Supplier Sent You a Statutory Demand: Should You Pay or Challenge It?

You open the mail and find a Form 509H — a statutory demand claiming you owe money. You have 21 days to pay or face presumed insolvency and potential wind-up proceedings.

This is not a letter of demand. This is the most aggressive debt recovery tool available against a company in Australia. Should you pay it, or should you challenge it?

What is a statutory demand?

A statutory demand is a formal notice requiring your company to pay a debt of at least $4,000 within 21 days. If you fail to comply, the creditor can presume your company is insolvent and apply to wind it up.

The demand must be in the prescribed form and supported by an affidavit verifying the debt. It must be served on the company’s registered office address.

The 21-day period starts from the date of service — not the date you read it.

The consequences of ignoring it

If you do nothing for 21 days:

• Your company is presumed insolvent under the Corporations Act
• The creditor can apply to wind up your company
• You lose the right to dispute the debt in the wind-up proceedings
• The court can appoint a liquidator to sell your assets and close the company

Even if you genuinely dispute the debt, ignoring the demand removes your ability to argue about it later.

When you should just pay it

Pay the statutory demand if:

• The debt is real and you owe it — you received the goods, the invoice is correct, and you have no genuine dispute
• You can afford to pay within 21 days — the cash flow impact is manageable
• The amount is correct — no calculation errors, no offsets, no counterclaims
• Challenging it would cost more than paying — legal fees to set aside a demand can exceed the debt itself for smaller amounts
• You want to preserve the supplier relationship — paying quickly avoids burning a bridge

If the supplier is right and you are simply late paying, settle it.

When you should challenge it

You should apply to set aside the statutory demand if:

• You genuinely dispute the debt — the goods were defective, the services were not provided, the invoice is wrong
• You have an offsetting claim — the supplier owes you money for other work, and the net position is below $4,000
• The demand is defective — wrong form, wrong amount, not properly served, no supporting affidavit
• The debt is below $4,000 — the statutory minimum is not met
• The creditor has acted unconscionably — using the demand as a negotiating tactic rather than genuine debt recovery

A genuine dispute means you have evidence that creates a real question about whether the debt is owed.

The 21-day deadline is absolute

You have 21 days from service to either:

1. Pay the debt in full
2. Secure the debt (pay it into a controlled account)
3. Apply to the court to set aside the demand

There are no extensions. There is no “I didn’t see it” excuse if it was served at your registered office. The court will not grant extra time because you were busy or on leave.

If you miss the deadline, your only option is to oppose the wind-up application later — but you cannot dispute the debt at that stage.

Grounds to set aside a statutory demand

The court can set aside a demand if:

• Genuine dispute — there is a real question about whether the debt exists or the amount claimed
• Offsetting claim — you have a genuine counterclaim that reduces the debt below $4,000
• Defect in the demand — the form is incorrect, the affidavit is missing, or the debt is not clearly identified
• Substantial injustice — enforcing the demand would cause unfair prejudice, often combined with a defect

The most common ground is genuine dispute. You must file an affidavit setting out the facts that create the dispute and supporting evidence.

How to apply to set aside

The application must be filed in the Supreme Court (or Federal Court if the debt arises under federal law) within 21 days.

You will need:

• Originating process — the court application form
• Supporting affidavit — your sworn statement explaining the dispute and attaching evidence
• Filing fee — typically $600-$1,200 depending on the state
• Service on the creditor — the creditor must receive a copy of your application

The application does not automatically stop the 21-day clock. However, once filed, the creditor cannot apply to wind up the company until the set-aside application is determined.

The cost of fighting it

Setting aside a statutory demand is not cheap:

• Court filing fees: $600-$1,200
• Legal costs if you engage a solicitor: $3,000-$10,000+ depending on complexity
• The creditor’s costs if you lose: the court can order you to pay their legal fees

For a $5,000 debt, paying it may be cheaper than fighting it — even if you think you have a defence. For a $50,000 debt with a genuine dispute, the cost of the application is justified.

What happens if you succeed

If the court sets aside the demand:

• The presumption of insolvency is removed
• The creditor must pursue the debt through normal means (tribunal, court, negotiation)
• You are not required to pay the debt unless the creditor proves it in separate proceedings
• The creditor may be ordered to pay your legal costs if the demand was clearly defective

Setting aside the demand does not mean you win the underlying dispute. It removes the threat of wind-up and forces the creditor to prove the debt properly.

What happens if you fail

If the court refuses to set aside the demand:

• The presumption of insolvency remains
• The creditor can apply to wind up the company
• You may be ordered to pay the creditor’s legal costs of the set-aside application
• The debt remains unpaid and enforceable

At that stage, your options are to pay the debt, negotiate a settlement, or prepare to defend the wind-up application on solvency grounds.

Negotiating while the clock is ticking

You can negotiate with the creditor during the 21-day period. Options include:

• Payment plan — offer to pay the debt in instalments
• Partial payment — pay enough to bring the debt below $4,000, removing the statutory threshold
• Withdrawal of demand — the creditor agrees to withdraw it in exchange for a signed acknowledgment of debt or payment plan agreement

Get any agreement in writing. If the creditor agrees to withdraw the demand, ensure they provide a signed letter confirming withdrawal before the 21-day deadline expires.

How Claim Done helps

If you need to respond to a statutory demand, ClaimDone’s Legal Response service prepares a detailed affidavit and supporting documents for your set-aside application.

You complete a 5-minute intake form. Our Proprietary AI Engine analyses the demand, identifies defects or grounds for dispute, and generates a court-ready affidavit.

The affidavit is prepared in 60 minutes. You review it, swear it before a JP or solicitor, and file it with the court. Flat fee, no subscription, Australia-wide.

For complex disputes, high-value debts, or urgent matters, we recommend engaging a solicitor experienced in Corporations Act disputes.

Respond to your statutory demand today

Received a statutory demand and need to respond fast? ClaimDone’s Legal Response service prepares your set-aside affidavit in 60 minutes, setting out your grounds for dispute and the applicable law.

Complete the intake form. Our system drafts the affidavit. You file it with the court. Flat fee, no subscription, done today.

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Frequently Asked Questions

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

No. Ignoring a statutory demand creates a presumption of insolvency after 21 days, even if you genuinely dispute the debt. You must either pay it or apply to set it aside within the deadline.

What happens if the statutory demand is for less than $4,000?

A statutory demand must be for at least $4,000 under the Corporations Act. If the amount is below that threshold, the demand is invalid and you can apply to set it aside on that ground alone.

Can I negotiate a payment plan after receiving a statutory demand?

Yes, but the creditor must agree in writing to withdraw the demand. Any payment plan agreed during the 21-day period should be documented in a signed payment plan agreement, and the creditor should confirm withdrawal of the demand in writing.

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

Not legally required, but recommended for complex disputes or high-value debts. For straightforward defects or genuine disputes with clear evidence, ClaimDone’s Legal Response service can prepare the affidavit and you can file it yourself.

What is the difference between a statutory demand and a letter of demand?

A letter of demand is a request for payment with no automatic legal consequences. A statutory demand is a formal notice under the Corporations Act that creates a presumption of insolvency if not complied with in 21 days, and can lead to wind-up proceedings.