How to Respond to a Statutory Demand When You Dispute the Debt

A statutory demand gives a registered company 21 days to pay the debt, settle it, or apply to set it aside. If you dispute the debt, doing nothing allows the creditor to apply to wind up your company.

This article explains how to respond to a statutory demand when you dispute the debt, what constitutes a genuine dispute, and how to prepare your application to the Federal Court or the Supreme Court of any State or Territory.

What is a statutory demand?

A statutory demand is a formal notice demanding payment of a debt of $4,000 or more within 21 days. If the company fails to comply, the creditor may presume insolvency and apply to wind up the company.

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

Once served, the 21-day period begins. This period cannot be extended by agreement. The only way to stop it is to pay the debt in full, reach a settlement, or apply to the Federal Court or the Supreme Court of any State or Territory to set it aside.

The 21-day window

The 21-day period is strict. It is calculated from the date the statutory demand is served. If day 21 falls on a weekend or public holiday, the deadline does not extend.

During this period, you have three options:

1. Pay the debt in full — the demand is satisfied and the matter ends
2. Negotiate a settlement — if the creditor agrees, you can enter a deed of settlement or payment plan and the demand is withdrawn
3. Apply to set aside the demand — if you dispute the debt or can show an offsetting claim, you file an application in the Federal Court or the Supreme Court of any State or Territory

If you do none of these, the creditor can apply to wind up the company once the 21 days end; insolvency is presumed if it applies within 3 months.

Grounds to set aside a statutory demand

The court may set aside a statutory demand on three grounds:

Genuine dispute

There is a genuine dispute about the existence or amount of the debt. A genuine dispute does not mean you will win at trial — it means there is a plausible dispute that should be resolved through proper proceedings, not by presuming insolvency.

Examples of genuine disputes:

• The invoice was never agreed to or authorised
• The work was defective and you are entitled to a reduction or refund
• The contract was terminated before the debt arose
• The amount claimed includes charges not permitted under the contract
• The debt has already been paid or offset against other amounts owed

Offsetting claim

The company has an offsetting claim that brings the undisputed amount below $4,000 (it can come from a different transaction). For example, the creditor owes you money under a separate contract, and deducting it leaves less than $4,000 owing.

The offsetting claim must be genuine and quantified. It must be a claim the company has against the creditor, but it does not have to arise from the same transaction.

Defect in the demand

The demand contains a defect that will cause substantial injustice if not set aside. This includes:

• Incorrect company name or ACN
• Demand served at the wrong address
• Demand does not comply with the prescribed form
• Supporting affidavit is missing or defective
• Demand includes amounts that are not debts

Defects alone are not enough — you must show the defect will cause substantial injustice. Courts typically require the defect to be serious.

What is a genuine dispute?

The court does not resolve the dispute — it only determines whether a dispute exists that is bona fide and not spurious, hypothetical, or illusory.

You do not need to prove you are right. You need to show:

• There is a real question to be tried
• The dispute is not frivolous or vexatious
• There is evidence supporting your version of events

The court will not conduct a mini-trial. It will look at the affidavit evidence filed by both sides and decide whether a genuine dispute exists. If it does, the demand is set aside and the creditor must pursue the debt through normal proceedings.

How to apply to set aside a statutory demand

An application to set aside a statutory demand must be filed in the Federal Court or the Supreme Court of any State or Territory.

The application must be:

• Filed within 21 days of service of the demand
• Supported by an affidavit setting out the grounds and evidence
• Served on the creditor

The affidavit is critical. It must state the facts supporting your dispute, attach the relevant documents, and explain why the debt is not owed or why you have an offsetting claim. The affidavit must be filed at the same time as the application.

If you miss the 21-day deadline, the court has no power to extend it. The demand stands, and the creditor can proceed to wind up the company.

Preparing your evidence

The affidavit supporting your application must include:

• A clear statement of the dispute or offsetting claim
• Copies of all relevant contracts, invoices, emails, and correspondence
• Evidence of payment, if you claim the debt was paid
• Evidence of defects or breach, if you claim the work was substandard
• Evidence of your own claim, if you are relying on an offsetting claim

The affidavit must be sworn before a justice of the peace or solicitor. It must comply with the court’s rules for affidavits, including proper formatting, numbering of paragraphs, and annexures marked correctly.

Vague statements like “I dispute the debt” or “the work was not done properly” are not enough. You must provide specific facts, dates, and documents.

What happens after you file the application

Once the application is filed and served, the creditor cannot proceed with a winding-up application until the court determines the matter.

At the hearing, both parties will make submissions. The court will consider the affidavit evidence and decide whether a genuine dispute exists. If the court is satisfied, it will set aside the demand. If not, the demand stands and the creditor can proceed to wind up the company.

If the demand is set aside, the creditor must pursue the debt through normal proceedings. You will have the opportunity to defend the claim properly, with full discovery and a hearing on the merits.

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 within 21 days

If you receive a statutory demand and dispute the debt, act immediately. Gather your evidence and get legal advice within the first week. File the application in the Federal Court or a State or Territory Supreme Court before day 21 expires, serve a copy on the creditor, and attend the hearing.

The 21-day window is strict and cannot be extended.

Frequently Asked Questions

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

Yes. If you can reach a settlement or payment plan within the 21-day period, the creditor can withdraw the demand. Any agreement should be documented in a deed of settlement to ensure the demand is formally withdrawn.

What happens if I miss the 21-day deadline?

The court has no power to extend the deadline. The demand stands, and the creditor can apply to wind up your company. The only way to stop the wind-up application at that point is to pay the debt in full or prove solvency.

Do I need a lawyer to file a Supreme Court application?

Not legally required, but the rules are strict and the 21 days cannot be extended, so legal advice is strongly recommended.

Can I dispute part of the debt and pay the rest?

Yes. If you accept part of the debt but dispute the remainder, you can pay the undisputed portion and apply to set aside the demand for the disputed amount. The court will consider whether the remaining dispute is genuine.

What evidence do I need to prove a genuine dispute?

Contracts, invoices, emails, photos of defective work, payment records, and any correspondence showing the dispute existed before the demand was served. The evidence must support a plausible dispute, not just a bare denial.