How to Set Aside a Statutory Demand in Queensland: Grounds, Process and Tactics

An application to set aside a statutory demand in Queensland must be filed in the Supreme Court of Queensland within 21 days of service. This deadline is absolute, no extension is possible under any circumstances. Grounds include a genuine dispute about the existence or amount of the debt (s 459H Corporations Act 2001 (Cth)), an offsetting claim equal to or exceeding the demand, or a defect in the demand causing substantial injustice (s 459J). Acting immediately is not optional, the 21-day clock starts running from the moment the demand is served, not from when you read it.

What Is a Statutory Demand?

A statutory demand is a formal written notice issued under s 459E of the Corporations Act 2001 (Cth) by a creditor to a company, demanding payment of a debt of at least $4,000. The demand must be in the prescribed form, specify the amount of the debt, and be accompanied by an affidavit verifying that the debt is due and payable.

Statutory demands are not court orders, they are a pre-litigation mechanism that creates a presumption of insolvency if the company fails to respond. That presumption is what makes them so powerful: a creditor who serves a statutory demand and waits out the 21 days without a response can then apply to the court to wind up the company based on the company’s deemed inability to pay its debts.

The minimum debt threshold of $4,000 means statutory demands are routinely used for relatively modest commercial disputes. Many companies receive demands for unpaid invoices, disputed progress claims, or loan repayments. The low threshold combined with the drastic consequence, potential winding up, makes understanding your response options critical.

Under s 459F of the Corporations Act, if a company does not comply with a statutory demand within 21 days, it is presumed to be unable to pay its debts. That presumption feeds directly into winding up proceedings under s 459C(2). The creditor does not need to prove insolvency independently, the failure to comply with the demand creates the presumption.

If you have received a statutory demand, see our guide on what happens if you ignore a statutory demand in Queensland for the full consequences of inaction. Our article on how to issue a statutory demand in Queensland covers the creditor’s side of the process.

The 21-Day Rule: Why It Is the Most Dangerous Deadline in Corporate Law

Section 459G of the Corporations Act sets a single, non-negotiable requirement: an application to set aside a statutory demand must be made within 21 days after the demand is served. No court, not the Supreme Court of Queensland, not the Federal Court, not the High Court, has the power to extend this deadline.

The High Court of Australia confirmed the absolute nature of this deadline in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43. The High Court held that the 21-day period in s 459G is a jurisdiction-conferring provision, the court simply has no power to hear an application filed outside that window. It does not matter how good your grounds are. It does not matter whether you had legal advice. It does not matter if the demand was served on a public holiday or if you were overseas. The deadline is absolute.

The 21 days run from the date of service, not the date you first read the demand. If a statutory demand is left at your registered office on a Monday and you don’t find it until Thursday, the 21-day clock started on Monday. This is a trap that catches company officers who assume time starts when they become aware of the document.

What Happens If You Miss the Deadline?

Under s 459F, failure to comply with a statutory demand within 21 days means the company is presumed insolvent. The creditor can then file a winding up application in the Federal Court or Supreme Court.

The trap that most directors do not know about is s 459S. If the company is served with a winding up application and tries to oppose it on the grounds that there was a genuine dispute about the debt, but had not previously applied to set aside the demand, the court will not hear that argument. Section 459S operates as a complete bar: you cannot use a ground available under s 459H or s 459J to oppose a winding up application if you failed to apply to set aside the demand in time.

In other words, missing the 21-day deadline does not just mean you cannot set aside the demand. It means you lose the right to argue the merits of the debt entirely. If a winding up application follows, your only remaining defence is to prove the company is solvent, a much harder task.

This is why the 21-day deadline is, in practice, the most consequential deadline in Australian corporate law. The stakes, the survival of your company, make it essential to treat the day of service as Day 1 of a countdown that cannot be paused.

Ground 1: Genuine Dispute About the Debt (s 459H(1)(a))

The most commonly argued ground for setting aside a statutory demand is that there is a genuine dispute about the existence or amount of the debt. This ground is available under s 459H(1)(a) of the Corporations Act.

The “Plausible Contention” Test

The threshold for establishing a genuine dispute is deliberately low. The court is not asked to resolve who is right about the debt, it is only asked whether there is a genuine dispute at all. The leading statement of the test comes from Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669, where McLelland CJ in Eq described a genuine dispute as requiring a plausible contention requiring investigation. The dispute must be real, not merely asserted. But the bar is low: the applicant does not need to prove on the balance of probabilities that the debt is not owed. A solid, commercially reasonable argument that the debt is disputed is enough.

Courts will not conduct a mini-trial of the underlying dispute in a set-aside application. The question is whether the dispute meets the plausible contention threshold, not which party has the stronger case.

What Qualifies as a Genuine Dispute

A genuine dispute can arise from a wide range of circumstances:

• Disputed invoices, the work was not performed, was defective, or the invoice amount does not match what was agreed
• Contract breach by the creditor, the creditor’s own failure to perform provides a defence to payment
• Disputed quantum, the parties agree money is owed but not how much (for example, an invoice for time-and-materials where the hours are disputed)
• Disputed terms, the parties disagree about whether a debt is due and payable at all (for example, a disputed milestone condition)
• Defective goods or services, the company has a genuine claim that what was delivered did not meet specification
• Assignment disputes, whether the creditor has a valid right to demand payment (for example, whether a debt was validly assigned to the demanding party)

What Does Not Qualify

Courts are alert to manufactured disputes. The following will not establish a genuine dispute:

• A bare assertion that the debt is disputed, without any supporting facts
• “I don’t have the money”, financial difficulty is not a dispute about the debt’s existence
• A dispute that was never raised with the creditor before the demand was served (not automatically disqualifying, but significantly weakens credibility)
• A dispute the company knew about but failed to act on for years before the demand arrived

The affidavit supporting your application must set out the facts of the dispute with precision and specificity. Vague denials will not work. Documentary evidence, emails, contracts, invoices with notations, expert reports, significantly strengthens the application.

Ground 2: Offsetting Claim (s 459H(1)(b))

Even if you cannot dispute the existence of the debt itself, you may be able to set aside the demand, or reduce the amount, if you have an offsetting claim. Under s 459H(1)(b) of the Corporations Act, an offsetting claim is a genuine counterclaim, set-off, or cross-demand that the company has against the creditor.

How Courts Assess Offsetting Claims

The value of the offsetting claim must equal or exceed the amount of the statutory demand for the demand to be set aside in full. If the offsetting claim is less than the demand amount, the court may reduce (but not set aside) the demand to the amount by which the demand exceeds the offsetting claim.

Like the genuine dispute ground, the threshold for an offsetting claim is whether it is genuine, not whether it will succeed at trial. The court applies the same plausible contention standard: is the cross-claim real, commercially credible, and supported by facts?

Examples of Offsetting Claims

• Damages for breach of contract, the creditor breached the underlying contract and the company has a damages claim arising from that breach
• Misleading conduct counterclaim, the creditor made representations that induced the company to enter the contract, and those representations were false or misleading under the Australian Consumer Law
• Negligence claim, the creditor’s defective workmanship caused loss to the company
• Unliquidated damages, claims that cannot be precisely quantified but have a genuine basis and an arguable amount exceeding the demand

One important limitation: the offsetting claim must be a claim the company holds against the creditor who served the demand, not a claim against a third party. The nexus between the demand and the counterclaim must be direct.

Courts have also required that the offsetting claim be more than speculative. A claim that depends on facts not yet established, or that requires significant further investigation to even quantify, may not meet the threshold, particularly if the quantum appears inflated.

Ground 3: Defect Causing Substantial Injustice (s 459J)

Section 459J provides a court with the power to set aside a statutory demand on two additional grounds: (a) a defect in the demand causing substantial injustice if it is not set aside, or (b) some other reason the court considers it ought to be set aside.

What Constitutes a Defect

A defect under s 459J includes formal errors in the demand itself or in the accompanying affidavit. Common examples include:

• Wrong company name, the demand identifies the wrong entity, particularly where related companies are involved
• Incorrect amount, the demand states a figure that does not match the creditor’s own records or supporting documents
• No affidavit, s 459E requires an affidavit verifying the debt; a demand served without one is defective
• Wrong form, the demand is not in the form prescribed by the Corporations Regulations
• Insufficient description of the debt, the demand does not adequately describe the nature and circumstances of the debt, making it impossible for the company to identify which obligation is being demanded
• Stale affidavit, the accompanying affidavit was sworn too long before service, calling into question whether the debt was due and payable at the date of service

The “Substantial Injustice” Threshold

Not every defect will result in the demand being set aside. The Corporations Act explicitly states that a demand is not invalidated merely because of a defect, the court must be satisfied that there is substantial injustice if the defect is not remedied by setting aside the demand.

This threshold requires the company to show that the defect caused real harm: that it was misled about the amount, confused about which entity was demanding payment, or unable to properly assess its position because of the formal error. A technical defect that caused no practical prejudice to the company is unlikely to meet the substantial injustice threshold.

The lesson for applicants: a defect-based ground is worth running when the defect goes to the substance of the demand, wrong entity, wrong amount, or no proper affidavit. It is less likely to succeed where the defect is cosmetic and the company clearly understood what was being demanded and why.

Ground 4: Other Reason the Court Thinks It Should Be Set Aside (s 459J(1)(b))

Section 459J(1)(b) gives the court a residual discretion to set aside a statutory demand for “some other reason.” This is a broad, catch-all ground, but courts exercise it sparingly. It is not a back door for applicants who cannot establish any of the other grounds.

Situations where the residual discretion has been exercised include:

• Unconscionable conduct by the creditor, the demand was issued in circumstances that were oppressive or unconscionable, designed to extract payment rather than vindicate a genuine debt
• The creditor’s own breach, the creditor’s conduct gave rise to an expectation that the debt would not be demanded in this way or at this time
• Abuse of process, the demand was used as a pressure tactic in circumstances where the creditor knows there is a genuine dispute

Successfully invoking s 459J(1)(b) without also relying on a defect or genuine dispute is rare. Courts are reluctant to use this ground to circumvent the statutory scheme, particularly where the company’s real problem is that it cannot pay, not that the demand is unfair. However, where the creditor’s conduct has been genuinely oppressive, this ground may provide a further basis to support an application that already has merit on other grounds.

The Court Process in Queensland

An application to set aside a statutory demand in Queensland is filed in the Supreme Court of Queensland. The application is made by originating process under the Corporations Act 2001 (Cth) and the Uniform Civil Procedure Rules 1999 (Qld).

What You Need to File

Two documents must be filed within the 21-day period:

1. The application, identifying the applicant (the company), the respondent (the creditor), and the demand being challenged
2. A supporting affidavit, sworn by a director or company officer, setting out the factual basis for the grounds on which the application is made

The affidavit is the most important document in the set-aside application. It must be specific, detailed, and supported by documentary evidence wherever possible. An affidavit that makes broad assertions without supporting facts will rarely be sufficient. Courts expect to see contracts, invoices, correspondence, meeting notes, and any other documents that establish the genuine dispute or offsetting claim.

Critically, both the application and the affidavit must be filed with the court and served on the creditor within the 21-day period. Filing alone is not enough, service must also occur within the 21 days. This is another timing trap: companies sometimes file on day 20 but serve on day 22, which is too late.

The Interlocutory Process

Once filed and served, the application proceeds as an interlocutory matter in the Supreme Court’s corporations list. The court will set a hearing date. In most cases, the hearing will be conducted on the affidavit evidence, oral cross-examination is unusual in set-aside applications, though the court retains discretion to order it.

At the hearing, the court will assess whether the applicant has established one or more of the grounds under s 459H or s 459J. If the application succeeds, the demand is set aside. The creditor can still pursue the debt through other means, commencing proceedings in a court of competent jurisdiction, but loses the ability to use the demand as the basis for a winding up application.

Costs

In the majority of successful set-aside applications, the court awards costs in favour of the applicant. The creditor who served a demand that is then set aside for a genuine dispute will ordinarily be ordered to pay the company’s costs of the application. This is an important tactical consideration: a well-founded set-aside application not only eliminates the winding up threat but recovers the legal costs of doing so.

Where a company pursues a set-aside application on weak grounds and loses, costs will follow the event against the company. This reinforces the importance of an honest early assessment of the strength of the grounds before committing to litigation.

For complex set-aside applications involving Supreme Court litigation, see our litigation lawyers Brisbane page for information on how Boss Lawyers approaches contested commercial litigation in Queensland.

Tactics: What Makes a Strong Set-Aside Application

Knowing the legal grounds is necessary. Executing the application well is what wins. Here is how strong set-aside applications are built.

File on Day One or Two, Not Day 20

The most common tactical mistake is waiting. Directors who receive a statutory demand often spend the first week negotiating, the second week seeking advice, and the third week scrambling to file. Filing on day 20 gives you zero margin for error and no time to fix defects in the application before the deadline expires.

Filing early creates time to: identify all available grounds, gather documentary evidence, prepare a detailed affidavit, serve the creditor properly, and assess whether a negotiated resolution is possible while the application is on foot.

An early filing also signals to the creditor that the company is represented and serious. Creditors who hoped for an unanswered demand often reassess their position when they receive a properly filed set-aside application backed by a detailed affidavit.

Make the Affidavit Do the Heavy Lifting

The affidavit is the centrepiece of the application. A strong affidavit:

• Sets out the factual background of the relationship between the parties in chronological order
• Identifies precisely when and how the dispute arose
• Refers to specific documents that support the dispute (contracts, correspondence, invoices with annotations, expert assessments)
• States the company’s position clearly and without equivocation
• Quantifies any offsetting claim with as much precision as possible
• Is sworn by a director or officer with direct knowledge of the facts, not a solicitor giving a summary of instructions

Courts read affidavits carefully. An affidavit that reads like a press release, full of characterisations and short on facts, will not establish a genuine dispute. An affidavit that walks the court through the chronology with documentary support will.

Use Documentary Evidence, Not Just Oral Evidence

In set-aside applications, documentary evidence carries more weight than oral evidence. If the genuine dispute is based on defective workmanship, produce the defect report. If it is based on a disputed invoice, produce the contract, the invoice, and the correspondence disputing the invoice. If it is based on an offsetting claim for misleading representations, produce the correspondence containing those representations.

Courts are alert to disputes that appear to have been constructed after the demand was served. Documentary evidence that pre-dates the demand carries significantly more weight than a director’s retrospective account of events.

Consider Negotiating While the Application Is on Foot

Filing a set-aside application does not prevent the parties from negotiating. In many cases, a properly filed application changes the dynamic: the creditor who expected an unanswered demand now faces a contested hearing, a costs risk, and a delay in recovering the debt. That changes the calculus for settlement.

Negotiations conducted while an application is on foot are often more productive than negotiations before filing, because both sides now understand the litigation costs and risks. A negotiated resolution, payment in instalments, a reduced amount in full settlement, or a longer payment period, may serve both parties better than a contested hearing.

The key is to file first, negotiate second. Delaying filing to negotiate, in the hope that negotiations will succeed, risks missing the 21-day deadline entirely if negotiations break down.

Assess All Available Grounds, Not Just the Strongest One

Applications frequently succeed on multiple grounds simultaneously. A creditor who served a demand with an incorrect amount has created both a defect ground (s 459J) and, potentially, a genuine dispute about the correct amount (s 459H). Running both grounds gives the court more pathways to grant the application.

Similarly, a company that has both a genuine dispute and an offsetting claim should plead both, because the threshold for each is independently satisfiable and the court can grant relief on either.

What If You Miss the 21-Day Deadline?

Missing the 21-day deadline is a serious problem, but it is not necessarily the end of the road. Understanding the options and the limitations is critical.

The Section 459S Trap

If the creditor proceeds to file a winding up application after the demand goes unanswered, the company will be tempted to defend the winding up by arguing that the underlying debt is genuinely disputed. Section 459S of the Corporations Act operates as a complete bar to that argument.

Section 459S provides that a company cannot oppose a winding up application on a ground that the company could have relied on in a set-aside application, unless the court grants leave. The court will only grant leave in narrow circumstances, and the company must show that the ground is material to the company’s solvency. Even then, leave is not automatic and is rarely granted where the company had the opportunity to file a set-aside application and did not.

In practice, this means: once the 21-day window closes, the genuine dispute argument is locked out of the winding up proceedings. The company’s defence to the winding up application is reduced to proving that it is, despite appearances, actually solvent.

Proving Solvency

A company opposing a winding up application on solvency grounds must adduce evidence of its financial position, bank statements, aged debtors lists, asset valuations, management accounts, and if necessary, a solvency opinion from an accountant. The presumption created by s 459C(2) reverses the usual burden: the company must affirmatively establish solvency, not the creditor establish insolvency.

This is a much harder task than setting aside the demand on a genuine dispute ground, which requires only a plausible contention. Proving solvency requires hard financial evidence. For a company in genuine financial difficulty, as opposed to a company facing an unjust demand, that evidence may not be available.

Other Options After the Deadline

While the s 459G window has closed, there may be other avenues depending on the circumstances:

• Negotiate directly with the creditor, even after the deadline, many creditors will negotiate rather than bear the cost of winding up proceedings, particularly where the debt is not large
• Voluntary administration, if the company is genuinely insolvent, voluntary administration under Part 5.3A of the Corporations Act may be a more structured path to restructuring or a deed of company arrangement
• Challenge the winding up application itself, if the winding up application contains defects or is filed in the wrong jurisdiction, those procedural grounds may be available independently of s 459H grounds

The insolvency lawyers at Boss Lawyers can assess your options whether you are still within the 21-day window or have already passed it. The sooner you seek advice, the more options remain available.

Boss Lawyers Can Help

If your company has received a statutory demand, you have 21 days to act, and not a moment to spare. Boss Lawyers acts for companies that have received statutory demands and need to respond quickly, strategically, and effectively.

Mark Harley, Principal Solicitor, has over 17 years of experience in commercial litigation and insolvency law. Boss Lawyers regularly acts in the Supreme Court of Queensland on set-aside applications, winding up proceedings, and related insolvency matters.

What we offer:

• Same-day advice on your grounds and prospects
• Preparation of the application and supporting affidavit
• Filing and service within the 21-day window
• Negotiation with the creditor on your behalf
• Representation at the hearing

Boss Lawyers also acts for creditors who need to issue statutory demands, see our guide on how to issue a statutory demand in Queensland for the creditor side of this process, and our insolvency lawyers Brisbane page for the full range of insolvency services we provide.

Call 1300 267 711 or contact us at bosslawyers.com.au/contact/. We are based in Brisbane at Brisbane CBD, 32 Turbot Street, and we act in courts across Queensland.

Frequently Asked Questions

Can the 21-day deadline to set aside a statutory demand be extended?

No. The 21-day deadline in s 459G of the Corporations Act 2001 (Cth) is absolute. No court has the power to extend it, regardless of the circumstances. The High Court confirmed this in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43. If your company has received a statutory demand, you must file and serve your application within 21 days of service, not 21 days from when you read it or when you retained a lawyer.

What is the standard of proof for a genuine dispute?

The standard is whether there is a “plausible contention requiring investigation”, a formulation from Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 that courts in Queensland and across Australia continue to apply. The company does not need to prove on the balance of probabilities that it will win the underlying dispute. It needs to show that the dispute is real, commercially credible, and supported by facts, not merely asserted. This is a lower threshold than a trial, but it is not a rubber stamp: bare denials will not succeed.

Can I set aside a statutory demand if I owe the money but also have a counterclaim?

Yes. A genuine offsetting claim under s 459H(1)(b) of the Corporations Act can support a set-aside application even where the underlying debt is not disputed. If your offsetting claim equals or exceeds the amount of the demand, the court may set aside the demand in full. If your claim is less than the demand, the court may reduce the demand to the net amount. The offsetting claim must be genuine, a commercially credible cross-claim supported by facts, not a manufactured counterclaim constructed after the demand was served.

What happens if the statutory demand has errors in it?

A defect in a statutory demand, such as a wrong company name, incorrect amount, missing affidavit, or wrong prescribed form, can support an application to set aside under s 459J of the Corporations Act. However, the defect must cause substantial injustice if the demand is not set aside. A purely technical error that caused no practical prejudice to the company is unlikely to succeed. Defects that go to the substance of the demand, wrong entity named, or a materially wrong amount, are strongest. You should obtain advice immediately so that a defect-based application can be prepared within the 21-day window.

Can I oppose a winding up application if I did not apply to set aside the statutory demand in time?

Your ability to oppose winding up on the merits of the debt is severely limited. Section 459S of the Corporations Act provides that a company cannot oppose a winding up application on a ground available under s 459H (genuine dispute or offsetting claim) unless the court grants leave. Leave is rarely granted where the company had the opportunity to apply to set aside the demand and did not. In practice, if you miss the 21-day window, your primary defence to a winding up application is proving that the company is actually solvent, which requires hard financial evidence rather than a dispute about whether the underlying debt exists.

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