Statutory Demand Served on Your Company: 21-Day Deadline Explained

A statutory demand is the most aggressive debt recovery tool a creditor can use against a registered company. The moment it is served, your company has exactly 21 days to respond. There is no extension, no grace period.

If you do nothing, the creditor can apply to wind up your company. That means liquidation proceedings, director liability, and the end of your business.

What Is a Statutory Demand?

A statutory demand is a formal notice issued under the Corporations Act demanding payment of a debt of at least $4,000 within 21 days. The creditor serves it using Form 509H, supported by an affidavit verifying the debt.

The demand must state:

• The exact amount owed
• The creditor’s details
• The date of service
• A warning that failure to comply may result in winding up proceedings

Once served, the 21-day clock starts immediately. The date of service is Day 0. Day 21 is the final day to respond.

Why the 21-Day Deadline Matters

The 21-day period is the statutory window during which your company must respond. After 21 days, the creditor can file a winding up application in the Federal Court or Supreme Court.

Once that application is filed, your company is publicly listed as facing liquidation. Banks may freeze accounts. Suppliers demand payment upfront. Clients reconsider contracts. Even if you later pay the debt, the damage to your reputation and credit rating is typically done.

Courts will not extend the deadline except in extraordinary circumstances, such as invalid service or creditor misconduct.

What Happens If You Ignore the Demand?

If your company does not respond within 21 days, the creditor can file a winding up application. At the hearing, the court can:

• Order your company to be wound up
• Appoint a liquidator to sell your assets and distribute proceeds to creditors
• Disqualify directors from managing companies in the future

Even if you pay the debt after the 21 days, the creditor can still proceed with the winding up application. Courts have discretion to dismiss the application if the debt is paid, but they are not required to.

Director liability also becomes a real risk. If the company continues trading while insolvent, directors can be held personally liable for debts incurred after the statutory demand was served.

Your Three Options Within 21 Days

You have three clear options when a statutory demand is served.

Option 1: Pay the Debt in Full

The simplest response is to pay the full amount claimed in the demand. Once paid, the creditor has no basis to proceed with winding up. Obtain a written acknowledgment that the debt is satisfied and the demand is withdrawn.

If you cannot pay the full amount immediately, consider whether you can borrow, refinance, or sell assets to raise the funds. Paying within 21 days avoids court, legal costs, and the reputational damage of a winding up application.

Option 2: Negotiate a Settlement or Payment Plan

If you cannot pay in full, contact the creditor immediately to negotiate. Creditors often prefer to recover the debt over time rather than wind up the company and recover nothing.

Propose a realistic payment plan in writing. If the creditor agrees, ask them to withdraw the statutory demand or agree in writing not to file a winding up application while you comply with the plan.

Be aware: the creditor is not obliged to negotiate. If they refuse, you must either pay or apply to set aside the demand.

Option 3: Apply to Set Aside the Demand

If the debt is genuinely disputed, the demand is defective, or there is another substantial reason, you can apply to the court to set aside the demand. The application must be filed within 21 days of service.

Grounds for setting aside typically include:

• Genuine dispute: You have a bona fide dispute about the existence or amount of the debt
• Offsetting claim: Your company has 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 does not comply with statutory requirements (e.g., incorrect amount, missing affidavit, wrong form)
• Other reason: Injustice would result if the demand is not set aside (e.g., the debt is statute-barred, the creditor has acted unconscionably)

The application is made by originating process in the Supreme Court or Federal Court. You must file an affidavit setting out the grounds and supporting evidence.

If the court sets aside the demand, the creditor cannot use it to wind up your company. However, they can still sue for the debt in the ordinary way.

What Is a Genuine Dispute?

A genuine dispute is not just any disagreement. The dispute must be bona fide and based on substantial grounds. Courts apply a low threshold: you do not need to prove you will win, only that there is a real question to be tried.

Examples of genuine disputes:

• The goods or services were never delivered
• The work was defective and you are entitled to a set-off
• The debt has already been paid
• The creditor miscalculated the amount owed
• The contract is void or unenforceable

If the dispute is merely a delaying tactic, or if you admit the debt but argue you cannot pay, the court will not set aside the demand.

Defects in the Statutory Demand

A statutory demand must strictly comply with the Corporations Act and Regulations. Common defects include:

• Wrong amount: The demand overstates the debt by a material amount
• Missing or defective affidavit: The supporting affidavit is not properly sworn or does not verify the debt
• Incorrect form: The creditor used an outdated or incorrect version of Form 509H
• Misleading description: The debt is described in a way that makes it impossible to identify
• Service issues: The demand was not properly served on the company’s registered office

If the defect is minor and causes no substantial injustice, the court may refuse to set aside the demand. But if the defect is material, the demand may be invalid.

How to Apply to Set Aside a Statutory Demand

The application must be made within 21 days. The process is:

1. File an originating process: Use the court’s prescribed form for an application to set aside a statutory demand
2. File a supporting affidavit: Set out the grounds for setting aside and attach all relevant evidence
3. Serve the application on the creditor: You must serve the creditor within the 21-day period
4. Attend the hearing: The court will list the matter for a hearing

The application must be filed in the Supreme Court of the state where your company is registered, or in the Federal Court. The creditor will file a responding affidavit, and the court will decide based on the evidence filed.

If you succeed, the court will typically set aside the demand and order the creditor to pay your legal costs. If you fail, you will pay the creditor’s costs and the demand remains in force.

What If the 21 Days Have Already Passed?

If the 21-day period has expired, you cannot apply to set aside the demand. Your options are:

• Pay the debt immediately and ask the creditor to withdraw any winding up application
• Wait for the creditor to file a winding up application and oppose it in court (much more expensive and risky)
• Enter into a deed of company arrangement with creditors to avoid liquidation

Once the 21 days pass without compliance, the creditor can file a winding up application, and if it does so within 3 months of your company’s failure to comply, the court must presume your company is insolvent (s459C(2)).

How Claim Done Helps

If you have received a statutory demand, time is critical. A reply letter does not stop a statutory demand: within the 21 days your company must pay, or get legal advice about applying to set it aside. Claim Done’s Legal Response service is for replying to an ordinary letter or demand, not a statutory demand, and Claim Done does not prepare applications to set aside a statutory demand.

Claim Done does not give legal advice. If the demand is genuinely disputed, see a lawyer early so the application can be filed and served within the 21 days.

Final Checklist: What to Do in the First 48 Hours

• Verify service: Confirm the demand was properly served on your registered office
• Check the amount: Is the debt accurate? Is there a genuine dispute?
• Review the affidavit: Is it properly sworn? Does it verify the debt?
• Calculate the deadline: Day 0 is the date of service. Day 21 is the final day to respond
• Contact the creditor: Can you negotiate a payment plan or settlement?
• File your application: If you are applying to set aside, file within 21 days

Do not wait. Do not assume the creditor will back down. The 21-day deadline is absolute.

Responding to a Statutory Demand

A letter to the creditor does not stop the 21-day clock. Pay the debt, or get legal advice about setting the demand aside, before the 21 days end. If the creditor sent you an ordinary letter of demand rather than a statutory demand, Claim Done’s Legal Response service can draft your reply. Start your legal response now.

Frequently Asked Questions

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

No. The 21-day period is set by statute and cannot be extended except in extraordinary circumstances, such as invalid service or creditor misconduct. You must respond within 21 days or risk winding up proceedings.

What happens if I pay the debt on Day 22?

If you pay after the 21-day period, the creditor can still file a winding up application. Courts have discretion to dismiss the application if the debt is paid, but they are not required to. It is always better to pay within the 21 days.

Can I apply to set aside a statutory demand if I just cannot afford to pay?

No. Inability to pay is not a ground for setting aside a statutory demand. You must have a genuine dispute about the debt, an offsetting claim, or show that the demand is defective. If you cannot pay, negotiate a payment plan with the creditor.

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

It is strongly recommended. The application must be filed in the Supreme Court or Federal Court, and the creditor will typically be legally represented.

What is the minimum debt for a statutory demand?

The minimum debt is $4,000 under the Corporations Act. If the debt is less than $4,000, the creditor cannot issue a statutory demand and must use other debt recovery methods.