Statutory Demand Defects: How to Set Aside a Demand in 21 Days

A statutory demand under the Corporations Act gives your company 21 days to pay a debt of $4,000 or more, or face presumed insolvency and potential wind-up proceedings. But not every demand is valid. If the demand contains defects or the debt is genuinely disputed, you can apply to set it aside.

This guide explains the two main grounds for setting aside a statutory demand, what the courts look for, and how to prepare your application within the 21-day deadline.

The 21-Day Hard Deadline

You must file your application to set aside within 21 days of service of the demand. This is a strict statutory deadline. Courts have no discretion to extend it, even by a single day.

Service is usually complete:

• By hand: when the demand is physically delivered to the registered office
• By post: 3 business days after posting (unless you can prove later receipt)
• By email: only valid if permitted under the company’s constitution or previously agreed in writing

Miss the 21-day window and the demand stands. The company is presumed insolvent, and the creditor can file a wind-up application.

Ground 1: Genuine Dispute as to the Debt

This is the most common ground. The court must set aside the demand if there is a genuine dispute about the existence or amount of the debt.

What “Genuine Dispute” Means

A dispute is genuine if:

• It is bona fide (made in good faith, not a delaying tactic)
• It is not frivolous or merely spurious
• There is a real question to be tried

The court does not resolve the dispute at this stage. It only determines whether one exists. You do not need to prove your case, only show there is a serious dispute that should be resolved in proper proceedings, not summary winding-up.

Examples of Genuine Dispute

Defective goods or services: The creditor invoiced you for building work, but the work was incomplete or defective. You have photos, expert reports, or correspondence showing you raised the defects before the demand was served.

Set-off or counterclaim: You owe the creditor $10,000, but they owe you $12,000 under a separate contract. If the set-off is genuine and quantified, the net position may be zero or in your favour.

No contract or authority: The creditor claims your company owes money, but the person who signed the agreement lacked authority, or no valid contract was ever formed.

Payment already made: You have bank records showing the invoice was paid, or partially paid, reducing the debt below the statutory minimum.

Disputed quantum: The creditor claims $50,000, but you accept only $20,000 is owed. If the dispute over the balance is genuine, the demand may be set aside for the entire amount.

What Does Not Work

“I’ll pay soon”: Admitting the debt but asking for more time is not a dispute. The demand will stand.

Vague denials: Saying “we dispute this” without evidence or particulars is spurious. You need to show the basis of the dispute.

Disputes raised after service: If you accepted the invoices for months, paid some of them, and only disputed the debt after receiving the demand, the court may find the dispute is not genuine.

Ground 2: Defect in the Demand

The court may set aside a demand if it contains a defect, and substantial injustice would result unless it is set aside.

Common Procedural Defects

Wrong form: The demand must use the prescribed form. If the creditor uses a homemade letter or the wrong form, that is a defect.

Incorrect company name: If the demand misspells your company’s registered name, or names a different entity, it may be defective. Minor typos are usually not enough—the error must cause real confusion.

No affidavit: The demand must be accompanied by an affidavit verifying the debt. If no affidavit was served, or the affidavit is defective, the demand may be invalid.

Defective affidavit: The affidavit must be sworn before a qualified person (JP, solicitor, notary) and verify the debt. If it is unsigned, undated, or fails to verify the debt, it is defective.

Incorrect address for service: The demand must be served at the company’s registered office. If it was served at the wrong address, service may be invalid.

Overstated amount: If the demand includes amounts that are not due and payable (future instalments, disputed interest, unliquidated damages), the total may be overstated. Courts have set aside demands where the creditor pads the amount to reach the $4,000 threshold.

Description of debt: The demand must describe the debt with enough detail that the debtor can identify it. A vague description like “various invoices” may be defective if the debtor cannot reasonably identify what is claimed.

The “Substantial Injustice” Test

A defect alone is not enough. The court must also be satisfied that substantial injustice would be caused if the demand is not set aside.

Substantial injustice typically arises where the defect:

• Misleads the debtor as to the debt claimed or the time for compliance
• Prevents the debtor from understanding what is required to comply
• Deprives the debtor of the opportunity to dispute the debt

Minor errors that do not affect the substance of the demand (a typo in a street address that does not affect service) will not usually result in substantial injustice.

How to Apply to Set Aside

Step 1: File an Originating Process

You must file an originating process in the Supreme Court of your state (or Federal Court if appropriate). The application must:

• Be filed within 21 days of service
• Be supported by an affidavit setting out the grounds (genuine dispute or defect)
• Identify the specific facts and evidence supporting your case

Step 2: Prepare Your Affidavit

Your affidavit must:

• Verify the facts you rely on (attach invoices, emails, contracts, expert reports, photos)
• Explain why there is a genuine dispute, or identify the defect and the substantial injustice
• Be sworn before a qualified person (JP, solicitor, notary)

Do not make vague assertions. The court wants specific evidence. If you claim defective work, attach photos and an expert report. If you claim payment was made, attach bank statements.

Step 3: Serve the Application

You must serve the application and affidavit on the creditor. Service is usually by email or post to the address shown on the demand.

Step 4: Attend the Hearing

The court will list the matter for a hearing, usually within a few weeks. Both parties can make submissions. The court will decide whether to set aside the demand, or dismiss the application and let the demand stand.

What Happens If the Demand Is Set Aside

If the court sets aside the demand:

• The presumption of insolvency is removed
• The creditor cannot rely on the demand to wind up your company
• The underlying debt dispute remains—the creditor can still sue you in normal proceedings

Setting aside the demand does not extinguish the debt. It only removes the threat of immediate wind-up.

What Happens If the Application Fails

If the court dismisses your application:

• The demand stands
• The creditor can file a wind-up application after the 21 days expire
• Your company is presumed insolvent

At that point, you would need to defend the wind-up application by proving solvency (which is difficult and expensive), or negotiate a settlement with the creditor.

Final Checklist

Before you file your application, confirm:

• [ ] You are within the 21-day deadline (count from the date of service, not the date you received it)
• [ ] You have identified a genuine dispute or a defect causing substantial injustice
• [ ] Your affidavit attaches all supporting evidence (contracts, invoices, emails, photos, expert reports)
• [ ] The affidavit is sworn before a qualified person
• [ ] You have filed the originating process in the correct court
• [ ] You have served the application on the creditor

How ClaimDone Helps

ClaimDone prepares your application to set aside a statutory demand and supporting affidavit for $197. You complete a 5-minute intake form, upload your evidence, and our Proprietary AI Engine drafts the application identifying the defects or genuine dispute. You file it yourself in the Supreme Court.

For complex matters involving multiple creditors, large sums, or disputed solvency, we recommend engaging a solicitor. ClaimDone is not a law firm and does not give legal advice.

If you need to respond to a legal claim or demand, ClaimDone can prepare the documents you need to protect your position within the statutory deadline.

Frequently Asked Questions

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

Yes, but do not rely on negotiation alone. File your application within 21 days to protect your position. You can negotiate in parallel, and if you reach a settlement, the creditor can withdraw the demand. But if you miss the deadline, you lose the right to apply.

What if the debt is partially disputed?

If you accept part of the debt but genuinely dispute the balance, and the undisputed amount is below $4,000, the entire demand may be set aside. Courts have held that a demand cannot be used to recover a disputed amount by bundling it with an undisputed sum.

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

Not legally required, but recommended for complex disputes or large amounts. ClaimDone can prepare the application documents for straightforward genuine dispute or defect cases. For matters involving insolvency proceedings, multiple creditors, or disputed solvency, engage a solicitor.

What happens if I file my application on day 22?

The court has no power to accept it. The 21-day deadline is absolute. If you file late, the demand stands, and the creditor can proceed with a wind-up application. There is no extension, even for a good reason.

Can a statutory demand be served by email?

Only if your company’s constitution permits electronic service, or you have previously agreed to it in writing. Otherwise, service must be by hand or post to the registered office. If service was invalid, that is a ground to set aside the demand.