What to Do When Your Supplier Sends You a Statutory Demand You Dispute

You open the mail. Form 509H. A statutory demand. Your supplier claims you owe $15,000. You know the work was defective, or you have a counterclaim, or the amount is wrong.

The clock is ticking. You have 21 days from service to respond. If you do nothing, the company can apply to wind up your business. This guide explains how to dispute a statutory demand in Australia, the grounds to set it aside, and how to respond correctly.

What is a statutory demand?

A statutory demand is a formal notice demanding payment of a debt of $4,000 or more from a registered company. The demand must be in the prescribed form (Form 509H) and accompanied by an affidavit verifying the debt.

If the company does not pay or apply to set aside the demand within 21 days, the creditor can file a wind-up application. The company is presumed to be insolvent, and the burden shifts to the company to prove otherwise.

The 21-day deadline is absolute

The Corporations Act does not allow extensions. The 21 days runs from the date of service, not the date you opened the envelope.

Service is typically completed by:

• Personal delivery to the registered office
• Leaving it at the registered office during business hours
• Posting it to the registered office (deemed served 2 business days after posting)

If you are unsure when service occurred, check the affidavit of service filed by the creditor. If the demand was not served correctly, that may be a ground to set it aside — but you still need to act within 21 days of when you received it.

Grounds to set aside a statutory demand

A company can apply to set aside a statutory demand on the following grounds:

Genuine dispute

The most common ground. A genuine dispute exists if there is a plausible contention requiring investigation that the debt is not owed. You do not need to prove the debt is not owed — only that there is a real question to be tried.

Examples:

• The goods or services were defective or not supplied as agreed
• The invoice amount is incorrect or inflated
• The contract was never formed or has been terminated
• The work was incomplete or substandard
• The debt has already been paid or set off

The dispute must exist at the time the demand was served. You cannot manufacture a dispute after receiving it.

Offsetting claim

If your company has a genuine claim against the creditor that equals or exceeds the debt, you can apply to set aside the demand on the basis of an offsetting claim.

The claim must be:

• Genuine and not spurious
• Against the same creditor who issued the demand
• Quantifiable and not speculative
• Able to be set off or used to reduce the debt

Common examples include claims for returned goods, defective work, breach of contract, property damage, or unpaid refunds.

Defect in the demand

The demand may be set aside if it contains a defect that causes substantial injustice. Defects include:

• Incorrect company name or ACN
• Incorrect debt amount or description
• Failure to attach the required affidavit
• Demand signed by the wrong person
• Demand served on the wrong entity

Minor defects (such as a typo in the address) will not usually invalidate the demand unless they cause real prejudice.

Other reasons

The demand may also be set aside if there is a payment arrangement in place that has not been breached, the debt is genuinely disputed in separate court proceedings, the creditor has agreed to forbear or waive the debt, or the demand is an abuse of process.

How to apply to set aside a statutory demand

You must file an application in the Supreme Court (or Federal Court if the creditor is a Commonwealth entity) within 21 days of service.

The application must be supported by an affidavit setting out:

• The grounds for setting aside the demand
• The facts supporting the genuine dispute or offsetting claim
• Any relevant documents or correspondence
• Why the company should not be presumed insolvent

The affidavit must be filed at the same time as the application. You cannot file the application first and the affidavit later.

The court will typically list the matter for a hearing within 2-4 weeks. The hearing is not a trial — the court decides whether there is a genuine dispute or offsetting claim, not whether the debt is actually owed.

If the court is satisfied there is a genuine dispute or offsetting claim, it will set aside the demand. The creditor must then sue in the normal way to recover the debt.

If the court dismisses the application, the demand stands. The company must pay the debt (plus the creditor’s legal costs) or face wind-up proceedings.

What if you miss the 21-day deadline?

If you do not file the application within 21 days, the demand becomes final. The creditor can file a wind-up application, and the company is presumed to be insolvent.

The court has no power to extend the 21-day deadline, even if you have a strong case. The only options are to pay the debt immediately, apply for an injunction to restrain the wind-up application (difficult and expensive), or defend the wind-up application by proving the company is solvent (also difficult and expensive).

Act within the 21 days.

Should you pay the debt or fight it?

If the debt is genuinely owed and you have no offsetting claim, pay it. The cost of fighting a statutory demand often exceeds the debt itself.

If you have a genuine dispute or offsetting claim, file the application. The cost of defending a wind-up application is much higher than the cost of setting aside the demand.

If you are unsure, get advice from a lawyer who specialises in insolvency and corporations law. Statutory demands are a specialist area.

What not to do when you receive a statutory demand

Do not ignore it. If you do nothing, the creditor can wind up your company.

Do not send a letter disputing the debt without filing a court application. A letter has no legal effect. The 21-day deadline still applies.

Do not try to negotiate a payment plan after receiving the demand unless the creditor agrees in writing to withdraw it. Negotiation does not stop the clock.

Do not assume the demand is invalid because of a minor error. Only material defects causing substantial injustice will invalidate the demand.

Do not wait until day 20 to act. Court filing systems can be slow, and you may need time to gather evidence or get legal advice.

How ClaimDone helps you respond to a statutory demand

ClaimDone’s Legal Response service helps Australian businesses respond to statutory demands and other formal legal notices.

Upload the statutory demand and any supporting documents. Our Proprietary AI Engine analyses the claim, identifies potential grounds to dispute it, and prepares a response pack including:

• Draft affidavit setting out the genuine dispute or offsetting claim
• Draft application to set aside the demand
• Supporting legal submissions
• Step-by-step filing instructions

The response pack is prepared within 60 minutes and delivered as editable Word documents. You can file them yourself or hand them to a lawyer for review and filing.

Fixed fee: $197. No subscription. Australia-wide.

For complex disputes, high-value debts, or urgent matters, we recommend engaging a lawyer who specialises in insolvency law. ClaimDone does not provide legal advice or represent you in court — we prepare the documents you need to respond.

Final steps

If you have received a statutory demand you dispute, act now:

1. Check the date of service and calculate the 21-day deadline
2. Gather all documents relating to the debt (invoices, contracts, correspondence, evidence of defects or non-performance)
3. Identify the grounds to dispute the demand (genuine dispute, offsetting claim, or defect)
4. File the application and affidavit in the Supreme Court before the deadline
5. Serve the application on the creditor

The 21-day clock does not stop. If you need help preparing the application and affidavit, prepare your response to a statutory demand with ClaimDone in under an hour.

Frequently Asked Questions

Can I extend the 21-day deadline to respond to a statutory demand?

No. The Corporations Act does not allow extensions. The 21 days runs from the date of service, and the court has no power to grant extra time. If you miss the deadline, the demand becomes final and the creditor can apply to wind up your company.

What is a genuine dispute for the purposes of setting aside a statutory demand?

A genuine dispute exists if there is a plausible contention requiring investigation that the debt is not owed. You do not need to prove the debt is not owed — only that there is a real question to be tried. Common examples include defective goods, incorrect invoicing, or disputed contract terms.

Can I negotiate a payment plan after receiving a statutory demand?

Only if the creditor agrees in writing to withdraw the demand. Negotiation does not stop the 21-day deadline. If the creditor refuses to withdraw the demand, you must either pay in full or file an application to set it aside.

What happens if I do nothing after receiving a statutory demand?

If you do not pay the debt or file an application to set aside the demand within 21 days, the creditor can apply to wind up your company. The company is presumed to be insolvent, and you will need to prove solvency to defend the wind-up application — which is difficult and expensive.

Do I need a lawyer to respond to a statutory demand?

Not necessarily. You can file the application and affidavit yourself, or use ClaimDone’s Legal Response service to prepare the documents. However, for complex disputes or high-value debts, we recommend engaging a lawyer who specialises in insolvency and corporations law.