What Happens If You Ignore a Statutory Demand in Australia?

A statutory demand is a formal notice under the Corporations Act that gives your company 21 days to pay a debt of $4,000 or more — or face the presumption that your company is insolvent.

If you ignore it, the consequences are severe and fast.

The 21-day countdown starts immediately

The clock starts when the statutory demand is properly served on your company. Service is valid when it is:

• Left at your registered office address listed on the ASIC register
• Delivered to a director personally
• Posted to your registered office (deemed served 3 days after posting)

You have 21 days from the date of service to either pay the debt in full, apply to set aside the demand, or negotiate a settlement with the creditor.

If you do nothing, the company fails to comply with the demand, and the creditor can rely on a presumption of insolvency in a winding-up application made within 3 months.

Presumption of insolvency shifts the burden of proof

Under the Corporations Act, if your company fails to comply with a statutory demand within 21 days, the company is presumed to be insolvent.

This presumption is not a finding of fact. It is a legal mechanism that shifts the burden of proof. If the creditor applies to wind up your company, you must prove that the company is solvent — the creditor does not need to prove insolvency.

In practical terms:

• The creditor can file a winding-up application immediately after the 21 days expire
• The court will presume your company cannot pay its debts as they fall due
• You will need to produce financial records, bank statements, and evidence of solvency to defend the application

Most companies cannot meet this burden, especially if they genuinely could not pay the debt in the first place.

The creditor can apply to wind up your company

Once the statutory demand has been ignored for 21 days, the creditor is entitled to file an application to wind up your company in the Federal Court or Supreme Court.

The court will set a hearing date. At the hearing, the court can:

• Make a winding-up order — appointing a liquidator to take control of the company
• Dismiss the application if you prove solvency
• Adjourn the matter if genuine negotiations are underway

If a winding-up order is made, the liquidator takes immediate control. Directors lose all authority. The company’s assets are sold to pay creditors. The company is then deregistered.

You cannot set aside the demand after 21 days

The right to apply to set aside a statutory demand expires 21 days after service. Once that deadline passes, you lose the ability to challenge the demand, even if:

• The debt is genuinely disputed
• The demand was defective
• The amount claimed is wrong
• The creditor made procedural errors

The only way to challenge a winding-up application after the 21 days have expired is to prove solvency — which is a much higher and more expensive bar to clear.

Directors face personal risk

Ignoring a statutory demand does not just affect the company. Directors can face personal consequences, including:

• Insolvent trading claims — if the company continues to trade after the presumption of insolvency arises, directors can be held personally liable for debts incurred during that period
• Breach of director duties — failing to respond to a statutory demand may be evidence of a breach of the duty to prevent insolvent trading
• Disqualification — directors of companies that are wound up may face restrictions on managing future companies

Doing nothing is not a neutral option. It is an active decision that exposes you and your company to serious legal and financial risk.

What you should do instead

If your company receives a statutory demand, you have three realistic options:

1. Pay the debt in full

If the debt is legitimate and your company has the funds, pay it immediately. Once paid, the demand lapses and the threat of winding-up disappears.

2. Apply to set aside the demand

If the debt is genuinely disputed, the amount is wrong, or the demand is defective, you can apply to set aside the demand within 21 days.

You must file the application in the Federal Court or Supreme Court and serve it on the creditor. The application must be supported by an affidavit setting out the grounds for setting aside.

Common grounds include:

• Genuine dispute about the existence or amount of the debt
• Offsetting claim that brings the undisputed debt below $4,000
• Defect in the demand that causes substantial injustice
• Demand served at the wrong address or on the wrong entity

If the court sets aside the demand, the presumption of insolvency does not arise and the creditor cannot use the demand to wind up the company.

3. Negotiate a settlement or payment plan

If you cannot pay the full amount immediately but want to avoid winding-up, contact the creditor and propose a realistic payment arrangement.

If you can agree on terms, document the agreement properly and comply with it strictly.

How Claim Done helps

If your company has received a statutory demand, you need to act within 21 days. Claim Done cannot provide legal advice or represent you in court, but we can help you prepare the documents you need to respond.

If you need to negotiate: We prepare payment plan agreements and deeds of settlement that document the terms clearly and protect your interests.

If you are the creditor: We prepare statutory demands and the supporting affidavit for $97 — drafted by our Programmatic Algorithms, citing the Corporations Act, for you to check, sign and serve yourself.

Claim Done operates Australia-wide with flat fees and fast turnaround.

Take action before the 21 days expire

Ignoring a statutory demand is not a strategy. If the company does not comply within 21 days, the creditor can rely on a presumption of insolvency in a winding-up application made within 3 months. The creditor does not need to prove your company is insolvent — you need to prove it is not.

If your company has been served with a statutory demand, treat it as urgent. You have 21 days to pay, apply to set aside, or negotiate. After that, your options disappear and the creditor can move to wind up your company.

If you need to issue a statutory demand to recover a debt owed to your business, Claim Done can prepare the full package for $97. Tell us about your invoice, contract, or evidence of the debt, and we’ll generate the demand and affidavit for you to check, sign and serve yourself. Get started with a statutory demand now.

Frequently Asked Questions

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

No. If you dispute the debt, you must apply to set aside the statutory demand within 21 days. Ignoring it means the creditor can rely on the presumption of insolvency in a winding-up application, even if the debt is genuinely disputed.

What happens after 21 days if I do nothing?

Your company is presumed insolvent under the Corporations Act. The creditor can then apply to wind up your company, and you will need to prove solvency to defend the application.

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

Yes. You can contact the creditor and propose a payment plan or settlement. If you reach an agreement, document it properly using a payment plan agreement or deed of settlement to avoid further action.

Does ignoring a statutory demand affect me personally as a director?

Yes. Directors can face personal liability for insolvent trading if the company continues to trade after the presumption of insolvency arises. You may also face disqualification or breach of duty claims.

Can I set aside a statutory demand after 21 days?

No. The right to apply to set aside a statutory demand expires 21 days after service. After that, you can only defend a winding-up application by proving solvency, which is much harder and more expensive.