Served With a Statutory Demand in Australia: Your 21-Day Action Plan

You open the mail. Form 509H — a statutory demand. A creditor is demanding payment of a debt exceeding $4,000 within 21 days, or they will presume your company is insolvent and apply to wind it up.

This is not a letter of demand. This is a formal step toward liquidation. The 21-day clock starts the day after you are served, and missing it can cost you your business.

What a statutory demand actually is

A statutory demand is a prescribed form (Form 509H) served on a company by a creditor claiming a debt of $4,000 or more. It gives the company three options:

• Pay the debt in full within 21 days
• Apply to set aside the demand within 21 days (if there is a genuine dispute or other defect)
• File an affidavit proving solvency within 21 days (if the debt is valid but the company can still pay its debts as they fall due)

If you do nothing, the creditor can apply to wind up your company 21 days after service. The court presumes insolvency based solely on your failure to comply.

Day 1: Verify service and check for defects

The 21-day period begins the day after the demand is served. Service is typically by personal delivery to a director or by registered post to the company’s registered office. If service was defective, the demand may be invalid.

Check the demand for formal defects:

• Is the debt amount clearly stated and does it exceed $4,000?
• Is the creditor’s name and address correct?
• Is your company name and ACN correct?
• Is the demand signed by or on behalf of the creditor?
• Does it include the required affidavit verifying the debt?

Even minor errors can be grounds to set aside a statutory demand. If the demand overstates the debt, includes disputed amounts, or fails to comply with the prescribed form, you may have a defence.

Day 2-7: Assess whether you have a genuine dispute

The most common ground for setting aside a statutory demand is a genuine dispute about the existence or amount of the debt. You do not need to prove the debt is invalid, only that there is a serious question to be tried.

A genuine dispute exists if:

• The goods or services were defective or not supplied as agreed
• You have a genuine offsetting claim against the creditor (such as damages for breach of contract)
• The invoice amount is incorrect or includes charges you did not authorise
• The debt has already been paid or settled
• The contract underlying the debt is void or unenforceable

If you have a genuine dispute, you must apply to the court to set aside the demand within 21 days. You cannot raise the dispute later in wind-up proceedings.

Day 7-14: Prepare your application to set aside

If you are applying to set aside the demand, you need to file an originating process and supporting affidavit in the Supreme Court (or Federal Court, depending on jurisdiction). The application must be filed and served on the creditor within 21 days of service of the demand.

Your affidavit must:

• Set out the facts supporting the genuine dispute or other ground for setting aside
• Attach all relevant documents (invoices, contracts, correspondence, evidence of payment)
• Be sworn before a solicitor or justice of the peace
• Comply with the court’s practice directions and rules

The court will not accept vague assertions. You need specific facts, dates, amounts, and documentary evidence. If you are relying on an offsetting claim, you must quantify it and show it is genuine.

Common grounds for setting aside include:

• Genuine dispute about the debt
• Offsetting claim equal to or exceeding the demand amount
• Defect in the demand (wrong amount, wrong creditor, wrong debtor)
• Substantial injustice if the demand is not set aside

Day 14-18: Consider filing a solvency affidavit

If the debt is valid but your company is solvent, you can file an affidavit proving solvency. This does not set aside the demand, but it prevents the creditor from relying on the presumption of insolvency in wind-up proceedings.

A solvency affidavit must show:

• The company can pay all its debts as and when they fall due
• Current assets exceed current liabilities
• The company has access to sufficient cash flow or credit facilities
• There are no other unpaid statutory demands or judgments

The affidavit should attach financial statements, bank statements, debtor ageing reports, and evidence of available credit. It must be filed within 21 days and served on the creditor.

Filing a solvency affidavit shifts the burden back to the creditor to prove insolvency in any subsequent wind-up application.

Day 18-21: Negotiate or pay if you have no defence

If the debt is valid, there is no genuine dispute, and you cannot prove solvency, your options are:

• Pay the debt in full before the 21-day deadline expires
• Negotiate a payment plan or settlement with the creditor (get it in writing)
• Seek urgent finance to pay the debt
• Appoint a voluntary administrator if the company is insolvent

Do not ignore the demand. If you do nothing, the creditor can file a wind-up application 21 days after service. Once wind-up proceedings begin, the company’s bank accounts may be frozen, suppliers may refuse credit, and directors may face personal liability for insolvent trading.

What happens if you miss the 21-day deadline

If you do not comply with the demand within 21 days, the law presumes your company is insolvent. The creditor can file an application to wind up the company in the Supreme Court.

You can still oppose the wind-up application, but you cannot raise a genuine dispute that existed at the time of the demand. Your only defences are:

• The debt has been paid since the demand was served
• The company is solvent (you must prove this with evidence)
• There is some other reason why the court should not make a winding-up order

Missing the deadline also means you lose the right to set aside the demand on technical grounds.

When to get urgent legal help

You should speak to a lawyer immediately if:

• The debt is disputed and you need to file an application to set aside within 21 days
• The demand contains errors or was not properly served
• You need to prepare a solvency affidavit with supporting financial evidence
• The creditor is threatening wind-up proceedings and you need to negotiate urgently
• You are unsure whether the debt is valid or whether you have a defence

Statutory demand cases move fast. The 21-day deadline is strict, and the court has limited discretion to extend it.

How ClaimDone helps you respond to a statutory demand

If you have been served with a statutory demand and need to respond in writing — whether to dispute the debt, propose a settlement, or explain why the demand is defective — ClaimDone’s Legal Response service generates a professionally formatted response based on the evidence you upload.

You complete a 5-minute intake form. Our Proprietary AI Engine reviews your documents, identifies the applicable law, and drafts a response citing the specific grounds for your objection. The response is prepared within 60 minutes and delivered as a PDF ready to send.

ClaimDone does not give legal advice and cannot represent you in court. For applications to set aside a statutory demand, wind-up proceedings, or complex solvency matters, you need a qualified lawyer. But for urgent written responses where time is critical, ClaimDone delivers fast, fixed-fee document preparation.

Final checklist: What to do in the first 48 hours

• Confirm the date of service and calculate the 21-day deadline
• Check the demand for formal defects (wrong amount, wrong creditor, unsigned)
• Gather all documents relating to the debt (invoices, contracts, payment records, correspondence)
• Assess whether you have a genuine dispute or offsetting claim
• Decide whether to apply to set aside, file a solvency affidavit, or pay the debt
• If applying to court, instruct a lawyer immediately — you have less than three weeks
• If negotiating, contact the creditor in writing and propose a settlement agreement or payment plan
• Do not ignore the demand — failing to act within 21 days triggers a presumption of insolvency

A statutory demand is serious. It is a formal step toward liquidation, and the clock is already running. If you need to respond in writing to dispute the debt or propose a settlement, ClaimDone's Legal Response service can prepare your response within 60 minutes. For court applications or complex disputes, get legal advice immediately.

Frequently Asked Questions

Can I ignore a statutory demand if I think the debt is wrong?

No. You must apply to set aside the demand within 21 days if you dispute the debt. If you do nothing, the court presumes your company is insolvent and the creditor can apply to wind it up. You cannot raise the dispute later in wind-up proceedings.

What is a genuine dispute for the purposes of setting aside a statutory demand?

A genuine dispute exists if there is a serious question to be tried about whether the debt is owed or the amount claimed. You do not need to prove the debt is invalid, only that there is a real dispute based on facts and evidence. Common examples include defective goods, incorrect invoicing, or offsetting claims.

Can I negotiate a payment plan after being served with a statutory demand?

Yes, but you must get the creditor’s agreement in writing before the 21-day deadline expires. If the creditor agrees to a payment plan or settlement, they should withdraw the statutory demand. Do not rely on verbal promises — get it documented and signed.

What happens if I file a solvency affidavit?

Filing a solvency affidavit within 21 days prevents the creditor from relying on the presumption of insolvency in wind-up proceedings. It does not set aside the demand or stop the creditor from applying to wind up the company, but it shifts the burden to the creditor to prove insolvency with evidence.

Do I need a lawyer to respond to a statutory demand?

If you are applying to set aside the demand or defending wind-up proceedings, you need a lawyer. If you are responding in writing to dispute the debt or propose a settlement, ClaimDone can prepare a formal legal response. For urgent court applications, time-sensitive solvency affidavits, or complex disputes, get legal advice immediately.