A statutory demand is one of the most serious debt recovery tools in Australia. If your company receives one, you have 21 days to respond or the creditor can presume your company is insolvent and apply to wind it up.
This guide explains what a statutory demand is, what happens if you ignore it, and the three options you have to protect your company.
What is a statutory demand?
A statutory demand is a formal notice served under the Corporations Act demanding payment of a debt of at least $4,000 within 21 days.
It must be in the prescribed form and accompanied by an affidavit verifying the debt.
If your company fails to comply within 21 days, the creditor can apply to wind up the company on the basis of presumed insolvency.
This is not a court order. It is a statutory notice. But ignoring it has serious consequences.
The 21-day deadline is absolute
The Corporations Act gives you 21 days from the date of service to respond. This deadline cannot be extended by agreement or negotiation.
If you do nothing within 21 days:
- The company is presumed insolvent
- The creditor can file a winding-up application in the Federal Court or Supreme Court
- You lose the automatic right to dispute the debt
- Defending the winding-up application becomes significantly harder and more expensive
The clock starts ticking the moment the demand is properly served. Service can be by hand, by post to the registered office, or by leaving it at the registered office during business hours.
Your three options
You have three paths forward. Choose quickly.
Option 1: Pay the debt in full
If the debt is legitimate and your company can pay, this is the simplest option.
Payment must be made within 21 days. Once paid, the statutory demand is satisfied and the threat of winding-up is removed.
If you cannot pay in full but can negotiate a payment plan, get it in writing and ensure the creditor withdraws the statutory demand before the 21-day deadline expires. A verbal agreement is not enough.
Option 2: Apply to set aside the statutory demand
If you have grounds to dispute the debt, you can apply to the court to set aside the statutory demand.
You must file the application within 21 days of service. The application must be supported by an affidavit setting out the grounds.
Common grounds include:
- Genuine dispute — there is a real question whether the debt exists or the amount claimed is correct
- Offsetting claim — your company has a genuine claim against the creditor that brings the undisputed debt below $4,000 (it can come from a different transaction)
- Defect in the demand — the demand does not comply with the statutory form or causes substantial injustice
- Other reason — some other reason why the demand should be set aside
The most common ground is genuine dispute. This does not mean you will win the underlying dispute — it means there is a real question to be tried. The court applies a low threshold at this stage.
If the court sets aside the demand, the creditor cannot rely on it to presume insolvency. They would need to prove insolvency by other means or pursue the debt through normal debt recovery channels.
Option 3: Negotiate and settle
If the debt is disputed but you want to avoid court, you can negotiate a settlement with the creditor.
This might involve:
- Paying a reduced amount in full and final settlement
- Agreeing to a payment plan
- Providing security for the debt
- Resolving the underlying dispute that gave rise to the debt
Any settlement must be documented in a deed of settlement and the creditor must withdraw the statutory demand in writing before the 21-day deadline.
Do not rely on informal conversations. Get everything in writing.
When a legal response is critical
A statutory demand is a high-stakes legal process. The consequences of getting it wrong are severe.
You need a legal response if:
- The debt is disputed and you need to apply to set aside the demand
- The demand contains defects but you are not sure if they are substantial enough
- You are negotiating with the creditor and need a settlement deed prepared
- The 21-day deadline is approaching and you have not yet responded
- You have already missed the deadline and need to defend a winding-up application
The application to set aside must be filed within 21 days. The supporting affidavit must set out the grounds clearly and be sworn before a qualified person. The application must be served on the creditor.
Getting this wrong means your company is presumed insolvent and you lose the right to dispute the debt in the winding-up proceedings.
What happens if you ignore it
If you do nothing within 21 days, the creditor can file a winding-up application.
The application will typically be heard in the Federal Court or the Supreme Court of your state. The court will presume your company is insolvent unless you can prove otherwise.
At this stage, you cannot raise a genuine dispute about the debt. That defence was only available if you applied to set aside the demand within 21 days.
Your only defences are:
- The company is actually solvent (you must prove this with financial evidence)
- The debt has been paid since the demand was served
- The demand was not properly served
- There is some other reason why the court should not make a winding-up order
Proving solvency is difficult and expensive. You will need an accountant’s report, detailed financial statements, and evidence of the company’s ability to pay its debts as and when they fall due.
If the court makes a winding-up order, a liquidator is appointed and the company is wound up. Directors lose control. Creditors are paid from the company’s assets. If there are insufficient assets, creditors receive nothing.
Directors may also face personal liability if they allowed the company to trade while insolvent.
How Claim Done helps
Claim Done does not prepare applications to set aside a statutory demand. The application and a supporting affidavit must be filed with the Supreme Court or the Federal Court, and served on the creditor, within 21 days of service of the demand (Corporations Act 2001, s 459G). That time cannot be extended, so get legal advice straight away.
Important: Claim Done does not provide legal advice.
Final checklist
If you receive a statutory demand:
- Day 1: Confirm the date of service and calculate the 21-day deadline
- Day 2–5: Review the demand for defects and assess whether the debt is disputed
- Day 6–10: Decide whether to pay, apply to set aside, or negotiate
- Day 11–18: Prepare and file your application (if setting aside) or finalise settlement (if negotiating)
- Day 19–21: Serve the application on the creditor or confirm the demand has been withdrawn
Do not wait until day 20. The courts do not extend the deadline.
Get legal advice now
Received a statutory demand and need to respond fast? Speak to a lawyer straight away about your grounds, so the application is filed and served within the 21 days.
Frequently Asked Questions
Can I negotiate after the 21-day deadline has passed?
Yes, but the creditor is not obliged to negotiate. Once the 21 days expire, they can file a winding-up application and your company is presumed insolvent. Any negotiation at that stage is at the creditor’s discretion and will likely require you to pay the debt in full or provide security.
What if the debt amount is wrong but I do owe something?
You can apply to set aside the statutory demand on the basis of a genuine dispute about the amount. The court will set aside the demand if there is a real question about the quantum, even if you accept you owe some amount. The creditor would then need to prove the correct amount through normal debt recovery.
Can a director be personally liable if the company is wound up?
Directors can face personal liability if they allowed the company to trade while insolvent. If a winding-up order is made, the liquidator may investigate whether the company was insolvent before the statutory demand was served and pursue directors for insolvent trading.
Does paying part of the debt stop the statutory demand?
No. A statutory demand can only be satisfied by paying the full amount claimed. If you pay part of the debt, the creditor can still rely on the unpaid balance (if it is at least $4,000) to presume insolvency. You must negotiate a full settlement and have the demand withdrawn in writing.
What happens if the statutory demand was not properly served?
If the demand was not served in accordance with the Corporations Act, it may be invalid. Common service defects include serving it at the wrong address, serving it on a person not authorised to accept service, or failing to serve the supporting affidavit. If service was defective, you can apply to set aside the demand or raise this as a defence in winding-up proceedings.
What the 21 days mean
Same problem. What a prepared case looks like.