How to Respond to a Statutory Demand If You Have a Genuine Dispute

A statutory demand is a formal notice demanding payment of a debt of $4,000 or more within 21 days. If you do not pay or apply to set it aside, the creditor can presume your company is insolvent and commence winding-up proceedings. If you genuinely dispute the debt or have an offsetting claim, you must act within 21 days.

This guide explains when you can challenge a statutory demand, what the Supreme Court requires, and the cost implications of getting it wrong.

What is a genuine dispute?

A genuine dispute exists when you have a bona fide argument that the debt is not owed, is not due, or is not the amount claimed. The dispute must be real, not frivolous or contrived.

Examples of genuine disputes:

• The goods or services were defective or not supplied
• The invoice includes amounts already paid
• The contract was breached by the creditor
• The debt is time-barred under limitation laws
• The amount claimed includes disputed interest or fees

The Supreme Court does not conduct a trial at this stage. You only need to show there is a serious question to be tried. If the court is satisfied a genuine dispute exists, it will set aside the statutory demand.

What is an offsetting claim?

An offsetting claim is a genuine claim you have against the creditor that reduces or extinguishes the debt. It must be a monetary claim that can be quantified and is not too remote or speculative.

Examples of offsetting claims:

• The creditor owes you money under a separate contract
• You are entitled to damages for breach of contract
• You have an unpaid invoice against the same creditor
• The creditor failed to deliver goods you paid

If deducting your offsetting claim leaves less than $4,000 of the debt undisputed, the court must set the demand aside (s 459H(3)). If $4,000 or more is left, the court may vary the demand (s 459H(4)). The claim need not arise from the same transaction (s 459H(5)).

The 21-day deadline

You have 21 days from the date of service to either pay the debt in full or file a Supreme Court application to set it aside. The 21-day period is strict. If it expires without payment or a court application, the creditor can file a winding-up application on the presumption of insolvency.

How service is calculated:

• If served personally, the 21 days start the day after service
• If served by post, the 21 days start 7 days after posting (unless you can prove earlier receipt)
• If served by email or other electronic means, check the affidavit of service for the deemed service date

Count the days carefully and act early. Once the deadline passes, you cannot apply to set aside the demand.

Requirements for a Supreme Court application

To set aside a statutory demand, you must file an application in the Supreme Court of your state or territory within 21 days. The application must be supported by an affidavit that sets out the facts establishing the genuine dispute or offsetting claim.

What the affidavit must include:

• The facts supporting your dispute or offsetting claim
• The evidence you rely on (contracts, invoices, correspondence, photos)
• The amount of the offsetting claim, if applicable
• Any other matter material to proving the dispute is genuine

The affidavit must be sworn before a solicitor, justice of the peace, or other authorised person. It must be filed with the court and served on the creditor before the 21-day deadline expires.

Common grounds for setting aside a statutory demand:

• Genuine dispute as to the existence or amount of the debt
• Offsetting claim that brings the undisputed debt below $4,000
• Defect in the demand that will cause substantial injustice
• Other reason justifying setting it aside

The most common ground is genuine dispute. The court applies a low threshold — you do not need to prove your case, only that there is a serious question to be argued.

Defects in the statutory demand

A statutory demand can also be set aside if it contains a defect that will cause substantial injustice. A defect includes:

• Failure to use the prescribed form
• Incorrect company name or ACN
• Unclear description of the debt
• Failure to attach the required affidavit
• Demand served at the wrong address

Not every defect justifies setting aside the demand. The court must be satisfied the defect will cause substantial injustice. Minor errors or technical defects are usually not enough.

Cost implications of a Supreme Court application

Filing an application to set aside a statutory demand is not cheap. You will typically incur:

• Court filing fees (typically $600–$1,200 depending on the state)
• The creditor’s legal costs if your application is dismissed and costs are awarded against you

If your application is successful, the court will usually order the creditor to pay your costs. If your application is dismissed, you will likely be ordered to pay the creditor’s costs.

Before filing, consider:

• Is the dispute genuine or are you buying time?
• Do you have evidence to support your claim?
• Is the cost of the application proportionate to the debt?
• Can you negotiate a settlement instead?

If the debt is genuinely disputed, the application is often worth the cost. If you are simply trying to delay payment, the court will dismiss your application and you will pay both sides’ costs.

Negotiating a settlement instead

If you have a genuine dispute but want to avoid Supreme Court proceedings, consider negotiating a settlement with the creditor. Many creditors will withdraw a statutory demand if you:

• Acknowledge part of the debt and agree to a payment plan
• Provide evidence of the offsetting claim
• Agree to mediation or independent valuation
• Offer security for the disputed amount

A settlement avoids the cost and uncertainty of court proceedings. It also preserves the commercial relationship, which may be important if you have ongoing dealings with the creditor.

Claim Done can prepare a settlement proposal or payment plan agreement that protects your position while resolving the dispute.

What happens if you do nothing?

If you do not pay the debt or apply to set it aside within 21 days, the creditor can file a winding-up application in the Federal Court. The court will presume your company is insolvent, and you will have the burden of proving otherwise.

Consequences of a winding-up application:

• Your company’s bank accounts may be frozen
• Suppliers and customers may lose confidence
• Directors may face personal liability for insolvent trading
• The company may be placed into liquidation
• Assets will be sold to pay creditors

Defending a winding-up application is far more expensive than setting aside a statutory demand. Legal costs rise if the matter proceeds to a hearing.

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.

Claim Done is not a law firm and does not provide legal advice.

Final steps

If you have received a statutory demand and have a genuine dispute:

1. Count the 21 days carefully from the date of service
2. Gather all evidence supporting your dispute or offsetting claim
3. Prepare your affidavit and Supreme Court application
4. File and serve the application before the deadline expires
5. Consider negotiating a settlement to avoid court costs

Do not ignore a statutory demand. The consequences of inaction are severe and can result in the winding-up of your company.

Frequently Asked Questions

How long do I have to respond to a statutory demand?

You have 21 days from the date of service to either pay the debt in full or file a Supreme Court application to set it aside. If served by post, the 21 days start 7 days after posting unless you can prove earlier receipt. The deadline is strict and cannot be extended.

What is the difference between a genuine dispute and an offsetting claim?

A genuine dispute challenges the existence or amount of the debt itself. An offsetting claim is a separate monetary claim you have against the creditor that reduces or extinguishes the debt. Both grounds can be used to set aside a statutory demand.

How much does it cost to apply to set aside a statutory demand?

Court filing fees are typically $600–$1,200 depending on the state. If your application is dismissed, you may be ordered to pay the creditor’s costs as well.

Can I negotiate with the creditor instead of going to court?

Yes. Many creditors will withdraw a statutory demand if you acknowledge part of the debt, agree to a payment plan, or provide evidence of an offsetting claim. A negotiated settlement avoids the cost and uncertainty of Supreme Court proceedings.

What happens if I miss the 21-day deadline?

If you do not pay or apply to set aside the demand within 21 days, the creditor can file a winding-up application on the presumption your company is insolvent. Defending a winding-up application is far more expensive than setting aside the demand and can result in liquidation.