How to Respond to a Statutory Demand in 21 Days (Australia)

A statutory demand gives your company exactly 21 days to pay the debt, apply to set it aside, or face presumed insolvency and potential wind-up proceedings. The 21-day clock starts from service, not when you read it.

This guide explains your three options, how to file a genuine dispute affidavit, and what happens if you miss the deadline.

What is a statutory demand?

A statutory demand is a formal demand requiring a company to pay a debt of at least $4,000 within 21 days. It must be served in the prescribed form and accompanied by a supporting affidavit.

Any creditor claiming a debt above the threshold can serve one without a court order. If your company fails to comply within 21 days, the creditor can presume insolvency and apply to wind it up.

Service is typically complete when the demand is left at your registered office or given to a director personally. The 21-day period runs from that date.

Your three options within 21 days

You must act within 21 days or the right to challenge the demand expires.

Option 1: Pay the debt in full

If the debt is valid and you have the funds, paying in full satisfies the demand. The creditor cannot proceed with wind-up action based on that debt.

Payment must clear within the 21-day period. Funds that clear on day 23 do not save you from breach.

Option 2: Apply to set aside the demand

You can apply to the court to set aside the statutory demand if you have grounds. The most common are:

• Genuine dispute — you dispute the debt exists or the amount claimed
• Offsetting claim — your company has a genuine claim against the creditor that brings the undisputed debt below $4,000 (it can come from a different transaction)
• Defect in the demand — the demand contains a material error or does not comply with the prescribed form
• Other reason — substantial injustice would result if the demand is not set aside

The application must be filed within 21 days and supported by an affidavit setting out the grounds. The affidavit must be sworn by a director or officer with direct knowledge of the facts.

Option 3: Do nothing (not recommended)

If you do nothing, the creditor can file a wind-up application after 21 days presuming your company is insolvent. You lose the right to dispute the debt at that stage.

The court will not hear your dispute unless you apply to set aside the demand within the 21-day window.

How to file a genuine dispute affidavit

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

What makes a dispute genuine?

The court applies a low threshold. A genuine dispute exists if:

• The invoice was never agreed to or authorised
• The work was defective or incomplete
• The amount claimed is incorrect or inflated
• The debt has already been paid or offset
• The contract was terminated or void
• There is a cross-claim arising from the same transaction

You only need to show the dispute is not frivolous or vexatious.

Preparing the affidavit

The affidavit must be sworn by a director or company officer and must:

• Identify the deponent and their authority to swear on behalf of the company
• Set out the facts supporting the genuine dispute in numbered paragraphs
• Attach all supporting documents as exhibits (invoices, emails, contracts, photos)
• Be sworn before a solicitor or Justice of the Peace
• Be filed with the court and served on the creditor within 21 days

The affidavit should be factual, specific, and supported by evidence. Vague assertions or unsupported denials will not establish a genuine dispute.

Claiming an offsetting amount

An offsetting claim is a genuine claim your company has against the creditor that reduces or extinguishes the debt. The claim must:

• Be a genuine counterclaim, set-off or cross-demand against the creditor (Corporations Act 2001, s 459H(5))
• Need not arise from the same transaction as the debt (s 459H(5))
• Be genuine and quantifiable

Common examples include:

• The creditor owes your company money under a separate invoice
• The creditor breached the contract causing loss
• The creditor supplied defective goods and you are entitled to a refund or damages
• The creditor overcharged and you are entitled to a credit

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)).

Timeline: what happens after you file

Filing the application does not automatically stop the creditor from taking action.

Day 1-21: File your application and affidavit with the court and serve copies on the creditor.

Within 7 days of filing: The creditor must file and serve any affidavit in reply.

Hearing date: The court will list the matter for hearing.

At the hearing: The court decides whether to set aside the demand, vary it, or dismiss your application. If the court sets aside the demand, the creditor cannot rely on it for wind-up proceedings. If the court dismisses your application, you will typically be ordered to pay the creditor’s costs and the demand remains in force.

If you lose: The company has until 7 days after the court’s decision to comply with the demand, unless the court orders a different period (s459F(2)). If it does not, the creditor can file a wind-up application. You will need to show solvency or apply for an adjournment to negotiate settlement.

Defects in the statutory demand

A statutory demand can be set aside if it contains a defect that causes substantial injustice. Common defects include:

• Incorrect company name or ACN
• Demand served at the wrong address
• Demand not in the prescribed form
• Supporting affidavit missing or defective
• Demand claims an unliquidated amount (estimated damages rather than a specific sum)
• Demand includes GST when the creditor is not registered for GST

Minor errors will not invalidate the demand unless they cause substantial injustice. The court has discretion to overlook technical defects if the company clearly understood the demand and was not prejudiced.

Costs and risks of challenging a statutory demand

Check the court’s current filing fee before you apply. If you lose, you will usually be ordered to pay the creditor’s legal costs.

The creditor may also apply for security for costs, requiring you to pay money into court as a condition of defending the application.

If your challenge fails and the company does not comply within 7 days after the court’s decision (or any longer period the court orders), the creditor can file a wind-up application. The court will presume your company is insolvent, and you will need to prove solvency or negotiate a settlement to avoid liquidation.

You should only challenge a statutory demand if you have a genuine dispute or offsetting claim supported by evidence. Do not file a spurious application just to buy time.

What happens if you miss the 21-day deadline

If you do not apply to set aside the demand within 21 days, you lose the right to challenge it. The creditor can file a wind-up application, and the court will presume your company is insolvent.

At that stage, your only defences are:

• Proving the company is solvent (by filing evidence of assets and cash flow)
• Showing the debt has been paid since the demand was served
• Negotiating a settlement with the creditor before the wind-up hearing

Missing the deadline does not mean your company will automatically be wound up, but it makes defending the application significantly harder and more expensive.

Final checklist: responding to a statutory demand

• [ ] Confirm the date of service — the 21-day clock starts from service, not receipt
• [ ] Review the demand for defects — check the company name, amount, form, and supporting affidavit
• [ ] Gather all evidence supporting your dispute or offsetting claim
• [ ] Prepare and swear the affidavit before a solicitor or JP
• [ ] File the application and affidavit with the court within 21 days
• [ ] Serve copies on the creditor within 21 days

The 21-day deadline is strict.

How Claim Done helps

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.

Act before the 21 days run out

If your company has been served with a statutory demand, time is critical. Get legal advice now, so that any application to set aside the demand is filed and served within the 21 days.

Frequently Asked Questions

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

Yes, you can negotiate at any time. However, negotiation does not stop the 21-day clock. If you reach an agreement, have the creditor withdraw the demand in writing. If you cannot reach agreement within 21 days, file an application to set aside the demand to preserve your rights while you continue negotiating.

What is the difference between a genuine dispute and an offsetting claim?

A genuine dispute challenges whether the debt exists or the amount claimed. An offsetting claim accepts the debt exists but says your company has a separate claim against the creditor that reduces or cancels it. Both are grounds to set aside a statutory demand.

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

You can file the application yourself, but the affidavit must be properly drafted and supported by evidence.

What happens if the court sets aside the statutory demand?

If the court sets aside the demand, the creditor cannot rely on it to presume insolvency or apply to wind up your company. The creditor can still sue for the debt in the normal way, but they lose the fast-track wind-up option.

Can a statutory demand be served on a sole trader or individual?

No. Statutory demands can only be served on registered companies (Pty Ltd or Ltd). Individuals and sole traders cannot be served with a statutory demand. Creditors must use other debt recovery methods such as a letter of demand or court proceedings.