What is a statutory demand?

Section 459E of the Corporations Act 2001 allows a creditor to serve a statutory demand for a due and payable company debt that meets the statutory minimum. The prescribed minimum is currently $4,000.

The 21-day compliance period

The demand requires the company to pay, secure or compound for the debt to the creditor’s reasonable satisfaction within 21 days after service. The statutory timeframe is short and should be treated as urgent from the day the document is received.

Application to set aside

A company may apply to the court to set aside a demand. The application and supporting affidavit are subject to strict statutory timing and service requirements. Waiting until the last days can make otherwise arguable grounds practically impossible to prepare properly.

Genuine dispute

A statutory demand is not the forum for finally deciding a genuinely disputed debt. If there is a genuine dispute about the existence or amount of the debt, that can support a set-aside application under the statutory regime.

Offsetting claim

A debtor company may also rely on a genuine offsetting claim against the creditor. The nature and amount of the claim should be supported by evidence rather than asserted as a tactical response after service.

Defects and other grounds

Material defects or other statutory grounds can also be relevant. The demand, affidavit (where required), service and identification of the debt should all be reviewed immediately.

What happens if the company does nothing?

Failure to comply can give rise to a statutory presumption of insolvency for a later winding-up application. That shifts the dispute into a much more serious insolvency context.

For creditors: do not use it as improper pressure

Before serving a demand, assess whether the debt is genuinely disputed, whether there is an offsetting claim and whether winding up is actually a rational recovery path. If the company has no recoverable assets, winning the insolvency point may not produce payment.

Immediate checklist for a recipient

  • Record the exact date and method of service.
  • Send the demand and all underlying invoices/contracts to a lawyer immediately.
  • Identify every dispute and counterclaim that existed before service.
  • Preserve relevant documents and emails.
  • Do not assume negotiations extend the statutory deadline.

Official resources

Important: This article is general information only and is not legal, tax, financial or accounting advice. The legal outcome can depend on the documents, dates and facts. Obtain advice about your circumstances before acting, particularly where a statutory deadline applies.