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 two options:

• Pay the debt in full (or secure or compound it) within 21 days
• Apply to the court to set aside the demand within 21 days (if there is a genuine dispute or other ground)

Solvency can only be argued later, at any winding-up hearing.

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?

A defect alone is not enough to set aside a statutory demand unless it would cause substantial injustice (s 459J). 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 that brings the undisputed debt below $4,000
• Defect in the demand (wrong amount, wrong creditor, wrong debtor)
• Substantial injustice if the demand is not set aside

Day 14-21: Negotiate or pay if you have no defence

If the debt is valid and there is no genuine dispute, 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.

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

How Claim Done helps you respond to a statutory demand

Claim Done does not prepare applications to set aside a statutory demand, and its Legal Response service does not deal with statutory demands. 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).

Claim Done does not give legal advice and cannot represent you in court.

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 the demand or pay (or secure or compound) the debt
• If applying to court, act 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.

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.

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

No law says a company must use a lawyer to reply to the creditor. What matters is the 21 days: within them the company must pay, secure or compound the debt to the creditor’s reasonable satisfaction, or file and serve an application to set the demand aside (Corporations Act 2001, ss 459E, 459G). A reply letter does not stop the demand or extend that time. In court, a company acts through a lawyer unless the court allows otherwise; in the Federal Court that is rule 4.01(2) of the Federal Court Rules 2011, which the court can dispense with under rule 1.34. Claim Done does not prepare set-aside applications.