How to Respond to a Statutory Demand in 21 Days

A statutory demand is the most aggressive debt recovery tool a creditor can use against a registered company. It demands payment of a debt of $4,000 or more within 21 days — or the company is presumed insolvent and can be wound up.

The 21-day deadline is absolute. There are no extensions. If you do nothing, the creditor can apply to wind up your company, and the court will presume insolvency based solely on your failure to respond.

You have three options: pay the debt, dispute it with an offsetting claim, or apply to set the demand aside.

What is a statutory demand?

A statutory demand is a formal notice served on a company under the Corporations Act. It must:

• Be in the prescribed form
• Specify a debt of at least $4,000
• Be accompanied by an affidavit verifying the debt
• Give the company 21 days to comply

The demand does not require a court order. Any creditor claiming a debt can serve one. But if the debt is genuinely disputed, or the company has an offsetting claim, the demand can be set aside.

Your three options within 21 days

You must act within 21 days from the date of service. After that, the creditor can rely on a presumption of insolvency in a winding-up application made within 3 months.

Option 1: Pay the debt in full

If the debt is legitimate and you have the funds, paying in full within 21 days stops the process immediately. The creditor must withdraw the demand once paid.

Get written confirmation of payment and keep proof.

Option 2: Dispute the debt with an offsetting claim

If your company has a genuine claim against the creditor — for example, damages, unpaid invoices, or breach of contract — you can rely on that offsetting claim to reduce or eliminate the debt.

If deducting the offsetting claim leaves less than $4,000 of the debt undisputed, the court must set the demand aside (Corporations Act 2001, s 459H(3)). The claim can come from a different transaction (s 459H(5)).

Requirements for an offsetting claim:

• The claim must be genuine — not speculative or fabricated
• It must be quantified or reasonably capable of quantification
• It must be against the same creditor who served the demand
• It must be raised within the 21-day period by filing an application to set aside

You cannot simply assert an offsetting claim in a letter. You must apply to the court.

Option 3: Apply to set aside the statutory demand

If the debt is genuinely disputed, or there is some other defect in the demand, you can apply to the Federal Court or the Supreme Court of your state to have it set aside.

Grounds for setting aside include:

Genuine dispute about the debt: The company disputes the existence or amount of the debt on genuine grounds. This does not mean the company will win the dispute — only that there is a real question to be tried.

Defect in the demand: The demand does not comply with the Corporations Act or Regulations — for example, incorrect form, wrong company name, insufficient description of the debt, or defective affidavit.

Other reason: Some other reason exists to set it aside — for example, the debt is not due and payable, or there is an abuse of process.

How to apply to set aside a statutory demand

The application must be filed and served within 21 days of service of the demand. There are no extensions. If you miss the deadline, the court has no power to set it aside.

Step 1: Prepare the application and supporting affidavit

You must file:

• An originating application in the prescribed form
• A supporting affidavit setting out the grounds for setting aside
• Any evidence supporting your dispute or offsetting claim

The affidavit must be detailed. General denials are not enough. You must provide specific facts, dates, amounts, and documentary evidence.

Step 2: File in the Federal Court or Supreme Court

Statutory demand applications are typically filed in the Federal Court, but can also be filed in the Supreme Court of your state.

Filing fees vary by court but are typically $700–$1,200.

Step 3: Serve the application on the creditor

You must serve the application and affidavit on the creditor within the 21-day period. Service can be by email if the creditor’s solicitor accepts service, or by personal service.

Proof of service must be filed with the court.

Step 4: Attend the hearing

The court will list the matter for hearing. Both parties can file further affidavits and submissions.

The test is not whether you will win the underlying dispute — only whether there is a genuine dispute or offsetting claim sufficient to justify setting the demand aside.

If successful, the demand is set aside and the creditor must pursue the debt through normal proceedings. If unsuccessful, you must pay the debt or face wind-up proceedings.

What happens if you do nothing?

If you do not pay, dispute, or apply to set aside the demand within 21 days, the company is presumed to be insolvent.

The creditor can then apply to wind up the company. The wind-up application can be filed any time within three months of the end of the 21-day period.

At the wind-up hearing, the company can still dispute the debt — but the burden is much higher. You must prove on the balance of probabilities that the debt does not exist, or that the company is solvent. Simply raising a genuine dispute is no longer enough.

If a winding-up order is made, a liquidator is appointed and the company is dissolved. Directors can be personally liable for insolvent trading if they allowed the company to continue trading while insolvent.

Common defects in statutory demands

Not all statutory demands are valid. Common defects include:

• Wrong company name — even a minor misspelling can invalidate the demand
• Incorrect debt amount — overstating the debt or including disputed amounts
• Defective affidavit — not sworn, missing exhibits, or not verifying the debt properly
• Insufficient description — the demand must describe the debt with enough detail for the company to understand what is claimed
• Debt not due and payable — the demand can only be used for debts already owing, not future debts

If any of these defects exist, you can apply to set the demand aside.

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.

Final checklist

If you have received a statutory demand, follow this checklist immediately:

• Day 1: Calculate the exact deadline (21 days from service)
• Day 2–5: Gather all evidence of dispute, offsetting claims, or defects in the demand
• Day 6–10: Prepare and file your application and affidavit
• Day 11–14: Serve the application on the creditor
• Day 15–21: File proof of service with the court

Do not wait. The 21-day deadline is absolute. If you miss it, the creditor can rely on the presumption of insolvency in a winding-up application and your options become far more limited.

Get advice now

Claim Done does not prepare statutory demand response documents. Speak to a lawyer straight away about your grounds for dispute or offsetting claim.

Frequently Asked Questions

Can I get an extension on the 21-day deadline?

No. The 21-day period under the Corporations Act is absolute. The court has no power to extend it. If you miss the deadline, you cannot apply to set aside the demand, and the creditor can rely on the presumption of insolvency in a winding-up application.

What if the debt is partly disputed and partly legitimate?

If part of the debt is genuinely disputed or subject to an offsetting claim, and that amount reduces the total below the $4,000 statutory minimum, the demand can be set aside. If the undisputed amount is still above $4,000, the court may vary the demand rather than set it aside entirely.

Can I dispute the debt after the 21 days have passed?

Yes, but it is much harder. Once the 21-day period expires, the company is presumed insolvent. If the creditor applies to wind up the company, you can still dispute the debt at the wind-up hearing — but you must prove on the balance of probabilities that the debt does not exist or that the company is solvent. Raising a genuine dispute is no longer enough.

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

No. The application must be filed in the Federal Court or Supreme Court, and the affidavit must be detailed and supported by evidence.

What happens if the demand is set aside?

If the court sets aside the statutory demand, the creditor must pursue the debt through normal court proceedings — for example, by filing a statement of claim in the District Court or Federal Court. The creditor cannot use the statutory demand process again for the same debt unless the circumstances change.