Responding to a Statutory Demand When You Genuinely Dispute the Debt

You open the mail and find a Form 509H statutory demand claiming your company owes $15,000. The clock starts: 21 days to pay, or the creditor can apply to wind up your company. But you don’t owe the money — or at least, not all of it. The invoice was for defective work. The amount includes charges you never agreed to. The debt is genuinely disputed.

Here’s what you need to know about disputing a statutory demand, what the court considers a genuine dispute, and how to set aside the demand before it becomes a winding-up application.

What is a statutory demand?

A statutory demand is a formal demand under the Corporations Act requiring a company to pay a debt of at least $4,000 within 21 days. It is served using Form 509H and supported 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 presume the company is insolvent and apply to wind it up.

It is not a court order. It is a creditor’s tool. But ignoring it can destroy your company.

What is a genuine dispute?

Under the Corporations Act, the court may set aside a statutory demand if the company can show a genuine dispute about the existence or amount of the debt.

A genuine dispute means there is a real question to be tried — not that you will definitely win, but that the dispute is plausible and arguable on its face. The dispute must be bona fide and truly exist in fact. It must be more than a spurious claim raised solely to avoid the demand.

The court does not resolve the dispute at this stage. It only decides whether a dispute genuinely exists. If it does, the demand is set aside, and the creditor must sue in the normal way if they want to recover the debt.

Common grounds for a genuine dispute

You can dispute a statutory demand on several grounds:

• Defective work or goods — the invoice relates to services or products that were substandard, incomplete, or not delivered as agreed
• Overcharging — the amount claimed includes charges not agreed to in the contract or quote
• Set-off or counterclaim — you have a genuine cross-claim against the creditor that brings the undisputed debt below $4,000 (it can come from a different transaction)
• Payment already made — you have evidence the debt was paid in full or in part
• No contract or agreement — the debt is based on work you never authorised or a contract you never signed
• Incorrect amount — the calculation is wrong, or the debt has been inflated
• Time-barred debt — the debt may be statute-barred under the relevant limitations legislation

The dispute must relate to the debt itself, not to procedural defects in the demand (although those can also be grounds for setting aside).

What evidence do you need?

The court will not set aside a statutory demand based on bare assertions. You need to file an affidavit that sets out the facts and attaches supporting evidence.

Useful evidence includes:

• Emails or correspondence disputing the invoice or raising concerns about the work
• Photos or reports showing defective goods or services
• Contract or quote showing the agreed price or scope of work
• Payment records (bank statements, receipts) if you claim the debt was paid
• Expert reports or assessments if the dispute involves technical or trade issues
• Invoices or correspondence evidencing your counterclaim or set-off

The affidavit must be filed within 21 days of service of the demand. If you miss the deadline, you lose the right to apply — the presumption of insolvency arises, and the creditor can file a winding-up application.

The court process to set aside a statutory demand

To dispute a statutory demand, you must apply to the Supreme Court or the Federal Court, and serve the application on the creditor, within 21 days of service of the demand.

The process:

1. Prepare an affidavit — sworn statement setting out the facts of the dispute and exhibiting the supporting documents
2. File an originating process — the application to set aside the demand, together with the affidavit
3. Serve the application — on the creditor, with the affidavit, within the same 21 days from service of the demand
4. Attend the hearing — the court will list the matter for a short hearing
5. Court decision — if the court is satisfied a genuine dispute exists, it sets aside the demand; if not, the demand stands

Check the court’s current filing fee before you apply. If you succeed, the court may order the creditor to pay your costs. If you fail, you may be ordered to pay theirs.

You cannot extend the 21-day deadline. If you miss it, the demand becomes final, and your only option is to pay the debt or face a winding-up application.

Offsetting claims and the genuine dispute test

If you have a genuine cross-claim against the creditor — for example, they owe you $10,000 for another matter and are now demanding $8,000 — you can rely on that offsetting claim as a genuine dispute.

The court must take into account any offsetting claim that the company has against the creditor, provided the claim is genuine and quantified.

The offsetting claim must:

• Be a genuine counterclaim, set-off or cross-demand against the creditor; it need not arise from the same transaction (Corporations Act 2001, s 459H(5))
• Be genuinely disputed or genuinely owed

If deducting the offsetting claim leaves less than $4,000 of the debt undisputed, the court must set the demand aside (s 459H(3)). If $4,000 or more is left, the court may vary the demand (s 459H(4)).

What if the demand has a defect?

Even if you do not dispute the debt, you can apply to set aside a statutory demand if it contains a defect that will cause substantial injustice.

Common defects include:

• Incorrect company name or ACN — the demand names the wrong entity
• Failure to attach the affidavit — the demand must be accompanied by an affidavit verifying the debt
• Incorrect debt description — the demand does not properly describe the debt or its basis
• Service defects — the demand was not served in accordance with the Corporations Act

A defect alone is not enough. You must show the defect caused or will cause substantial injustice — for example, confusion about which entity is liable, or inability to identify the debt claimed.

What happens if the demand is set aside?

If the court sets aside the statutory demand, it is as if the demand was never served. The creditor cannot rely on it to presume insolvency or apply to wind up the company.

The creditor must pursue the debt through normal legal channels — usually a statement of claim in the District or Supreme Court, or an application in a tribunal if the amount falls within its jurisdiction.

You are not off the hook for the debt itself. If the creditor sues and proves the debt, you will still owe it. But you have avoided the immediate threat of insolvency proceedings and bought time to defend the claim properly.

How Claim Done helps you respond to a statutory demand

Claim Done does not prepare applications to set aside a statutory demand. The application and a supporting affidavit must be filed with the Supreme Court or the Federal Court, and served on the creditor, within 21 days of service of the demand (Corporations Act 2001, s 459G). That time cannot be extended, so get legal advice straight away.

Claim Done does not give legal advice and does not file court documents on your behalf.

Act within 21 days or lose your right to dispute

If you receive a statutory demand and you genuinely dispute the debt:

• Do not ignore it — the 21-day deadline is absolute
• Gather your evidence immediately — emails, contracts, photos, payment records
• File your application within 21 days — late applications are not accepted
• Swear your affidavit before a qualified person — solicitor, JP, or commissioner for affidavits
• Serve the application on the creditor — with the affidavit, within the same 21 days; filing alone is not enough

A genuine dispute is a complete defence to a statutory demand. If you can show the court that the debt is genuinely in dispute, the demand will be set aside, and the creditor must prove their case in the usual way.

Frequently Asked Questions

What is the deadline to dispute a statutory demand?

You have 21 days from the date of service of the statutory demand to file and serve an application to set it aside. This deadline cannot be extended. If you miss it, the demand becomes final and the creditor can apply to wind up your company.

Do I need to prove the debt is wrong, or just that it's disputed?

You only need to show that a genuine dispute exists — not that you will definitely win. The court does not resolve the dispute at this stage. If the dispute is plausible and supported by evidence, the demand will be set aside and the creditor must sue in the normal way.

Can I dispute part of the debt and pay the rest?

Yes. If you dispute only part of the debt, you can apply to set aside the demand to the extent of the disputed amount. If the undisputed portion is less than $4,000, the demand fails because it does not meet the statutory minimum. If it exceeds $4,000, the court may vary the demand or set it aside entirely depending on the circumstances.

What happens if I lose the application to set aside?

If the court dismisses your application, the statutory demand remains in force. The creditor can then apply to wind up your company, relying on the presumption of insolvency. You may also be ordered to pay the creditor’s legal costs of the application.

Can I use an offsetting claim to dispute a statutory demand?

Yes. The court must consider any genuine offsetting claim you have against the creditor. If deducting your cross-claim leaves less than $4,000 of the debt undisputed, the court must set the demand aside (s 459H(3)). The claim need not arise from the same transaction (s 459H(5)).