What to Do If You Receive a Statutory Demand You Dispute

You open the mail and find a Form 509H — a statutory demand under the Corporations Act. The sender claims your company owes them money and demands payment within 21 days. If the debt is wrong, inflated, or already paid, you cannot ignore it. Doing nothing creates a legal presumption of insolvency, which can be used to wind up your company.

This guide explains what to do if you receive a statutory demand you dispute, the grounds for setting it aside, and the strict 21-day deadline.

What is a statutory demand?

A statutory demand is a formal notice served on a company under the Corporations Act. It states that the company owes a liquidated debt of at least $4,000 and must pay within 21 days or face presumed insolvency.

The demand itself does not wind up your company. But if you fail to comply — either by paying or applying to set it aside — the creditor can file a wind-up application in court. At that point, the court presumes your company is insolvent unless you prove otherwise.

Statutory demands shift the burden of proof. Once served, the onus is on you to show the debt is disputed or defective.

The 21-day deadline is absolute

You have 21 days from the date of service to apply to the court to set aside the statutory demand. This deadline is strict. Courts rarely grant extensions, even for procedural mistakes or late discovery.

If you miss the 21-day window, the demand stands. The creditor can then file a wind-up application, and your company will be presumed insolvent. You will need to prove solvency — a much harder and more expensive fight.

If you dispute the debt, act immediately.

Grounds for setting aside a statutory demand

Under the Corporations Act, a court may set aside a statutory demand if:

• Genuine dispute — there is a genuine dispute about the existence or amount of the debt
• Offsetting claim — your company has an offsetting 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 contains a defect that will cause substantial injustice if not set aside
• Other reason — some other reason exists to set it aside

Genuine dispute

A genuine dispute means there is a real question about whether the debt is owed. You do not need to prove the debt is invalid — you only need to show there is a genuine dispute that should be determined in another forum, not through insolvency proceedings.

Examples:

• The invoice relates to work that was never completed or was defective
• The debt has already been paid, but the creditor claims otherwise
• The amount claimed is inflated or includes charges not agreed to
• The contract the debt is based on is disputed or void

The test is whether the dispute is bona fide and truly exists in fact — not whether you will ultimately win. If there is a real argument, the court will typically set the demand aside and leave the creditor to pursue the debt through normal debt recovery channels.

Offsetting claim

An offsetting claim is a claim your company has against the creditor that reduces or cancels out the demand. If deducting your offsetting claim leaves less than $4,000 of the debt undisputed, the court must set the demand aside (s 459H(3)).

Example: The creditor claims $10,000 for unpaid invoices, but your company has a $12,000 claim for defective goods supplied by the same creditor. The offsetting claim exceeds the demand, so the demand should be set aside.

The offsetting claim must be quantified and supported by evidence. Vague or speculative claims will not succeed.

Defect in the demand

A defect includes errors in the form, description of the debt, or service of the demand. Common defects:

• Incorrect company name or ACN
• Debt amount not clearly stated or not a liquidated sum
• Demand not in the prescribed Form 509H
• Affidavit verifying the debt not properly sworn or attached
• Demand served at the wrong address

Not all defects will result in the demand being set aside. The court must be satisfied that the defect will cause substantial injustice if the demand is not set aside. Minor clerical errors are usually not enough.

How to apply to set aside a statutory demand

To set aside a statutory demand, you must file an application in the Supreme Court (or Federal Court, depending on jurisdiction) within 21 days of service. The application must be supported by an affidavit setting out the grounds and evidence.

Steps to take immediately

1. Confirm the date of service — count the 21 days from when the demand was served, not when you opened it
2. Review the demand carefully — check the debt amount, description, and whether there are any defects
3. Gather evidence — invoices, contracts, emails, bank statements, anything that supports your dispute
4. Prepare your affidavit — set out the facts, the grounds for setting aside, and attach supporting documents
5. File the application and affidavit — lodge with the court and serve a copy on the creditor

You do not need to pay the debt to file an application. But you must file within 21 days, or the right to apply is lost.

What the court considers

The court will assess whether:

• The application was filed within 21 days
• There is a genuine dispute or offsetting claim
• The evidence supports the grounds raised
• Any defect causes substantial injustice

If the court is satisfied, it will set the demand aside. If not, the demand stands, and the creditor can proceed with a wind-up application.

What happens if you do nothing

If you do not pay the debt or apply to set it aside within 21 days, the statutory demand remains in force. The creditor can then file a wind-up application.

At that point:

• Your company is presumed to be insolvent — you must prove solvency, which is difficult and costly
• The court may appoint a liquidator if insolvency is not rebutted
• Directors may face personal liability if they allow the company to trade while insolvent
• Your company’s reputation and credit rating are damaged

Even if you ultimately prove the debt was disputed, the cost and disruption of defending a wind-up application far exceeds the cost of setting aside the demand early.

Common mistakes to avoid

Waiting to see if the creditor will negotiate — the 21-day deadline does not pause for negotiations. File the application first, then negotiate.

Assuming the demand is invalid without acting — even if the demand is clearly defective, you must apply to set it aside. The court will not do it automatically.

Filing late and hoping for leniency — courts rarely extend the 21-day deadline. If you miss it, your options shrink dramatically.

Not supporting the affidavit with evidence — general statements like “we dispute the debt” are not enough. Attach invoices, contracts, correspondence, and other documents that prove the dispute is genuine.

Ignoring the demand because the debt is small — if the demand is for $4,000 or more, it can still lead to wind-up proceedings. The size of the debt does not matter once the threshold is met.

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.

Act now or lose the right to dispute

A statutory demand creates a legal presumption of insolvency if you do not respond within 21 days. If you dispute the debt, you must apply to set it aside before the deadline passes. After that, your options narrow, and the cost of defending a wind-up application escalates.

Gather your evidence, file your application, and protect your company from a presumed insolvency that may not reflect reality.

Frequently Asked Questions

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

Yes, but do not rely on negotiations to pause the 21-day deadline. File your application to set aside the demand first, then negotiate. If you reach a settlement, the creditor can withdraw the demand and you can discontinue the court application.

What happens if I miss the 21-day deadline?

If you miss the deadline, you lose the right to apply to set aside the demand. The creditor can then file a wind-up application, and your company will be presumed insolvent. You will need to prove solvency in court, which is far more difficult and expensive than setting aside the demand early.

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

You are not required to have a lawyer to file the application and affidavit. The rules are strict and the 21 days cannot be extended, so get legal advice early. Claim Done does not prepare these documents.

Can I set aside a statutory demand if the debt is only partially disputed?

If you dispute only part of the debt, the court may set aside the demand if the undisputed portion falls below the $4,000 statutory minimum. If the undisputed amount is still above $4,000, the court may vary the demand rather than set it aside entirely.

What evidence do I need to support my application?

You need documents that prove the dispute is genuine — invoices, contracts, emails, bank statements, delivery records, or any correspondence showing the debt is contested. Attach these to your affidavit. Vague statements without supporting evidence will not succeed.