How to Respond to a Statutory Demand You Genuinely Dispute

A statutory demand is one of the most aggressive debt recovery tools in Australia. Served under s459E of the Corporations Act 2001, it gives your company 21 days to pay a debt of $4,000 or more — or face presumed insolvency and potential wind-up proceedings.

If the debt is wrong, you cannot ignore the demand. You must act within 21 days, and the only formal response is an application to the Federal Court or the Supreme Court of your state or territory to set it aside.

This guide explains how to respond to a statutory demand you genuinely dispute, what the court requires, and when negotiating might be faster and cheaper.

What is a statutory demand?

A statutory demand is Form 509H under the Corporations Act. It must:

• Claim a debt of at least $4,000
• Be served on a registered company (not an individual)
• State the amount owed and the basis of the debt
• Include an affidavit verifying the debt
• Give 21 days to comply

If your company does not pay or apply to set it aside within 21 days, the creditor can presume your company is insolvent and apply to wind it up.

Grounds to set aside a statutory demand

The court (the Federal Court or the Supreme Court of your state or territory) can set aside a statutory demand under s459H if:

Genuine dispute — you have a bona fide dispute about the existence or amount of the debt

Offsetting claim — you have a genuine 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 is defective in a way that causes substantial injustice

Other reason — some other reason exists to set it aside

The most common ground is genuine dispute. You do not need to prove the debt is invalid — you only need to show there is a real question to be tried.

The 21-day deadline is absolute

You have 21 days from the date of service to file your application in the Federal Court or the Supreme Court of your state or territory, and to serve a copy of it and the supporting affidavit on the creditor. This deadline cannot be extended. If you miss it, the demand stands.

Service is typically complete when the demand is:

• Left at the company’s registered office
• Delivered personally to a director
• Sent by post to the registered office (usually deemed served 3 days after posting)

Count 21 days from the date of service, not the date you opened the envelope.

What you must file in court

To set aside a statutory demand, you must file:

Originating process — in the form required by the court’s corporations rules, naming the creditor as respondent

Supporting affidavit — sworn by a director or officer, setting out the facts that establish the dispute

Interlocutory application — if you need interim orders (e.g., restraining wind-up proceedings)

The affidavit is critical. It must:

• Identify the specific amount or basis you dispute
• Set out the facts in numbered paragraphs
• Attach all supporting documents as exhibits
• Be sworn before a solicitor or Justice of the Peace
• Be filed within the 21-day period

Vague assertions are not enough. The court wants dates, amounts, correspondence, contracts, invoices — concrete evidence that a genuine dispute exists.

Common grounds for genuine dispute

You never received the goods or services — the creditor claims you owe for work they never performed or products never delivered

The work was defective — you withheld payment because the goods were faulty or the service was substandard

The debt was already paid — you have bank statements or receipts proving payment

The amount is wrong — the invoice overstates the agreed price or includes items not authorised

The contract was breached — the creditor failed to meet their obligations, giving you a right to terminate or withhold payment

You have an offsetting claim — the creditor owes you money for a separate matter, and the net position is in your favour

What the court will consider

The court does not decide who is right. It only asks: is there a genuine dispute to be tried?

A dispute is genuine if it is bona fide and not spurious, hypothetical, or illusory. You must show:

• The dispute is real, not contrived
• You raised it before the demand was served (or have a good reason for not doing so)
• The facts support a plausible claim

If the court is satisfied, it will set the demand aside. The creditor must then sue you in the ordinary way if they want to recover the debt.

The cost of a court application

Check the court’s current filing fee before you apply.

If you lose, you may be ordered to pay the creditor’s costs as well.

When negotiating is faster and cheaper

If the dispute is commercial — a pricing disagreement, a quality issue, or a misunderstanding about scope — negotiating a settlement is often faster and cheaper than going to court.

A well-drafted response can:

• Set out your position clearly and professionally
• Propose a payment plan or reduced settlement
• Cite the applicable law where relevant
• Create a paper trail that protects you if the matter escalates

Negotiating does not stop a statutory demand or pause the 21 days: unless the debt is paid, the set-aside application must still be filed and served in time. Claim Done’s Legal Response service does not deal with statutory demands.

What happens if you do nothing

If you do not apply to set aside the demand within 21 days, the creditor can:

• Presume your company is insolvent
• Apply to wind up your company
• Appoint a liquidator to sell your assets and distribute the proceeds to creditors

Even if you later prove the debt was invalid, the wind-up proceedings can destroy your business. Do not ignore a statutory demand.

How Claim Done helps

Claim Done does not prepare or file applications to set aside a statutory demand, and its Legal Response service does not deal with statutory demands. A reply letter does not stop the demand or pause the 21 days.

Within the 21 days, your company must pay the debt or get legal advice about applying to set the demand aside. The application must be filed in the Federal Court or your state or territory Supreme Court and served on the creditor within the 21 days, and that time cannot be extended.

Final checklist: Responding to a statutory demand

• [ ] Confirm the demand was validly served
• [ ] Calculate the 21-day deadline from the date of service
• [ ] Gather all evidence supporting your dispute (contracts, invoices, emails, bank statements)
• [ ] Decide whether to apply to the Federal Court or your state or territory Supreme Court, and whether to negotiate at the same time
• [ ] If negotiating, remember it does not stop the 21-day deadline
• [ ] Do not wait — the deadline is absolute

Get started

If you have received a statutory demand and genuinely dispute the debt, act now and get legal advice about setting it aside within the 21 days. Claim Done’s Legal Response service is for replying to ordinary letters of demand, not statutory demands.

Frequently Asked Questions

Can I extend the 21-day deadline to respond to a statutory demand?

No. The 21-day deadline under the Corporations Act is absolute and cannot be extended by the court. If you miss it, the demand stands and the creditor can apply to wind up your company.

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

A genuine dispute means you dispute the existence or amount of the debt itself. An offsetting claim means you admit the debt but have a separate claim against the creditor that brings the undisputed debt below $4,000 (it can come from a different transaction). Both are grounds to set aside a statutory demand.

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

A poorly drafted affidavit can result in your application being dismissed and the creditor proceeding to wind up your company.

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

Yes. If the dispute is commercial and you believe the creditor will negotiate, a formal response setting out your position can open discussions. If the creditor agrees to withdraw the demand, you avoid court entirely. But you must act within the 21-day period.

What happens if the court sets aside the statutory demand?

If the court sets aside the demand, the creditor cannot use it to presume insolvency or apply to wind up your company. They must sue you in the ordinary way if they want to recover the debt, and you can defend the claim through the usual court process.