Statutory Demand Served on Your Company: Your 21-Day Action Plan

A statutory demand is the most aggressive debt recovery tool available under Australian law. If your company has been served with Form 509H, you have exactly 21 days to respond. Do nothing and your company is deemed insolvent — giving the creditor the right to apply to wind up your business.

This guide breaks down what happens day by day, what your options are, and how to protect your company.

What is a statutory demand?

A statutory demand is a formal notice issued under the Corporations Act requiring your company to pay a debt of at least $4,000 within 21 days, or face presumed insolvency.

The demand must be in the prescribed form (Form 509H) and accompanied by an affidavit verifying the debt. It is typically served by post or personal delivery to your registered office.

Once served, the clock starts. You have 21 days from the date of service to respond.

Your three options

When a statutory demand is served, you have three choices:

1. Pay the debt in full — the simplest option if the debt is valid and you have the funds
2. Dispute the debt — if there is a genuine dispute about whether the debt exists or the amount claimed
3. Apply to set aside the demand — if there is a defect in the demand, an offsetting claim, or some other reason the demand should not stand

Each option has strict procedural requirements. Choose the wrong path or miss the deadline and your company is exposed to winding-up proceedings.

Day 1-3: Verify the demand is valid

The first step is to confirm the demand meets the legal requirements. A defective demand can be set aside.

Check the following:

• Correct company name — must match your ASIC registration exactly
• Correct registered office address — service must be to the registered office
• Minimum debt threshold — the debt must be at least $4,000
• Form 509H used — the demand must be in the prescribed form
• Supporting affidavit — an affidavit verifying the debt must accompany the demand
• Debt description — the demand must clearly describe the debt, including the amount and basis

If any of these elements are missing or incorrect, you may have grounds to apply to set aside the demand on the basis of a defect.

Day 4-7: Assess whether the debt is genuinely disputed

If the debt is not valid, or the amount is wrong, you may have a genuine dispute.

A genuine dispute exists where there is a real question about:

• Whether the debt exists at all
• The amount claimed
• Whether the debt is due and payable

Examples of genuine disputes:

• The invoice relates to work that was never completed
• The goods supplied were defective and you are entitled to a refund or reduction
• The contract was breached by the creditor, giving rise to a set-off or counterclaim
• The amount claimed includes interest or fees not agreed to in the contract

A genuine dispute does not mean you will win the argument in court. It means there is a real issue to be determined. If a genuine dispute exists, the court will typically set aside the demand and require the creditor to pursue the debt through normal court proceedings.

Day 8-14: Consider whether you have an offsetting claim

Even if the debt is valid, you may have an offsetting claim against the creditor.

An offsetting claim is a claim your company has against the creditor that equals or exceeds the amount of the demand. If the offsetting claim is genuine, the court may set aside the demand.

Example: The creditor claims you owe $10,000 for unpaid invoices. You have a valid claim against the creditor for $12,000 in damages for breach of contract. The offsetting claim exceeds the demand, so the demand should be set aside.

The offsetting claim must be genuine and quantifiable. You will need evidence to support it.

Day 15-18: Prepare your application to set aside

If you are not paying the debt and you have grounds to dispute it or set it aside, you must file an application in the relevant court within 21 days of service.

You will need to file:

• An originating process (application)
• A supporting affidavit setting out the grounds for setting aside the demand
• Any evidence supporting your dispute or offsetting claim

The application must be filed and served on the creditor within the 21-day period. If you file late, the court has no power to extend the deadline — the demand stands and your company is presumed insolvent.

Day 19-21: The final window

If you have not paid, disputed, or applied to set aside the demand by day 21, the demand takes effect. Your company is presumed to be insolvent under the Corporations Act.

Once the presumption arises, the creditor can apply to wind up your company. The presumption of insolvency is difficult to rebut in winding-up proceedings — the court will assume your company cannot pay its debts as and when they fall due.

Do not let the deadline pass.

What happens if you apply to set aside the demand

If you file an application to set aside within 21 days, the demand is stayed pending the outcome of the application. The creditor cannot rely on the demand to wind up your company while the application is on foot.

The court will hear your application and decide whether to:

• Set aside the demand — if there is a genuine dispute, an offsetting claim, or a defect in the demand
• Dismiss the application — if the debt is valid and there is no basis to set aside the demand
• Vary the demand — if part of the debt is disputed but part is valid, the court may reduce the amount

If the court sets aside the demand, the creditor must pursue the debt through normal court proceedings. If the court dismisses your application, the demand stands and you will typically be ordered to pay the creditor’s legal costs.

What happens if you do nothing

If you do not respond within 21 days, the creditor can file a winding-up application in the Federal Court or Supreme Court. The application will be based on the presumption of insolvency created by the statutory demand.

At the winding-up hearing, the court will consider whether to:

• Wind up the company — appoint a liquidator to sell the company’s assets and distribute the proceeds to creditors
• Dismiss the application — if you can prove the company is solvent despite the demand
• Adjourn the application — if there are grounds to delay the hearing

Winding-up proceedings are public, expensive, and damaging to your company’s reputation. Avoid them by responding to the demand within 21 days.

When to engage a lawyer

Statutory demand disputes are high-stakes. If the debt is substantial, the facts are complex, or the creditor is represented by a law firm, engage a qualified Australian lawyer to run the application.

For straightforward disputes where the debt is clearly invalid or the demand is defective, a prepared legal response may be all you need to get started.

Final checklist: What to do when served with a statutory demand

• Day 1-3: Verify the demand is valid — check the form, the debt amount, and the company details
• Day 4-7: Assess whether the debt is genuinely disputed or you have an offsetting claim
• Day 8-14: Gather evidence to support your dispute or offsetting claim
• Day 15-18: Prepare and file your application to set aside the demand
• Day 19-21: Ensure the application is filed and served on the creditor before the deadline

Do not wait until day 20. The 21-day period is strict and cannot be extended.

How ClaimDone helps companies respond to statutory demands

If your company has been served with a statutory demand, ClaimDone can prepare your legal response to a statutory demand setting out your grounds to dispute the debt or apply to set aside the demand.

Upload the demand, tell us what happened, and our Proprietary AI Engine drafts a response citing the applicable provisions of the Corporations Act. We prepare the supporting affidavit template, outline your grounds for setting aside the demand, and give you a clear path forward.

You file the application yourself or engage a lawyer to finalise it. Either way, you have a professionally prepared response — fast, fixed fee, no subscription.

A statutory demand is not a negotiation. It is a formal insolvency process with a hard deadline. If you have grounds to dispute the debt or set aside the demand, act now. Start your legal response at ClaimDone Legal Response and protect your company before the deadline expires.

Frequently Asked Questions

Can I negotiate with the creditor after a statutory demand is served?

Yes, but do not rely on negotiations to stop the clock. The 21-day deadline continues to run even if you are in discussions with the creditor. If you reach an agreement, get it in writing and ensure the creditor formally withdraws the demand. Otherwise, file an application to set aside the demand to protect your position.

What happens if I pay part of the debt but not all of it?

A partial payment does not satisfy the demand. The demand requires payment in full. If you pay part of the debt, the creditor can still rely on the demand for the unpaid balance (as long as it exceeds $4,000). If you cannot pay in full, apply to set aside the demand or negotiate a formal settlement with the creditor.

Can I apply to set aside a statutory demand after the 21-day deadline?

No. The 21-day deadline is absolute and cannot be extended. If you miss the deadline, the demand stands and your company is presumed insolvent. The only way to challenge the demand after 21 days is to oppose the winding-up application in court — a much harder and more expensive process.

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 accept the debt exists, but you have a separate claim against the creditor that reduces or cancels out the debt. Both are grounds to set aside a statutory demand, but they require different evidence.

How much does it cost to apply to set aside a statutory demand?

Court filing fees vary by state but are typically $500-$1,000. If you engage a lawyer to run the application, expect legal fees of $3,000-$10,000 depending on complexity. ClaimDone prepares the initial legal response and affidavit template for a flat fee, giving you a head start before engaging a lawyer if needed.