What Happens After You Serve a Statutory Demand in Australia

You’ve served a statutory demand under the Corporations Act 2001. The company owes you at least $4,000, and you’ve followed the formal requirements. Now what?

The next 21 days are critical. The debtor company has three options: pay, apply to set aside, or ignore the demand. This guide walks through the timeline, what the debtor can do, and what you as the creditor should be doing at each stage.

The 21-day statutory period

From the date of service, the debtor company has 21 days to respond. The clock starts when the demand is properly served — typically by leaving it at the company’s registered office or serving it on a director personally. If service is defective, the entire demand can be set aside.

During these 21 days, the debtor has three choices:

• Pay the debt in full
• Apply to set aside the statutory demand
• Do nothing

If the debtor does nothing and the 21 days expire, you gain the right to apply to wind up the company. The company is presumed insolvent.

Option 1: The debtor pays

Payment must be in full. A part payment does not satisfy a statutory demand. If the company offers to pay half now and half later, you can refuse and proceed with insolvency action after the 21 days expire.

Once paid, the demand is satisfied. Keep records of the payment and the cleared funds. If the company later disputes that payment was made, you’ll need proof.

If the debtor pays by cheque and it bounces after day 21, the demand remains unsatisfied and you can proceed.

Option 2: The debtor applies to set aside

The debtor can apply to the court to set aside the statutory demand. They must do this within 21 days of service. If they miss the deadline, they lose the right to apply.

The application must be supported by an affidavit filed and served within the same 21-day period. Courts strictly enforce this. A late application, even by one day, will typically be dismissed.

Grounds for setting aside

The court can set aside a statutory demand if:

• There is a genuine dispute about the debt
• The debtor has an offsetting claim
• There is a defect in the demand that causes substantial injustice
• Service was defective

Genuine dispute is the most common ground. The debtor must show there is a real dispute about whether the debt exists or the amount owed. They do not need to prove they will win — just that it’s arguable. If there’s a genuine dispute, the court will usually set aside the demand and leave the parties to resolve the underlying dispute in ordinary proceedings.

Offsetting claim means the debtor has a claim against you that reduces or cancels out your debt. For example, you claim $50,000 for unpaid invoices, but the debtor claims $60,000 for defective work. If the offsetting claim is genuine, the court may set aside the demand.

Defect covers technical errors in the demand itself — wrong amount, incorrect company name, missing affidavit, or failure to specify the debt clearly. The court only sets aside if the defect causes substantial injustice. Minor errors are often ignored.

What happens during the application

Once the debtor files an application to set aside, the statutory demand is temporarily stayed. You cannot apply to wind up the company until the application is heard and decided.

The hearing is usually listed within 4-8 weeks. Both parties file affidavits. The court does not conduct a full trial — it’s a summary assessment of whether there’s a genuine dispute or defect.

If the court dismisses the application, the demand stands. The debtor must pay within 7 days or you can apply to wind up the company immediately.

If the court sets aside the demand, you’re back to square one. You may need to sue for the debt in the ordinary way or issue a fresh statutory demand if the defect can be fixed.

Option 3: The debtor does nothing

If the debtor does not pay and does not apply to set aside within 21 days, the company is presumed insolvent.

You can apply to wind up the company. This is not automatic — you must file an application in the Federal Court or Supreme Court. The application must be made within 6 months of the expiry of the 21-day period. If you wait longer than 6 months, you lose the presumption of insolvency and must prove insolvency by other means.

Applying to wind up the company

A winding-up application is serious. It is a public court proceeding. Once filed, it appears on the court list and is advertised in the newspaper. Other creditors may join the application. The company’s directors will be notified.

The application must be served on the company and ASIC. The company can oppose the application, but it’s difficult. The statutory demand creates a presumption of insolvency, and the company must rebut that presumption. Simply saying “we have assets” is not enough — they must show they can pay their debts as and when they fall due.

If the court makes a winding-up order, a liquidator is appointed. The liquidator takes control of the company’s assets, investigates its affairs, and distributes any remaining funds to creditors according to priority.

You may recover some or all of your debt through the liquidation. But if the company has no assets, you may recover nothing. Liquidation is expensive — the liquidator’s fees are paid first, before unsecured creditors.

What creditors should do at each stage

Days 1-7: Monitor and prepare

After serving the statutory demand, wait. Do not contact the debtor unless they reach out first. Harassment or pressure can be used against you if the matter goes to court.

Check your records. Make sure you have:

• Proof of service (affidavit of service, signed receipt, or statutory declaration)
• Copies of all invoices, contracts, and correspondence proving the debt
• Evidence the debt is not genuinely disputed

If the debtor contacts you to negotiate, listen. If they offer full payment, accept it. If they offer a payment plan or part payment, you can negotiate — but be aware that accepting part payment may weaken your position if you later proceed with winding up.

Days 8-21: Watch for an application to set aside

The debtor has until day 21 to file an application. Check the court registry or ask your solicitor to monitor filings. If an application is filed, you will be served with a copy.

If you receive an application to set aside, read it carefully. The debtor’s affidavit will set out their grounds. Consider whether:

• There is genuinely a dispute
• The defect they allege is real
• You want to oppose the application or negotiate a settlement

If the dispute is weak, you can file a responding affidavit and oppose the application. If there is a genuine dispute, it may be faster and cheaper to withdraw the demand and sue in the ordinary way.

Day 22 onwards: Decide whether to wind up

If the 21 days expire and the debtor has not paid or applied to set aside, you have the right to apply to wind up the company. But ask yourself:

• Does the company have assets worth pursuing?
• Are there other creditors who might benefit from liquidation?
• Is the debt worth the cost of a winding-up application (typically $5,000-$15,000 in legal fees)?

If the company is a shell with no assets, winding it up may be pointless. You’ll spend money on legal fees and recover nothing. In that case, it may be better to write off the debt or pursue the directors personally if they gave guarantees.

If the company has assets or you want to send a strong message to other debtors, proceed with the winding-up application. Engage a solicitor experienced in insolvency law.

Common debtor tactics

Some companies try to avoid the consequences of a statutory demand by:

• Offering part payment just before day 21 expires
• Filing a spurious application to set aside based on a fabricated dispute
• Changing their registered office to avoid service of the winding-up application
• Appointing a voluntary administrator before you can apply to wind up

These tactics can delay proceedings but rarely prevent them. Courts are familiar with debtor avoidance strategies and will scrutinise applications to set aside closely. If a dispute is obviously manufactured, the court will dismiss the application and may order the debtor to pay your costs.

If the company appoints a voluntary administrator, your winding-up application is automatically stayed. The administrator takes control and decides whether to attempt a restructure or proceed to liquidation. You become an unsecured creditor in the administration.

Final checklist

After serving a statutory demand:

• Day 1-7: Monitor for contact, prepare evidence, do not harass the debtor
• Day 8-21: Watch for an application to set aside, respond if necessary
• Day 22+: Decide whether to apply to wind up the company
• Within 6 months: File winding-up application if proceeding, or lose the presumption of insolvency

Keep detailed records at every stage. If the matter goes to court, you’ll need to prove service, the debt, and compliance with the Corporations Act 2001.

How ClaimDone helps

ClaimDone prepares Form 509H statutory demands and the supporting affidavit template for $197. You upload your invoices and evidence, and our Proprietary AI Engine drafts the demand citing the Corporations Act 2001 and verifying the debt is liquidated and undisputed.

We provide the completed Form 509H ready for service, plus an affidavit template you can swear before a JP or solicitor. We do not serve the demand or provide legal advice — but we give you the correctly formatted documents you need to start the 21-day clock.

If the debtor applies to set aside or you need to proceed with a winding-up application, engage a solicitor experienced in insolvency law. For straightforward statutory demands, prepare your statutory demand with ClaimDone and get the process started today.

Frequently Asked Questions

Can a debtor pay after the 21 days expire?

Yes, but it doesn’t stop you from applying to wind up the company. Once the 21 days expire, the presumption of insolvency arises. Even if the debtor pays after that, you can still proceed with a winding-up application if you’ve already filed it. However, courts may dismiss the application if the debt is paid before the hearing.

What if the debtor disputes the debt after receiving the statutory demand?

If there’s a genuine dispute, the debtor must apply to set aside the demand within 21 days. They cannot simply email you saying they dispute it. If they do nothing and the 21 days expire, the dispute is irrelevant — the presumption of insolvency arises and you can apply to wind up the company.

How much does it cost to wind up a company after a statutory demand?

Legal fees for a winding-up application typically range from $5,000 to $15,000, depending on whether the application is opposed. Court filing fees are around $1,300. If the company has no assets, you may not recover these costs. Consider whether the debt and potential recovery justify the expense.

Can I issue a statutory demand to an individual or sole trader?

No. Statutory demands only apply to registered companies (Pty Ltd or Ltd). For individuals, sole traders, or partnerships, use a letter of demand or final demand followed by court proceedings if necessary.

What happens if I miss the 6-month deadline to apply to wind up?

You lose the benefit of the presumption of insolvency. You can still apply to wind up the company, but you’ll need to prove insolvency by other means — such as showing the company cannot pay its debts as and when they fall due. This is harder and more expensive.