Recovering a Debt Using Statutory Demands: How the Process Works

To issue a statutory demand in Australia, a creditor must prepare the demand in the prescribed Form 509H under the Corporations Act 2001 (Cth), attach a supporting affidavit verifying the debt (unless it is a judgment debt), and serve it on the debtor company at its registered office. The debt must be at least $4,000 and must not be genuinely disputed. If the company fails to comply within 21 days, the creditor can apply to wind up the company on the grounds of insolvency.

The Scenario

A common situation arises when a Queensland business is owed a significant debt — say $150,000 — by another company. Invoices have been issued, reminders sent, and phone calls made, but the debtor company continues to delay payment or ignore correspondence altogether. The creditor has a clear, undisputed debt and wants to know the most effective way to compel payment without the cost and delay of full litigation.

In situations like this, a statutory demand can be one of the most powerful tools available to a creditor.

The Legal Framework

What Is a Statutory Demand?

A statutory demand is a formal written demand served on a company under section 459E of the Corporations Act 2001 (Cth), requiring the company to pay an undisputed debt (or secure or compound it to the creditor’s satisfaction) within 21 days.

The debt must be at least $4,000 (the current statutory minimum). The demand must:

• Be in the prescribed form (Form 509H)
• Specify the debt and its amount
• Require the company to pay, secure, or compound the debt within 21 days
• Be accompanied by an affidavit verifying the debt (if the debt is not a judgment debt)

The Presumption of Insolvency

The real power of a statutory demand lies in section 459C(2)(a). If a company fails to comply with a statutory demand within 21 days, and does not successfully apply to set it aside, the company is presumed to be insolvent. This presumption allows the creditor to file a winding up application — an application to have the company placed into liquidation.

For most companies, the threat of winding up proceedings is a powerful motivator to pay.

Setting Aside a Statutory Demand

Under section 459G, a company can apply to the court to set aside a statutory demand within 21 days of service. Grounds include:

• A genuine dispute about the existence or amount of the debt
• The company has an offsetting claim against the creditor
• A defect in the demand that would cause substantial injustice if not set aside

The 21-day deadline to apply to set aside is strict and cannot be extended — even by agreement between the parties or by the court. This was confirmed by the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265.

How It Typically Unfolds

1. Confirm the debt is undisputed — a statutory demand should only be used for debts that are clear and not genuinely in dispute. Using it for a disputed debt will likely result in it being set aside, with costs awarded against the creditor
2. Prepare the statutory demand — the demand must comply strictly with the prescribed form and be accompanied by a supporting affidavit
3. Serve the demand — service must be effected on the company at its registered office. Proper service is critical
4. Wait 21 days — the debtor company has 21 days to pay, apply to set aside, or negotiate
5. If the demand is not complied with — the creditor can file a winding up application in the Federal Court or Supreme Court within 3 months of the demand expiring
6. Winding up hearing — if the company cannot rebut the presumption of insolvency, the court may order that the company be wound up and appoint a liquidator

Key Takeaways

• Statutory demands are not for disputed debts. If there is a genuine dispute about the debt, the demand will be set aside and you may be ordered to pay the company’s legal costs
• Precision matters. Errors in the demand, the affidavit, or service can be fatal. Strict compliance with the Corporations Act is essential
• The 21-day deadline is absolute. If a company receives a statutory demand and wants to challenge it, it must file and serve its application within 21 days — no exceptions
• It’s a tool, not a weapon. Courts take a dim view of statutory demands used as a pressure tactic for genuinely disputed debts. The demand must be used appropriately
• Consider the end game. A statutory demand is most effective when the debtor has the means to pay but chooses not to. If the company is genuinely insolvent, winding it up may not recover much

When to Seek Legal Advice

Whether you are a creditor considering issuing a statutory demand or a company that has received one, legal advice is critical. The strict timeframes and technical requirements mean that errors can be costly.

For guidance on statutory demands and debt recovery, visit Boss Lawyers — Debt Recovery or call 1300 267 711.

This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.

If you are facing an insolvency issue as a director, creditor, or business owner, Boss Lawyers can help. We regularly act in insolvency matters across Brisbane and Queensland, including voluntary administration, liquidation, and director liability claims. Contact us on 1300 267 711.