How to Set Aside a Statutory Demand in Australia (21 Days)

A statutory demand is one of the most aggressive debt recovery tools in Australia. It gives a company 21 days to pay a debt of $4,000 or more — or face presumed insolvency and potential wind-up proceedings.

But if the debt is wrong, inflated, or the demand is defective, you can apply to set it aside. This guide explains the three grounds for setting aside a statutory demand, what you must file within 21 days, and what happens if you miss the deadline.

What Is a Statutory Demand?

A statutory demand is a formal notice served on a company demanding payment of a debt. It must be in the prescribed form 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.

The demand is not a court order. The creditor does not need a judgment. That is why it is powerful — and why it can be misused.

The 21-Day Deadline Is Strict

You have 21 days from the date of service to apply to the Supreme Court or the Federal Court to set aside the statutory demand, and to serve the application on the creditor. This is 21 calendar days, not business days, and it is strictly enforced.

If you miss the deadline, the demand is deemed valid. The debt is presumed to exist. The creditor can file a wind-up application, and you will not be able to dispute the underlying debt in those proceedings.

The clock starts ticking the moment the demand is validly served.

Three Grounds for Setting Aside a Statutory Demand

You can apply to set aside a statutory demand on three main grounds:

1. Genuine Dispute About the Debt

If there is a genuine dispute about whether the debt exists, or about the amount claimed, the court will typically set aside the demand.

A genuine dispute means:

• You have a bona fide argument that the debt is not owed
• The dispute is not frivolous or merely tactical
• There is a real question to be tried

Examples of genuine disputes:

• The work was defective and you have a counterclaim for rectification costs
• The invoice was never agreed to or signed
• The goods were never delivered
• The amount claimed includes charges you did not authorise
• The contract was terminated before the debt arose

You do not need to prove the dispute will succeed. You only need to show there is a real issue that should be resolved in separate proceedings, not by way of a statutory demand.

2. Offsetting Claim

If you have an offsetting claim against the creditor — a counterclaim, set-off, or cross-demand — that brings the undisputed debt below $4,000, the court must set aside the demand (s 459H(3)). It can come from a different transaction (s 459H(5)).

The offsetting claim must be:

• Quantifiable and genuine
• Against the same creditor who issued the demand
• Not speculative or uncertain

Example: The creditor claims $10,000 for unpaid invoices. You have a $12,000 claim for breach of contract against the same creditor. The net position is in your favour, so the demand should be set aside.

3. Defect in the Demand

A statutory demand must comply with the Corporations Act and Regulations. If there is a defect that causes substantial injustice, the court can set it aside.

Common defects include:

• Wrong company name or ACN
• Incorrect debt amount
• Failure to attach the required affidavit
• Demand served at the wrong address
• Failure to specify the debt clearly
• Demand issued by someone without authority

Not every defect is fatal. The court will only set aside the demand if the defect causes substantial injustice — meaning it would be unfair to allow the demand to stand.

How to Apply to Set Aside a Statutory Demand

You must file an application in the Supreme Court of the state or territory where your company is registered.

The application must include:

• Originating process — the formal application to set aside the demand
• Supporting affidavit — sworn evidence setting out the grounds for setting aside, including details of the dispute, offsetting claim, or defect
• Exhibits — copies of contracts, invoices, correspondence, and any other evidence supporting your case

The application must be filed and served on the creditor within the 21-day period. If you file on day 21, you must also serve it on day 21. Late filing is fatal.

Once filed, the court will list the matter for a hearing. The creditor will file a responding affidavit. The hearing is usually short — the court is deciding whether there is a genuine dispute or defect that warrants setting aside the demand, not conducting a full trial.

What Happens If the Demand Is Set Aside?

If the court sets aside the demand, the creditor cannot rely on it to presume insolvency or wind up the company. The debt does not disappear — the creditor can still sue you — but the immediate threat of wind-up proceedings is removed.

If the court dismisses your application, the demand stands. The creditor can proceed with a wind-up application. You will not be able to dispute the debt in those proceedings.

What Happens If You Do Nothing?

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

You cannot dispute the debt in the wind-up proceedings. The only defences available are:

• The debt has been paid
• The company is solvent (which is difficult to prove)
• There is some other reason to dismiss the application

Ignoring a statutory demand is not an option.

A Reply Letter Does Not Stop the Demand

Writing to the creditor does not stop a statutory demand or pause the 21 days. Unless the debt is paid, an application to set the demand aside must be filed and served within the 21 days, so get legal advice early rather than waiting for a reply.

Do not let correspondence with the creditor run down the clock.

Raise your dispute with the creditor if you wish, but prepare as if the demand will not be withdrawn.

Do You Need a Lawyer?

Setting aside a statutory demand is a Supreme Court proceeding. The process is technical, the deadlines are strict, and the consequences of getting it wrong are severe.

Claim Done does not provide legal advice or represent you in court.

Where Claim Done Fits

If you have received a statutory demand, Claim Done cannot prepare your application to set it aside, and its Legal Response service is for replying to ordinary letters and demands, not statutory demands.

Pay the debt, or get legal advice about setting the demand aside. The application must be filed with the Supreme Court or Federal Court and served on the creditor within 21 days of service of the demand, and that time cannot be extended.

If the creditor has sent your company an ordinary letter of demand rather than a statutory demand, the Legal Response service can draft your reply.

Flat fee. No subscription. Done in about 5 minutes.

Final Checklist

If you receive a statutory demand:

• Act immediately — you have 21 days from service
• Identify the grounds — genuine dispute, offsetting claim, or defect
• Gather evidence — contracts, invoices, correspondence, proof of payment
• Get legal advice — about paying or applying to set the demand aside, filed and served within the 21 days
• Do not ignore it — ignoring a statutory demand leads to presumed insolvency and wind-up proceedings

If the debt is genuinely disputed, you have the right to challenge it, but a reply letter will not do that. Get legal advice and act fast. A Legal Response is only for replying to an ordinary letter of demand.

Frequently Asked Questions

Can I ignore a statutory demand if I dispute the debt?

No. If you do not apply to set aside the demand within 21 days, it is deemed valid and the creditor can file a wind-up application. You must act within the deadline, even if the debt is completely wrong.

Do I need to pay the debt to stop a statutory demand?

Not if the debt is genuinely disputed. You can apply to set aside the demand on the grounds of genuine dispute, offsetting claim, or defect. If the court agrees, the demand is set aside and you do not have to pay unless the creditor sues you separately.

What happens if I miss the 21-day deadline?

The demand is deemed valid. The creditor can file a wind-up application and the court will presume your company is insolvent. You cannot dispute the debt in the wind-up proceedings. The only way to avoid wind-up is to pay the debt or prove solvency.

Can Claim Done file the court application for me?

No. Claim Done does not prepare or file applications to set aside a statutory demand, and its Legal Response service does not deal with statutory demands.

What is a genuine dispute for the purposes of setting aside a statutory demand?

A genuine dispute means there is a bona fide argument that the debt is not owed or the amount is wrong. It does not need to be certain to succeed, but it must be real and not frivolous. Examples include defective work, disputed invoices, or counterclaims.