Letter of Demand vs Statutory Demand — What Is the Difference? | Claim Done

Letter of Demand vs Statutory Demand — Which Do You Need?

Both a letter of demand and a statutory demand are formal legal steps in Australian debt recovery. But they serve different purposes, apply in different situations, and carry very different legal consequences. Understanding which to use — and when — is critical.

Quick comparison

	Letter of Demand	Statutory Demand
Who can use it	Anyone — individual or business	Creditors owed $4,000+ by a company (Pty Ltd / Ltd)
Who it works against	Individuals, sole traders, companies	Registered companies only (not individuals)
Minimum debt	No minimum	$4,000 minimum
Legal framework	Contract law, Australian Consumer Law	Corporations Act 2001 (Cth) s459E
Deadline to comply	Typically 14 days (your choice)	Exactly 21 days (fixed by law)
What happens if ignored	Tribunal or court claim	Presumption of insolvency — winding-up application
Consequence for debtor	Tribunal hearing, judgment, credit default	Risk of company being wound up (liquidated)
Prescribed form?	No — but must contain key elements	Yes — must use Form 509H exactly

Letter of demand — when to use it

A letter of demand is the right first step when:

• The debtor is an individual or sole trader (statutory demands do not apply to non-companies)
• The debt is under $4,000 (below the statutory demand threshold)
• You want to resolve the dispute through a tribunal rather than by threatening wind-up
• You want to give the debtor a chance to pay before escalating
• It is required by a tribunal as evidence before filing

A letter of demand is also appropriate as the first step even against a company — before deciding whether a statutory demand is warranted.

Statutory demand — when to use it

A statutory demand under s459E of the Corporations Act 2001 (Cth) is appropriate when:

• The debtor is a registered company (Pty Ltd, Ltd) — you can check at asic.gov.au
• The debt is $4,000 or more and is not genuinely disputed
• You want to apply maximum commercial pressure — the threat of winding up a company is far more powerful than a tribunal claim
• The company is avoiding payment despite demands and you believe they are solvent

Warning: A statutory demand must follow the prescribed form (Form 509H) precisely. If there is a genuine dispute about the debt, the company can apply to court to have the demand set aside — costing you more time and expense.

Can you use both?

Yes. Many creditors send a letter of demand first, and if the company ignores it, escalate to a statutory demand. The letter of demand creates a paper trail; the statutory demand creates the legal pressure.

What happens after a statutory demand is ignored?

If the company does not pay, apply to set aside, or enter into a payment arrangement within 21 days, it is deemed presumptively insolvent under the Corporations Act. You can then apply to the Federal Court or Supreme Court for an order to wind up the company. This is a serious outcome — most companies pay before the 21-day deadline expires.

Prices at Claim Done

• Letter of demand — $97
• Statutory demand — $197 (includes Form 509H and supporting affidavit)