Statutory Demand for a Disputed Debt: Can You Still Use One in Queensland?

A statutory demand is one of the most powerful debt recovery tools available to Queensland creditors — but issuing one against a debtor who disputes the debt is a gamble that can backfire. Under section 459E of the Corporations Act 2001 (Cth), any creditor owed $4,000 or more by a company can issue a statutory demand. There is no requirement for the debt to be undisputed before you serve it. But under section 459H, a debtor can apply to have the demand set aside if there is a genuine dispute about the debt — and the bar for establishing a genuine dispute is deliberately low. This article explains when it makes sense to issue a statutory demand for a disputed debt in Queensland, when it does not, and what alternatives are available.

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

What Is a Statutory Demand?

A statutory demand is a formal written demand issued by a creditor to a company debtor under section 459E of the Corporations Act 2001 (Cth). Once a statutory demand is served, the company has 21 days to either pay the debt in full (or negotiate an agreement with the creditor) or apply to the court to have the demand set aside.

If the company does neither within 21 days, it is deemed under section 459C to be unable to pay its debts as they fall due. That statutory presumption of insolvency allows the creditor to apply to wind up the company — a step that is often enough to bring even reluctant debtors to the negotiating table quickly.

The minimum debt threshold is $4,000 (raised from $2,000 in July 2021 under the Corporations (Statutory Demand Threshold Amount) Regulations 2021). The demand must identify the debt, state the total amount, and be accompanied by an affidavit verifying the debt is due and payable.

Can You Issue a Statutory Demand for a Disputed Debt?

Yes — there is no legal rule preventing a creditor from issuing a statutory demand for a debt the other party disputes. The Corporations Act does not require a prior judgment or a pre-demand finding that the debt is undisputed. You can serve a demand the moment a debt is due and payable and meets the $4,000 threshold, regardless of whether the debtor agrees they owe the money.

However, the existence of a genuine dispute gives the debtor a powerful defence. Under section 459H(1)(a), a court must set aside a statutory demand if it is satisfied there is a genuine dispute between the company and the creditor about the existence or amount of the debt. The question is not whether the dispute is likely to succeed — only whether it is genuine as opposed to spurious or a delaying tactic.

The Genuine Dispute Test: A Low Bar for Debtors

The leading Australian authority on the genuine dispute threshold makes clear that courts do not conduct a full inquiry on the merits when deciding whether to set aside a statutory demand. The test from Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, followed consistently across Australian jurisdictions, is that a genuine dispute is one that is not plainly vexatious or frivolous. That is a very low bar.

In practice, a debtor successfully establishes a genuine dispute by showing:

• There is a bona fide contention on the merits — not just a bare denial of owing the money;
• The dispute goes to the existence or amount of the debt — not merely the timing or manner of payment;
• The dispute was raised at or before the time of the set aside application, not invented for the purpose of avoiding the demand.

Queensland and Federal courts have set aside statutory demands where debtors raised disputes about: whether goods or services were delivered to the agreed specification; whether a condition precedent to payment had been satisfied; whether an oral variation to a written contract was agreed; whether the invoiced amounts were correctly calculated; and whether a subsequent agreement had superseded the original obligation. None of those disputes needed to succeed on the merits. The debtor only needed to show they were genuinely held.

Offsetting Claims: A Second Ground for Setting Aside

Even where the debt itself is undisputed, a statutory demand can be set aside if the debtor has an offsetting claim under section 459H(1)(b) of the Corporations Act. An offsetting claim is a cross claim or counterclaim against the creditor that, if established, would reduce or extinguish the debt.

An offsetting claim can arise from:

• A claim for breach of contract (for example, the debtor contends your work was defective);
• A claim for damages arising from the same transaction;
• A statutory right to reduce the amount payable;
• Any claim in equity that could reduce the net amount owed.

The offsetting claim must be quantified and must be genuine in the same sense as a genuine dispute. If the aggregate of the offsetting claim reduces the admitted debt below $4,000, the court must set the demand aside entirely. If it reduces it but leaves more than $4,000 owing, the court may reduce the demand amount rather than setting it aside in full.

What Happens If the Demand Is Set Aside?

If a court sets aside your statutory demand, several consequences flow:

• Costs against you. Courts routinely award costs in favour of the successful applicant (the debtor). Depending on complexity, legal costs can range from $5,000 to $15,000 or more on an indemnity basis.
• No presumption of insolvency. The debtor is no longer deemed insolvent based on the failed demand. You cannot proceed to wind up the company on that ground.
• Weakened negotiating position. A failed demand signals to the debtor that they can defend through a relatively cheap court application. This can harden their position.
• Significant delay. An application to set aside typically takes four to eight weeks to be heard. If it succeeds, you have spent two to three months achieving no recovery.

When a Statutory Demand Makes Sense Despite a Dispute

Issuing a statutory demand for a disputed debt can still be tactically sound in specific circumstances:

• The dispute is weak or pretextual. If the debtor’s dispute is clearly manufactured — raised months after delivery with no contemporaneous evidence, inconsistent with prior correspondence, or contradicted by the debtor’s own documents — the demand may survive. Courts do not set aside demands on the basis of weak or invented disputes.
• Commercial pressure is the primary goal. Even a demand that gets set aside forces the debtor to engage lawyers and spend money. In some situations a creditor deliberately accepts the risk of the demand being challenged, because the process itself accelerates settlement.
• The debtor is near insolvency. If the debtor company is showing signs of financial distress — unpaid suppliers, ATO debt, missed payments — a statutory demand forces a crisis point. Waiting for court proceedings to resolve risks the creditor receiving nothing if the company collapses before judgment.
• The debt is partially disputed. If the debtor agrees they owe a portion of the debt but disputes the exact amount, you can issue a demand for the undisputed portion. This isolates the undisputed sum and focuses negotiation on the residual figure.

When Court Proceedings Are the Better Option

For genuinely contested debts — where the merits are real and the debtor has a credible defence — initiating court proceedings is usually the stronger strategy. Court proceedings allow you to:

• Obtain discovery of documents that prove the debt;
• Obtain summary judgment if the debtor’s defence has no real prospect of success;
• Apply for interlocutory orders (including freezing orders) if asset dissipation is a concern;
• Enforce a court judgment through garnishee orders, charging orders, and other mechanisms.

Critically, a court judgment for a debt eliminates the genuine dispute problem entirely. Once you hold a judgment, issuing a subsequent statutory demand is generally straightforward — a debtor cannot dispute a liquidated judgment debt in the same way they can dispute an invoice.

Our debt recovery lawyers Brisbane can assess whether a statutory demand or court proceedings is the right first step for your situation and advise on the optimal sequencing of both.

The Decision Framework: Statutory Demand vs Court Proceedings

• Use a statutory demand when: The debt is substantially undisputed; the debtor is showing financial distress; or you want to apply immediate commercial pressure with a short timeline.
• Use court proceedings when: The debt is genuinely contested on the merits; the debtor has a credible offsetting claim; or you need discovery of documents to prove your position.
• Use both in sequence when: You believe the dispute is a delaying tactic — issue the demand to create urgency, and simultaneously commence proceedings so litigation is progressing even if the demand is ultimately set aside.

Boss Lawyers’ commercial litigation lawyers Brisbane regularly advise creditors on exactly this sequencing decision. The right answer depends on the strength of the dispute, the debtor’s financial position, and the amount at stake.

Frequently Asked Questions

Can a creditor issue a statutory demand without a court judgment?

Yes. Section 459E of the Corporations Act 2001 (Cth) allows any creditor to issue a statutory demand for a debt that is due and payable and is at least $4,000. No prior court judgment is required. However, a judgment creditor is in a stronger position because the judgment debt cannot easily be the subject of a genuine dispute application.

How long does a debtor have to apply to set aside a statutory demand?

Under section 459G of the Corporations Act 2001 (Cth), a company must apply to the court to set aside the demand within 21 days of service. This deadline is absolute — courts have no discretion to extend it, even in cases of genuine hardship. Missing the 21 day window ends the company’s right to challenge the demand.

What is the minimum debt amount for a statutory demand in 2026?

The minimum threshold is $4,000, as set by the Corporations (Statutory Demand Threshold Amount) Regulations 2021 which took effect in July 2021. Debts below this threshold cannot support a statutory demand regardless of how clear the debt is.

Can a statutory demand be issued against an individual rather than a company?

No. Statutory demands under the Corporations Act apply only to companies registered under the Act. For debts owed by individuals — sole traders or personal guarantors — the equivalent tool is a bankruptcy notice under the Bankruptcy Act 1966 (Cth). Boss Lawyers advises on both corporate and personal debt enforcement strategies.

If the debt amount is partly disputed, can I issue a demand for the undisputed portion?

Yes. If the total amount includes an undisputed portion that equals or exceeds $4,000, you can issue a statutory demand for that amount alone. This effectively quarantines the undisputed sum and removes it from the dispute. The debtor can still apply to set aside even this partial demand if they have a genuine dispute about the undisputed amount, but the practical effect is often to focus negotiations on the contested residual.

About the author: This article was written by Mark Harley, Principal Solicitor at Boss Lawyers. Mark has over 17 years of experience in commercial litigation and insolvency, regularly acting for creditors and debtors in statutory demand proceedings in the Queensland Supreme Court and the Federal Court of Australia.

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