $4,000?

No. The Corporations Act sets a minimum threshold of $4,000 for statutory demands. If your debt is under $4,000, use a letter of demand followed by a tribunal application if the debtor does not pay.