How to Respond to a Statutory Demand You Genuinely Dispute

A statutory demand is the most aggressive debt recovery tool in Australian corporate law. Served under the Corporations Act, it gives your company 21 days to pay the claimed debt or face presumed insolvency and potential winding up.

If you genuinely dispute the debt, you have the right to apply to the court to set it aside. The clock starts ticking the moment you receive it, and missing the deadline can destroy your company.

What a statutory demand is and why it matters

A statutory demand is a formal notice served on a registered company claiming a debt of at least $4,000. It is issued using Form 509H and must be accompanied by an affidavit verifying the debt.

The demand gives the company 21 days to either:

• Pay the debt in full
• Secure or compound the debt to the creditor’s reasonable satisfaction
• Apply to the court to set aside the demand

If you do nothing, the creditor can apply to wind up your company after the 21 days expire. The court will presume your company is insolvent simply because you failed to respond.

This presumption shifts the burden onto you to prove solvency, which is expensive and difficult. Even if your company has assets and cash flow, failing to respond can lead to liquidation.

The 21-day deadline is absolute

The Corporations Act sets a strict 21-day time limit. The clock starts from the date the demand is served on your company, not the date you personally see it.

Service is typically valid if the demand is:

• Left at the registered office during business hours
• Posted to the registered office (deemed served 3 days after posting)
• Given to a director or company secretary personally

You cannot extend this deadline by agreement with the creditor. If you want to dispute the demand, you must file your application to set it aside within 21 days. Miss it by even one day and the court has no discretion to accept a late application.

Grounds for setting aside a statutory demand

The Corporations Act provides three main grounds for setting aside a statutory demand. You need to show at least one applies.

Genuine dispute about the debt

This is the most common ground. The court will set aside a demand if there is a genuine dispute about whether the debt exists or the amount claimed.

A genuine dispute means:

• A plausible contention requiring investigation
• Not a spurious claim or bluster
• Not a dispute that is frivolous or obviously hopeless

You do not need to prove you will win the dispute. You only need to show there is a real question to be tried. The court will not resolve the underlying dispute at this stage.

Examples of genuine disputes:

• The goods or services were defective and you have withheld payment
• The invoice includes charges you never agreed to
• The contract was never properly formed
• You have already paid part or all of the debt
• The creditor breached the contract first, entitling you to damages that offset the claim

Offsetting claim

You can also apply to set aside a demand if you have an offsetting claim against the creditor. This might be:

• A counterclaim for damages arising from the same transaction
• A debt the creditor owes you that exceeds or reduces the claimed amount
• A claim for defective work, non-delivery, or breach of warranty

The offsetting claim must be genuine and quantified. If the offset equals or exceeds the demand, the court will typically set aside the demand. If it only reduces the debt below $4,000, the demand will also be set aside because it no longer meets the statutory threshold.

Defect in the demand

A statutory demand must comply strictly with the Corporations Act and Regulations. Any material defect can be a ground for setting it aside.

Common defects include:

• Wrong company name or ACN
• Debt not quantified or described clearly
• Affidavit not properly sworn or missing required details
• Demand served at the wrong address
• Demand does not specify the debt is due and payable

The court will only set aside the demand if the defect causes substantial injustice and cannot be cured. Minor errors like typos in the affidavit are usually not enough.

What you need to file

To apply to set aside a statutory demand, you must file an application and supporting affidavit in the Federal Court or Supreme Court (depending on your state).

Your affidavit must:

• Be filed within the 21-day period
• Set out the facts supporting your ground for setting aside
• Exhibit all relevant documents (contracts, invoices, correspondence, payment records)
• Be sworn before a solicitor or justice of the peace

The affidavit is critical. The court will not allow you to rely on evidence filed after the 21 days expire. If you do not include a key document or fact in your initial affidavit, you cannot add it later.

You must also serve a copy of your application and affidavit on the creditor within the 21 days.

How the court decides

The hearing is usually short. The court will not conduct a full trial of the underlying dispute. It will only decide whether you have shown:

• A genuine dispute exists, or
• You have an offsetting claim, or
• There is a material defect

If you succeed, the court will set aside the demand. The creditor can still sue you for the debt in the normal way, but they cannot use the statutory demand process to wind up your company.

If you fail, the demand remains in force. The creditor can then apply to wind up your company, and you will need to prove solvency to resist the winding up application.

What happens if you ignore the demand

If you do nothing within 21 days, the creditor can file a winding up application. The court will presume your company is insolvent simply because you failed to comply with the demand.

You can still oppose the winding up, but you will need to prove:

• The company is solvent (balance sheet, cash flow, expert evidence)
• There is some other reason to dismiss the application

This is difficult and expensive. It is far better to deal with the statutory demand properly within the 21 days.

When to pay instead of disputing

Not every statutory demand should be disputed. If the debt is genuinely owed and you have no real defence, disputing the demand will only delay the inevitable and cost you more in legal fees.

Consider paying or negotiating if:

• The debt is clearly owed
• You have no genuine dispute or offsetting claim
• The amount is within your company’s capacity to pay
• You want to avoid the cost and risk of court proceedings

You can also negotiate a payment plan with the creditor. If they agree to withdraw the demand in writing, you avoid the court process entirely. Get the withdrawal in writing before you make any payment.

How ClaimDone helps you respond

If you have received a statutory demand and you genuinely dispute the debt, ClaimDone’s Legal Response service prepares your application and supporting affidavit based on the evidence you upload.

You complete a short intake form about the dispute, upload your documents, and ClaimDone’s Proprietary AI Engine drafts a court-ready response citing the applicable sections of the Corporations Act and the grounds for setting aside.

The service is designed for companies that need to act fast but do not have time to instruct a lawyer within the 21-day deadline. You receive a draft affidavit and application formatted for filing in the Federal Court or Supreme Court.

For complex disputes, high-value claims, or cases involving insolvency proceedings already underway, you should instruct a lawyer with experience in corporate insolvency. ClaimDone does not give legal advice and cannot represent you in court.

Ready to protect your company

Responding to a statutory demand requires precision and speed. The 21-day deadline is absolute, the court will not accept late applications, and the consequences of inaction are severe.

If you have a genuine dispute about the debt or an offsetting claim, file your application within the deadline. If the demand is defective, identify the defect clearly in your affidavit. If the debt is genuinely owed, pay it or negotiate a withdrawal.

ClaimDone’s Legal Response service prepares your application and affidavit in under 60 minutes for a flat fee of $97. Upload your evidence, answer a few questions, and receive court-ready documents that protect your company from winding up. No subscription, no ongoing costs, Australia-wide.

Frequently Asked Questions

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

Yes, but do not rely on negotiation alone. The 21-day deadline continues to run even if you are negotiating. If you reach an agreement, get the creditor to withdraw the demand in writing. If negotiations fail, you still need to file your application within 21 days.

What happens if I file my application on day 22?

The court has no discretion to accept a late application. If you file even one day late, your application will be dismissed and the statutory demand will remain in force. The creditor can then apply to wind up your company.

Do I need a lawyer to set aside a statutory demand?

Not necessarily. If you have a clear genuine dispute and strong evidence, you can file the application yourself or use ClaimDone’s Legal Response service to prepare the documents. For complex disputes or high-value claims, a lawyer with insolvency experience is recommended.

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 on the basis that the undisputed amount is less than $4,000. If the undisputed portion is more than $4,000, you should pay that amount and dispute the balance.

What if the statutory demand was served at the wrong address?

Service at the wrong address is a defect that may allow you to set aside the demand. Your affidavit must explain why the defect caused substantial injustice, such as you not receiving the demand in time to respond. Include evidence of your correct registered office address from the ASIC register.