Statutory Demand Process — Step by Step Guide for Brisbane Businesses

A statutory demand is one of the most powerful debt recovery tools available to creditors in Australia. Served on a company under section 459E of the Corporations Act 2001 (Cth), it creates a presumption of insolvency if the company fails to comply within 21 days. That presumption can then be used to apply to the court to wind up the company. Used correctly, a statutory demand often produces payment far faster than court proceedings — because no director wants their company wound up.

What Is a Statutory Demand?

A statutory demand is a formal written demand requiring a company to pay a debt within 21 days. It can only be served on a company (not an individual), and the debt must be:

• At least $4,000 (as of 1 July 2021 — increased from $2,000)
• Due and payable (not contingent or genuinely disputed)
• Owed by the company in its own right

The demand must be in the prescribed form (Form 509H under the Corporations Regulations 2001), signed by or on behalf of the creditor, and served on the company’s registered address (or as otherwise permitted under the Corporations Act).

Step 1 — Serve the Statutory Demand

Service must comply with s 459E and s 109X of the Corporations Act. The safest method is personal service on a director at the registered office address. Postal service by prepaid post to the registered office is also permitted, but the date of service is calculated differently.

The demand must:

• State the amount of the debt with specificity
• Require compliance within 21 days after service
• Be accompanied by an affidavit verifying the debt (unless the debt is founded on a court judgment)
• Not inflate the debt — including disputed amounts is fatal to the demand

The 21-day period runs from the date of service (not the date of the document). Getting service right is critical — any defect can be used to set aside the demand.

Step 2 — The 21-Day Compliance Period

Within 21 days of service, the company must either:

• Pay the debt in full; or
• Secure or compound the debt to the creditor’s reasonable satisfaction; or
• Apply to the court to set aside the demand (s 459G)

If the company does none of these things within 21 days, it is taken to be insolvent under s 459C(2)(a) of the Corporations Act. That presumption of insolvency then applies in any subsequent winding up proceedings.

Step 3 — Setting Aside the Statutory Demand

The company can apply to set aside the demand within the 21-day period (the court has no jurisdiction to extend this — the High Court confirmed in David Grant & Co v Westpac Banking Corporation (1995) 184 CLR 265 that the 21-day period is strict). Grounds to set aside include:

• Genuine dispute (s 459H): The company has a genuine dispute about the existence or amount of the debt — or a genuine offsetting claim
• Defect (s 459J): A defect in the demand that would cause substantial injustice if not set aside, or some other reason

The threshold for a “genuine dispute” is relatively low — the company does not need to establish its case, only show a plausible contention. This means that any creditor issuing a statutory demand over a disputed invoice is vulnerable to a set-aside application.

Step 4 — Winding Up Application

If the company fails to comply within 21 days (and does not apply to set aside), the creditor can file a winding up application in the Federal Court or the Supreme Court of Queensland. The application must be filed within three months of the expiry of the 21-day period (s 459C(2)).

The court will generally make a winding up order unless the company can prove solvency or another valid ground for not winding up. The presumption of insolvency is powerful — the evidentiary burden shifts to the company.

Strategic Use of Statutory Demands

Statutory demands are not just for genuinely insolvent companies. They are frequently used as a pressure tool — even against companies that have the money to pay but are simply avoiding payment. Directors who know their company faces a winding up application will often pay promptly to avoid the reputational and operational consequences.

However, statutory demands should not be issued over genuinely disputed debts. Courts regularly set aside demands over disputed amounts and may award costs against a creditor who used a statutory demand unconscionably or as leverage in a legitimate dispute.

How Boss Lawyers Can Help

Boss Lawyers has acted in statutory demand matters on both sides — serving demands for creditors, and defending against demands on behalf of companies facing them. Mark Harley, Principal Solicitor, has 17+ years of experience in commercial litigation and insolvency. We will:

• Assess whether your debt is appropriate for a statutory demand
• Draft and serve the demand in strict compliance with the Corporations Act
• Advise on the company’s response and any set-aside application
• File a winding up application if required
• If you’ve received a statutory demand, advise immediately on set-aside options — the 21-day deadline is unforgiving

Frequently Asked Questions

Can I issue a statutory demand for a debt under $4,000?

No. The minimum threshold is $4,000 (as of 1 July 2021). Attempting to serve a demand for a lesser amount is invalid. For smaller debts, you would need to pursue proceedings in the Queensland Civil and Administrative Tribunal (QCAT) or the Magistrates Court.

What if the debtor disputes the debt after I serve the demand?

If the company applies to set aside the demand on the basis of a genuine dispute, the court will consider whether the dispute is genuine. If it is, the demand will be set aside. This is why statutory demands should only be issued over clean, undisputed debts — or debts where any claimed dispute is clearly without merit.

Is there a time limit for filing a winding up application after non-compliance?

Yes. Under s 459C(2) of the Corporations Act, you must file the winding up application within three months after the expiry of the 21-day compliance period. If you miss this window, the presumption of insolvency no longer applies from that demand and you would need to start again.