What Happens If You Ignore a Statutory Demand in Queensland

If you have received a statutory demand and done nothing, your company is now presumed insolvent. That presumption triggers winding up proceedings, director personal liability exposure, and, if a liquidator is appointed, a forensic investigation of every transaction you have made in the past four years. Ignoring a statutory demand is not a neutral act. It is the single most expensive mistake a director can make.

Why Ignoring a Statutory Demand Is Not a Strategy

Directors sometimes ignore a statutory demand because they believe the debt is wrong, because they are overwhelmed, or because they assume they can deal with it later. None of these are defences under the Corporations Act 2001 (Cth). The Act does not care why you ignored it. It cares only whether you complied within 21 days.

A statutory demand is a formal demand issued under s 459E of the Corporations Act. It requires your company to pay a debt of at least $4,000 within 21 days of service. If your company does not pay, obtain an order setting it aside, or reach a formal written arrangement with the creditor within that window, the consequences are automatic and severe.

This post is for directors and business owners who have received a statutory demand and are weighing whether to respond. The honest answer: you have no choice. Here is what happens at each stage after the 21-day clock expires.

Stage 1: The Insolvency Presumption Crystallises (Day 22)

Under s 459C(2) of the Corporations Act, a company is presumed to be unable to pay its debts, that is, insolvent, if it fails to comply with a statutory demand. This presumption arises automatically on day 22. No court order is required. No further notice is sent. The company simply becomes presumed insolvent by operation of law.

This matters because winding up law works on presumptions, not proof. To wind up a company through the court process, a creditor must demonstrate that the company is insolvent (or presumed so). The failure to comply with a statutory demand is one of the easiest ways to establish that presumption, and the one most commonly used by creditors.

Can you rebut the presumption? Yes, but it is hard. Section 459S of the Corporations Act provides that in a winding up hearing, the company cannot rely on a ground that could have been relied on to set aside the statutory demand under s 459H (genuine dispute) or s 459J (defect or abuse of process). In other words: if you ignored the demand because you thought the debt was wrong, you cannot raise that argument at the winding up hearing. The time to raise it was in the 21 days. That window is gone.

The only available ground to rebut the presumption at a winding up hearing is to produce direct evidence that the company was actually solvent on the day of the demand, evidence that must be compelling, current, and supported by financial records. Courts apply this test strictly.

Stage 2: The Winding Up Application Is Filed

Once the presumption of insolvency has crystallised, a creditor can file a winding up application in the Federal Court of Australia or the Supreme Court of Queensland. Under s 459P of the Corporations Act, a creditor is entitled to apply for winding up on the ground of insolvency. The application is supported by an affidavit stating that the statutory demand was served, the 21 days have passed, and the company has not complied.

The creditor does not need to file immediately after day 21. They have up to three months (six months in some circumstances) to file the application before the presumption of insolvency created by the statutory demand expires. In practice, most creditors instruct their lawyers to file promptly, within days or weeks of the expiry.

Once the application is filed, the company is served with the originating process. The matter is listed before the court, typically within four to six weeks. Advertising requirements apply under the Federal Court (Corporations) Rules 2000, the application must be advertised in the Government Gazette at least seven days before the hearing, giving other creditors the opportunity to appear and support or oppose the application.

At this point, the only way to stop the winding up is to pay the debt in full (plus costs), negotiate a settlement with the creditor that results in the application being withdrawn, or run a contested hearing to rebut the insolvency presumption, which, as discussed above, is extremely difficult once the statutory demand has been ignored.

Stage 3: Winding Up Order and Liquidator Appointment

If the company cannot pay the debt or negotiate a resolution, the court will make a winding up order under s 489EA of the Corporations Act. The court appoints a liquidator, typically a registered liquidator nominated by the creditor, unless the court exercises discretion to appoint another.

From the moment of appointment, the liquidator takes control of the company. The directors cease to have authority to deal with company property or act on the company’s behalf. The company’s assets are frozen. Bank accounts are transferred to the liquidator’s control. Any contracts, licences, or leases may be disclaimed by the liquidator if they are onerous.

The liquidator’s primary duty is to the creditors. Their job is to realise the company’s assets, investigate the company’s affairs, and distribute the proceeds to creditors in the order of priority set out in s 556 of the Corporations Act (employees first, then unsecured creditors, shareholders last). Directors and shareholders are the last to receive anything, and in most liquidations, they receive nothing.

Stage 4: The Liquidator’s Investigation, Four Years of Exposure

This is the stage most directors do not anticipate when they ignore a statutory demand. The liquidator is not just administering the company’s current assets. They are investigating everything the company did in the four years before the winding up order.

Under Part 5.7B of the Corporations Act, the liquidator has power to recover voidable transactions, including:

• Unfair preferences (s 588FA): Payments made to one creditor in preference to others within six months before the relation-back day (or two years if a related party) while the company was insolvent. If you paid your bank, your landlord, or a related company creditor ahead of others during the period the company was struggling, those payments may be recoverable.
• Uncommercial transactions (s 588FB): Transactions entered into in the four years before the relation-back day that a reasonable person in the company’s position would not have entered into, including undervalue asset transfers, loans to related parties, and restructuring arrangements that disadvantaged the company.
• Unfair loans (s 588FD): Loans on uncommercial terms made during the six-year period before the relation-back day.
• Creditor-defeating dispositions (s 588FDB): Asset transfers made in the 12 months before appointment of a liquidator (or two years if related) for less than market value that defeat the rights of creditors. ASIC has additional powers to investigate and recover these assets.

The liquidator can also investigate the directors personally. Under s 533, the liquidator must report to ASIC if they suspect insolvent trading, failure to keep proper financial records, or other director misconduct. That report can trigger ASIC investigations, director disqualification proceedings, and personal liability claims.

Stage 5: Director Personal Liability, Insolvent Trading Under s 588G

The most personally devastating consequence of ignoring a statutory demand is the exposure it creates for insolvent trading liability under s 588G of the Corporations Act.

Section 588G makes a director personally liable for debts incurred by the company while it was insolvent if the director knew, or a reasonable person in their position ought to have known, that the company was insolvent at the time the debt was incurred. The critical question is: when did the company become insolvent?

If the company failed to comply with a statutory demand, it was presumed insolvent from day 22. Under s 459C(2), that presumption applies in any court proceedings about the company. If debts were incurred after that date, trade creditor accounts, employment liabilities, ATO obligations, rent, those debts may have been incurred while the company was (presumed) insolvent.

Insolvent trading liability does not require criminal intent. It is a civil liability. The liquidator, or a creditor with the liquidator’s written consent, can bring a compensation claim against the director personally for the amount of the unsecured debts incurred while the company was insolvent. There are defences, illness, reliance on a competent adviser, all reasonable steps, but they are difficult to establish once the company has been trading for months after a statutory demand was ignored.

The ATO adds a further layer. If the company had unpaid PAYG withholding, superannuation guarantee charges, or (from 1 July 2026) unpaid SGC under the Payday Super regime, the ATO can issue Director Penalty Notices making the director personally liable for those amounts, independently of the liquidation. These are lockdown DPNs in most cases, meaning payment, voluntary administration, or appointing a liquidator are the only responses. By the time the winding up order is made, the DPN window has often already closed.

What If the Debt Is Genuinely Disputed?

This is the most common situation. Directors often ignore a statutory demand because they believe the debt is wrong, the amount is disputed, the invoice was never authorised, the work was defective, or there is an offsetting claim. The instinct is understandable but legally catastrophic.

Under s 459H of the Corporations Act, a company can apply to the court to set aside a statutory demand on the ground that there is a genuine dispute about the debt. The standard is not high, the company must show that there is a plausible contention requiring investigation, not that the dispute will succeed at trial. Courts apply this test generously to companies.

But the application must be filed within 21 days of service of the demand. This deadline is absolute. The High Court confirmed in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9 that courts have no power to extend time for a set-aside application. An application filed on day 22, even by one day, will fail regardless of how strong the underlying dispute is.

If you receive a statutory demand for a debt you dispute, the only safe path is to instruct a commercial lawyer immediately, not after you have thought about it for a week, not after you have spoken to your accountant. Immediately. You have 21 days and that clock starts on the day of service, not the day you decide to take it seriously.

What If the Statutory Demand Is Defective?

Statutory demands must strictly comply with the requirements of s 459E and the Corporations Regulations 2001. Common defects include:

• The demand is not in the prescribed form (Form 509H under the Corporations Regulations)
• The debt is not properly identified or the amount is overstated
• The demand was not accompanied by the affidavit verifying the debt (if required)
• The demand was served incorrectly, not at the registered office, not served on a director, or not served in accordance with s 109X
• The demand includes contingent debts or debts subject to conditions that have not been met

Under s 459J, a court can set aside a statutory demand if it contains a defect that would cause substantial injustice, or if there is some other reason why it should be set aside. Again, this application must be filed within 21 days. A defective demand cannot be ignored, the defect must be raised in court within the 21-day window, or the right to rely on it is lost.

The Practical Reality: What Happens Day by Day

To make this concrete, here is what the timeline looks like for a company that ignores a statutory demand for a $50,000 debt:

Day 0: Statutory demand served at the company’s registered office. The 21-day clock starts.

Day 1-21: The company has three options, pay the debt, apply to set it aside (if there is a genuine dispute or defect), or negotiate a formal arrangement with the creditor. All must be completed by day 21.

Day 22: Company is presumed insolvent under s 459C(2). The presumption crystallises automatically.

Day 22-90: Creditor instructs lawyers to prepare and file a winding up application. Application is filed in Federal Court or Supreme Court of Queensland. Company is served with originating process.

Day 90-150 (approximately): Winding up hearing. Company must pay in full, negotiate a resolution, or argue against the winding up order. Without compelling evidence of solvency, the court makes the winding up order.

Day of winding up order: Liquidator appointed. Directors lose authority. Company assets frozen. All contracts and leases subject to liquidator’s control.

Weeks 1-4 post-appointment: Liquidator takes control of accounts, reviews company books, and begins investigating transactions. Directors required to provide books and records (s 530A). Failure to do so is a criminal offence.

Months 1-18 post-appointment: Liquidator pursues voidable transaction recoveries, files ASIC report if misconduct suspected, pursues insolvent trading claims against directors.

What Can You Still Do After Day 21?

If the 21-day window has passed, you have not lost all options. But the options are far more expensive and far less certain:

Pay the debt in full: If you can pay the debt, including the creditor’s legal costs of issuing the demand and filing the winding up application, the creditor may withdraw the application. This is the cleanest resolution, but the creditor is not obliged to accept payment once proceedings have been filed. They may seek the full costs of the litigation before they agree to withdraw.

Voluntary administration: Appointing voluntary administrators under Part 5.3A of the Corporations Act immediately triggers a moratorium on the winding up application (s 440A). This can buy time to restructure the company’s affairs and execute a Deed of Company Arrangement (DOCA) that satisfies creditors. VA is not a magic bullet, the administrator must be satisfied that the company has a viable future, but it is a legitimate mechanism to halt winding up proceedings while a restructuring is negotiated.

Negotiate with the creditor: Even after a winding up application is filed, the creditor retains the right to withdraw the application if a satisfactory resolution is reached. A creditor who does not want a liquidation, because they believe there are recoverable assets or an ongoing trading relationship to preserve, may be willing to agree to a payment plan or settlement. An experienced commercial lawyer can often negotiate a withdrawal even after proceedings have commenced, in exchange for full payment plus costs.

Contest the winding up: As discussed, this is the hardest path once a statutory demand has been ignored. The s 459S restriction means you cannot reopen the underlying dispute. The only viable ground is to demonstrate actual solvency, producing audited accounts, cash flow projections, and evidence of available credit. Courts require compelling evidence. This is expensive, uncertain, and rarely succeeds unless the company genuinely has strong assets and cash flow.

A Note on Director Penalty Notices and Statutory Demands

One nuance that many directors miss: the ATO can issue a statutory demand AND a Director Penalty Notice for the same underlying unpaid tax debt. These are separate enforcement tools. A statutory demand attacks the company. A DPN attacks the director personally.

Ignoring a statutory demand from the ATO does not eliminate DPN exposure, it compounds it. If the company is wound up for failing to comply with an ATO statutory demand, the liquidator’s investigation will almost certainly identify unpaid PAYG withholding and SGC liabilities, which will then crystallise as lockdown DPN exposure for every director on the register during the relevant periods.

From 1 July 2026, the Payday Super regime means directors now have 52 SGC reporting windows per year, one per weekly pay cycle, each of which is an independent DPN trigger. The interaction between statutory demand exposure, insolvent trading liability, and DPN personal liability is the most acute personal risk profile a director can face. It requires immediate legal advice, not a wait-and-see approach.

The Creditor Perspective: Why Statutory Demands Work

Understanding why creditors use statutory demands, and why they work, helps explain why ignoring one is so dangerous.

For a creditor owed a debt, a statutory demand is the single most cost-effective enforcement tool in Australian law. It costs approximately $1,200-$2,500 in legal fees to issue. It creates a presumption of insolvency without requiring a court hearing. It shifts the burden entirely to the debtor company, the company must act or face automatic consequences. And it creates a filing platform for a winding up application that, once advertised, can attract other creditors to pile in.

Sophisticated creditors, and the ATO is the most sophisticated of all, know exactly how this plays out. They issue the demand, wait 21 days, file the winding up application, advertise it, and then wait for payment. In most cases, payment comes before the hearing because directors finally realise what is at stake. The creditor has done very little work and recovered the full debt plus costs.

For the company that ignored the demand, the cost of resolution has now risen dramatically. What began as a $50,000 debt has become a $50,000 debt plus the creditor’s legal costs (typically $3,000-$8,000 for the winding up application), plus the company’s own legal costs in responding, plus the potential costs of appointing voluntary administrators if that path is chosen.

Practical Steps If You Have Received a Statutory Demand

If you have received a statutory demand today, or if the 21 days are still running, here is what to do:

1. Confirm the date of service immediately. Count 21 days from service. Note the exact deadline. Service is on the day the demand was left at the registered office or delivered, not the day you became aware of it.
2. Instruct a commercial lawyer today. Not your accountant. Not your bookkeeper. A commercial litigation lawyer who understands statutory demands and the Corporations Act. You may have a dispute, a set-aside application, or a settlement negotiation, all require legal advice within the 21-day window.
3. Assess the debt. Is it genuinely owed? Is there a genuine dispute? Is there an offsetting claim? Is the demand defective? Your lawyer needs to know the answer to all of these questions on day one, not day 18.
4. Check the demand for defects. Is it in the prescribed form? Is the amount correct? Was it served correctly? Was it accompanied by an affidavit where one was required? Defects must be raised in court within 21 days or they are waived.
5. Consider your solvency position. Can the company pay the debt? Are there other outstanding creditors? Is the company already insolvent on the cash flow test (s 95A)? If yes, the statutory demand is a symptom of a larger problem that requires broader advice, voluntary administration may be the appropriate response.
6. Do not make preferential payments. If the company is insolvent, every payment you make in preference to other creditors in the six months before winding up is potentially a voidable preference under s 588FA. Do not rush to pay one creditor, pay off employees first, understand the priority order, and take advice before making payments.

FAQ: Ignoring a Statutory Demand in Queensland

What happens if a company ignores a statutory demand in Queensland?

If a company does not pay the debt, obtain a court order setting aside the demand, or reach a formal arrangement with the creditor within 21 days of service, the company is presumed insolvent under s 459C(2) of the Corporations Act 2001 (Cth). The creditor can then apply to wind up the company. Directors also face personal liability for insolvent trading under s 588G for any debts incurred while the company was insolvent.

Can I dispute the debt after the 21 days have passed?

No. Under s 459S, a company cannot rely on dispute grounds at a winding up hearing that could have been used to set aside the demand within 21 days. That right is permanently lost once the window closes. The High Court confirmed in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9 that courts have no power to extend the 21-day deadline.

How long does a creditor have to file a winding up application after the statutory demand expires?

The presumption of insolvency created by a failed statutory demand lasts three months (s 459C(2)). The creditor must file the winding up application within that window. Most file within weeks of the expiry.

Can voluntary administration stop a winding up application?

Yes. Appointing voluntary administrators under Part 5.3A triggers an automatic stay on winding up proceedings under s 440A. This buys time to negotiate a Deed of Company Arrangement (DOCA). However, the stay can be lifted by court order, and if the VA process fails, the winding up resumes.

Are directors personally liable if a company ignores a statutory demand?

Directors can face personal liability in two independent ways: insolvent trading under s 588G (for debts incurred while the company was insolvent), and Director Penalty Notices under Div 269 TAA 1953 for unpaid PAYG withholding and superannuation. These mechanisms operate independently of the liquidation and can result in personal liability that survives the company’s winding up.

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

If you have received a statutory demand, or the 21 days are running, contact Mark Harley at Boss Lawyers now: 1300 267 711. Every day without legal advice narrows your options.

Related services: insolvency lawyers Brisbane.