Statutory Demand Defences: The Only 3 Grounds That Actually Work

A statutory demand gives you 21 days before your company faces wind-up proceedings.

Under the Corporations Act, you can only set aside a statutory demand on three grounds. This article explains what they are, when they apply, and how to use them.

The three grounds that work

Australian courts will only set aside a statutory demand if you prove one of these:

1. Genuine dispute — a real question exists about whether the debt is owed or the amount claimed
2. Offsetting claim — your company has a genuine claim against the creditor that reduces or cancels the debt
3. Defect in the demand — the demand contains a material error causing substantial injustice

“I need more time to pay” is not a defence. “The debt is old” is not a defence. “I disagree with the invoice” is not enough unless it meets the genuine dispute test.

Ground 1: Genuine dispute

This is the most common defence. You are arguing there is a real question about the debt that should be decided in proper court proceedings, not via statutory demand.

What counts as genuine

You must show:

• A plausible contention requiring investigation
• Evidence supporting your position, not mere assertion
• A dispute about liability, amount, or both

The court does not decide who is right. It only decides whether a dispute worth hearing exists.

Examples that work

Defective goods: A supplier demands $15,000. You paid but the goods were defective. You have photos, an independent assessment, and emails where the supplier acknowledged issues. Genuine dispute about whether the full amount is owed.

Work not completed: A contractor demands $22,000 for a fit-out. You withheld payment because they left the job unfinished with defects. You have a defects list, photos, and rectification quotes. Genuine dispute.

Invoice never authorised: You receive a demand for consulting fees you never agreed to. No signed agreement, no purchase order, and you told them in writing you would not pay. Genuine dispute about whether a contract existed.

Examples that fail

“I cannot afford it” — financial difficulty is not a dispute about the debt.

“The work was poor quality” without evidence — bare assertions fail.

“I am waiting for my accountant” — delay is not dispute.

Disputes already decided — if a court already ruled on the debt, you cannot re-litigate via statutory demand defence.

Ground 2: Offsetting claim

Your company has a claim against the creditor. If genuine and quantified, it can reduce or eliminate the demand.

Requirements

The offsetting claim must be:

• Against the same party who issued the demand
• Genuine (same test as genuine dispute)
• Quantified with a stated amount
• Equal to or greater than the demand (or reduce it below the statutory minimum)

Examples that work

Mutual debts: Company A demands $10,000. You have an unpaid invoice to Company A for $12,000. Offset reduces the demand to zero.

Damages claim: A supplier demands $8,000. They delivered defective stock costing you $15,000 in lost sales and rectification. You have evidence quantifying the loss. Offsetting claim.

Overpayment: They demand $6,000. You already paid $9,000 and they owe you a $3,000 refund. Offsetting claim cancels the demand.

Examples that fail

Claim against a different entity — demand from Company A, but your claim is against Company B. No offset.

Unquantified damages — “They damaged my reputation” without a dollar figure and evidence.

Speculative claims — future loss or potential damages you might pursue later.

Ground 3: Defect in the demand

The statutory demand contains an error causing substantial injustice. This is the narrowest ground.

What counts as a defect

• Wrong form not using the prescribed format
• Wrong debt amount materially overstating what is owed
• Unclear description preventing you from identifying the debt
• Wrong company named
• Defective affidavit missing, unsigned, or materially flawed

The defect must cause substantial injustice. Minor errors are ignored.

Examples that work

Inflated amount: Demand for $50,000, actual debt is $35,000. Material defect causing injustice because you might be wound up for a debt you do not owe.

No description: The demand says “amount owing” but does not specify invoices, dates, or what the debt relates to. You cannot identify what to pay. Defect.

Wrong entity: Demand served on parent company, debt owed by subsidiary. Defect.

Examples that fail

Typo in company name — if it is clear who the demand is for, minor errors do not matter.

Wrong creditor address — does not affect your ability to respond.

Demand served one day late — courts are not strict on service timing.

What you must do within 21 days

If you have one of these grounds, you must:

1. File an application in the Supreme Court (or Federal Court for federal law debts)
2. File a supporting affidavit setting out facts and exhibiting all evidence
3. Serve the application and affidavit on the creditor

Miss the 21-day deadline and you lose the right to apply. Courts rarely grant extensions.

What the affidavit must contain

• Your basis for dispute, offset, or defect
• All facts supporting your position
• Exhibits proving your claims (invoices, contracts, emails, photos, reports)
• A statement that the company is solvent (for genuine dispute or offsetting claim)

Weak affidavits get dismissed and you pay the creditor’s legal costs.

What does not work

These are not defences:

• “I need more time” — statutory demands are not payment plans
• “The debt is statute-barred” — limitation periods do not apply to statutory demands
• “I was not properly served” — service rules are flexible
• “The creditor is being unreasonable” — irrelevant
• “I am waiting for finance” — solvency is not the issue

How Claim Done helps you respond

If you have a genuine dispute, offsetting claim, or defect, you must act within 21 days.

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.

Final checklist

Before filing, confirm:

• You have one of the three valid grounds
• You have evidence supporting your position
• Your affidavit is complete, sworn, and exhibits all relevant documents
• You are within the 21-day deadline
• You have filed in the correct court

If you cannot meet the threshold, consider negotiating with the creditor. A weak application wastes money and time.

Respond to your statutory demand now

You have 21 days to file or your company faces wind-up proceedings. Claim Done does not prepare this application, so get legal advice straight away.

Frequently Asked Questions

Can I defend a statutory demand by saying I cannot afford to pay?

No. Financial difficulty is not a defence. The three valid grounds are genuine dispute, offsetting claim, or defect in the demand.

What happens if I miss the 21-day deadline?

You lose the right to apply to set aside the demand. The creditor can then apply to wind up your company. Courts rarely grant extensions.

Do I need a lawyer to defend a statutory demand?

Not always. If you have clear evidence of a genuine dispute or offsetting claim, you can prepare the application yourself.

Can I negotiate with the creditor after receiving a statutory demand?

Yes. If you do not have a valid defence, negotiating a payment arrangement is often the best option. The creditor may agree to withdraw the demand if you commit to a realistic payment plan.

What court do I file the application in?

Typically the Supreme Court of your state or territory. If the debt relates to federal law, you may file in the Federal Court. Check the demand to see which court the creditor nominated.