Statutory Demand Defences: 4 Ways to Set Aside a Creditor’s Demand

A statutory demand is the most aggressive debt recovery tool a creditor can use against a company. If your company receives one demanding payment of $4,000 or more, you have 21 days from service to either pay in full or apply to the court to set it aside.

Fail to do either, and the creditor can apply to wind up your company without proving insolvency. This guide explains the four main defences available and how to use them.

The 21-day deadline is absolute

The 21-day period is strict. Courts will not extend it, even if you have a good reason for missing the deadline. If you receive a statutory demand and believe you have grounds to challenge it, you must file your application within 21 days of service.

Service is typically complete when the demand is delivered to the company’s registered office. If posted, service is deemed to occur when it would have been received in the ordinary course of post — usually 2-3 business days after posting.

Miss the 21-day window, and the presumption of insolvency arises. The creditor can then file a winding-up application, and you will need to prove solvency to defend it — a much harder and more expensive fight.

Defence 1: Genuine dispute about the debt

The most common ground for setting aside a statutory demand is a genuine dispute about the existence or amount of the debt.

A genuine dispute does not mean you will win at trial. It means there is a serious question to be tried — a real controversy that cannot be resolved on affidavit evidence alone. The test is whether your dispute is bona fide and based on substantial grounds, not whether you are likely to succeed.

Examples of genuine disputes:

• The invoice was never agreed to or authorised
• The goods or services were defective or never delivered
• The debt has already been paid or partially paid
• The debt is statute-barred
• The contract was void, voidable, or unenforceable
• The amount claimed is incorrect or inflated

You must file an affidavit setting out the facts that give rise to the dispute. Attach supporting documents — contracts, emails, invoices, receipts, correspondence — that show the dispute is real, not invented to avoid payment.

The court will not conduct a mini-trial. If your affidavit raises a plausible dispute, the demand will be set aside, and the creditor must sue you in the ordinary way to prove the debt.

Defence 2: Offsetting claim

The court must set aside a statutory demand if the company has an offsetting claim — a genuine claim against the creditor that equals or exceeds the amount of the demand.

An offsetting claim can be based on:

• A counterclaim arising from the same transaction
• A cross-claim for damages or breach of contract
• A claim for unliquidated damages (for example, loss caused by defective goods)
• A claim in tort, equity, or restitution

The offsetting claim does not need to be directly related to the debt claimed in the statutory demand, but it must be a claim against the creditor who issued the demand. You cannot use a claim against a third party to offset the debt.

If your offsetting claim equals or exceeds the demand amount, the court will set aside the demand in full. If your offsetting claim is less than the demand, the court may vary the demand to reduce it by the amount of the offsetting claim, provided the reduced amount is still above the $4,000 threshold.

Your affidavit must set out the facts giving rise to the offsetting claim and attach supporting evidence. The claim must be genuine and quantifiable — vague or speculative claims will not satisfy the test.

Defence 3: Defect in the demand

The court may set aside a statutory demand if there is a defect in the demand, and substantial injustice would be caused unless the demand is set aside.

A defect includes:

• An irregularity in the form of the demand
• An error in the description of the debt
• A miscalculation of the amount claimed
• Failure to attach the required affidavit verifying the debt
• Ambiguity or uncertainty about what is being claimed

Minor defects will not be enough. The court will only set aside the demand if the defect causes substantial injustice — meaning the company is genuinely misled or prejudiced by the defect, and cannot reasonably respond to the demand.

For example, if the demand describes the debt as “services rendered” without specifying what services, when, or under what agreement, the company may be unable to identify the debt or assess whether it is disputed. That ambiguity could constitute substantial injustice.

If the defect is purely technical and does not affect the company’s ability to understand or respond to the demand, the court will not set it aside on this ground alone.

Defence 4: Other reason the court should set aside the demand

The court has a residual discretion to set aside a statutory demand if there is some other reason why the demand should be set aside.

This ground is deliberately broad and allows the court to set aside a demand in circumstances that do not fit neatly into the other categories. Examples include:

• The demand was served on the wrong company
• The demand was issued for an improper purpose (for example, to pressure the company into settling an unrelated dispute)
• The creditor has already agreed to a payment plan or forbearance
• The creditor has engaged in unconscionable or misleading conduct

The court’s discretion is not unlimited. You must show that there is a real and substantial reason why the demand should be set aside, and that it would be unjust to allow the demand to stand.

What to include in your application

To apply to set aside a statutory demand, you must file:

1. Originating process — the application to set aside, naming the creditor as the defendant
2. Supporting affidavit — sworn by a director or officer of the company, setting out the facts and attaching all relevant documents
3. Draft order — the order you are asking the court to make

The affidavit is the most important document. It must:

• Identify the statutory demand and the date it was served
• Set out the grounds on which you rely (genuine dispute, offsetting claim, defect, or other reason)
• Attach all supporting documents — contracts, invoices, emails, receipts, correspondence
• Be sworn before a solicitor or Justice of the Peace

The application must be filed and served on the creditor within 21 days of service of the demand. If you file late, the court has no power to extend the deadline, and your application will be dismissed.

How ClaimDone helps you respond to a statutory demand

If your company has received a statutory demand and you need to respond fast, ClaimDone’s Legal Response service prepares your application to set aside and supporting affidavit based on the evidence you upload.

You complete a short intake form, upload your documents, and our Proprietary AI Engine drafts your response citing the applicable sections and the relevant legal principles. You receive a ready-to-file application and affidavit template within 60 minutes.

ClaimDone does not provide legal advice, but it gives you a professionally formatted response that you can review, finalise, and file yourself — or take to a solicitor for final review before filing.

For urgent, high-value, or complex statutory demand disputes, we recommend engaging a solicitor experienced in corporations law to represent you in court.

Don’t wait until day 20

Received a statutory demand? The 21-day deadline is absolute, and missing it can put your company into liquidation.

Start your Legal Response now and get a professionally drafted application to set aside prepared in 60 minutes — flat fee, no subscription, Australia-wide.

Frequently Asked Questions

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

Yes, you can negotiate, but do not rely on verbal promises. If the creditor agrees to withdraw the demand or accept a payment plan, get it in writing and signed before the 21-day deadline expires. If you do not file an application to set aside within 21 days, the presumption of insolvency arises, and the creditor can apply to wind up your company.

What happens if I ignore a statutory demand?

If you do not pay the debt or apply to set aside the demand within 21 days, the company is presumed to be insolvent. The creditor can then apply to wind up the company without proving insolvency. You will need to prove solvency to defend the winding-up application, which is much harder and more expensive than setting aside the demand.

Can I apply to set aside a statutory demand if I just need more time to pay?

No. The grounds for setting aside a statutory demand are limited to genuine dispute, offsetting claim, defect, or other reason. Needing more time to pay is not a valid ground. If you cannot pay within 21 days, you should negotiate a payment plan with the creditor in writing, or apply to set aside the demand on one of the recognised grounds.

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

No, you can file the application yourself. However, statutory demand applications are technical, and the 21-day deadline is strict. If the debt is large or the dispute is complex, it is worth engaging a lawyer. ClaimDone can prepare your application and affidavit template to give you a head start, but we do not provide legal advice or representation in court.

How much does it cost to apply to set aside a statutory demand?

Court filing fees vary by state but are typically $500-$1,500. If you engage a lawyer, expect to pay $3,000-$10,000 depending on the complexity of the case. ClaimDone prepares your application and affidavit template for a flat fee, giving you a professionally formatted response you can file yourself or take to a solicitor for final review.