General information (Queensland, Australia), not legal advice: A creditor's statutory demand is a formal written demand served on a company under the Corporations Act 2001 (Cth) s 459E, requiring payment of a debt of at least $4,000. The Corporations Act 2001 (Cth) s 459G provides a strict 21-day period from the date of service within which a company may apply to a court to set aside the demand. Allowing that period to expire without payment or a successful court application can result in a presumption of insolvency, which may then ground a winding-up application.
The short version
- A statutory demand must comply with formal requirements under the Corporations Act 2001 (Cth) s 459E, including being in the prescribed form and supported by an affidavit where the debt is not a judgment debt.
- A company served with a statutory demand has 21 days from service to either pay the debt, negotiate a resolution, or file a court application to set aside the demand — Corporations Act 2001 (Cth) s 459G.
- Grounds to set aside include a genuine dispute about the existence or amount of the debt, an offsetting claim, or a defect in the demand — Corporations Act 2001 (Cth) ss 459H and 459J.
- If the demand is not set aside and the debt is not paid within 21 days, the company is presumed insolvent, potentially enabling the creditor to apply for winding up.
- These procedures operate under federal corporations law and are heard in courts exercising corporations jurisdiction — including the Supreme Court of Queensland.
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What is a creditor's statutory demand?
A creditor's statutory demand is a formal mechanism under the Corporations Act 2001 (Cth) s 459E that allows a creditor to demand payment from a company of a debt (or the total of debts) that is due and payable and amounts to at least $4,000. The demand must be in the prescribed form, be signed by or on behalf of the creditor, and — unless the debt is a judgment debt — be accompanied by an affidavit verifying that the debt is due and payable.
The statutory demand is a powerful debt-recovery tool. Its primary purpose is not simply to recover a debt; it is a precursor to a winding-up application. A company that fails to comply with a demand within the statutory period is presumed to be insolvent under the Corporations Act 2001 (Cth). A creditor may then rely on that presumption when applying to wind up the company.
Because of its serious consequences, the law provides corresponding rights for a company to challenge a demand that is defective, relates to a genuinely disputed debt, or is subject to an offsetting claim.
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What are the formal requirements for a valid statutory demand?
Under the Corporations Act 2001 (Cth) s 459E, a statutory demand must:
- Be in writing.
- Identify the debt or debts claimed, stating the total amount.
- Require the company to pay the amount or secure or compound it to the creditor's reasonable satisfaction within 21 days of service.
- If not founded on a judgment debt, be accompanied by an affidavit in the prescribed form that verifies the debt is due and payable.
- Be signed by the creditor or an authorised agent.
A failure to meet these formal requirements may itself constitute a ground for setting aside the demand, depending on whether the defect causes substantial injustice.
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What happens when a statutory demand is served?
From the moment a statutory demand is served on a company, the 21-day clock under the Corporations Act 2001 (Cth) s 459G begins to run. Service typically occurs by leaving the demand at, or posting it to, the company's registered office. The method and date of service can affect precisely when the period begins and ends — a matter that often requires careful attention.
These periods are strict, can depend on exactly when and how documents were served, and often cannot be extended — anyone affected should confirm the deadline that applies to their situation with a lawyer immediately rather than relying on this page.
During those 21 days, the company broadly faces the following options (described generally, not as instructions):
1. Payment or resolution: The company pays the amount demanded, or the parties reach a negotiated resolution — for example, a payment arrangement acceptable to the creditor. 2. Application to set aside: The company files an originating process in a court of competent jurisdiction, together with a supporting affidavit, seeking an order that the demand be set aside.
There is no mechanism to extend the 21-day period after it has begun. If neither step is taken before the period expires, the company is presumed insolvent.
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How is an application to set aside a statutory demand made?
An application to set aside a statutory demand is governed by the Corporations Act 2001 (Cth) s 459G. That section imposes two requirements that must both be satisfied within the 21-day period:
1. The originating process (the application) must be filed with the court within 21 days of service. 2. A copy of the application and supporting affidavit must be served on the creditor within 21 days of service of the demand.
Both steps — filing and service on the creditor — must occur within the same 21-day window. Filing alone, without serving the creditor in time, is insufficient.
These periods are strict, can depend on exactly when and how documents were served, and often cannot be extended — anyone affected should confirm the deadline that applies to their situation with a lawyer immediately rather than relying on this page.
The application is supported by an affidavit. The affidavit is critical: it must set out the factual basis for the grounds being relied upon. Under the case law, material that is not raised in the supporting affidavit filed within the 21-day period generally cannot be introduced later. This places significant importance on the affidavit being prepared thoroughly and correctly from the outset.
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On what grounds can a statutory demand be set aside?
Genuine dispute or offsetting claim — s 459H
Under the Corporations Act 2001 (Cth) s 459H, a court may set aside a statutory demand where it is satisfied that:
- There is a genuine dispute between the company and the creditor about the existence or amount of the debt to which the demand relates; or
- The company has an offsetting claim — that is, a genuine counterclaim, set-off or cross-demand against the creditor — and that claim, when deducted, reduces the debt below the statutory minimum (or to zero).
The threshold for establishing a genuine dispute is not high. The company is not required to prove the merits of the dispute at this stage; it is sufficient to show that the dispute is genuine — meaning it is not merely spurious, hypothetical or invented. Courts assess whether the dispute is real and bona fide, not whether it will ultimately succeed.
Where a genuine dispute or offsetting claim is established but only reduces (rather than eliminates) the claimed debt, the court may vary the demand to the reduced amount rather than set it aside entirely.
Other grounds — s 459J
Under the Corporations Act 2001 (Cth) s 459J, a court may set aside a statutory demand on grounds other than those in s 459H, in two circumstances:
1. Defect causing substantial injustice: There is a defect in the demand, and the defect would cause substantial injustice if the demand were not set aside. 2. Some other reason: The court is satisfied that there is some other reason why the demand should be set aside.
A "defect" under the Act includes a misstatement of the amount of the debt, a misdescription of the debt, or a failure to comply with the formal requirements. Not every defect will be sufficient — the company must generally show that the defect would cause substantial injustice.
The "some other reason" ground is a broader, residual discretion. It has been used in circumstances where, for example, the creditor engaged in unconscionable conduct, or where there was a genuine dispute as to whether the demand was properly served.
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What happens at the hearing of a set-aside application?
At the hearing, the court does not conduct a full trial of the underlying debt dispute. Its function is limited to assessing whether the grounds for setting aside the demand have been established — for example, whether a genuine dispute exists or whether a defect causes substantial injustice.
If the court sets aside the demand, the demand is a nullity and the creditor would need to take separate proceedings to recover the debt (such as a civil claim in the appropriate court). The presumption of insolvency does not arise.
If the application is dismissed, the demand stands. The company then has a further period (the balance of the 21-day period, or any additional time the court allows) to comply with the demand. If it does not comply, the presumption of insolvency can be relied upon.
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What if a winding-up application has already been filed?
Where a creditor files a winding-up application on the basis of a presumed insolvency following the expiry of a statutory demand, a company may seek to oppose the winding-up application. However, by that stage, the opportunity to challenge the underlying demand has generally passed. The company would need to rebut the presumption of insolvency by demonstrating that it is, in fact, solvent.
This makes the initial 21-day response window critically important. Challenging the demand during that period — rather than waiting for a winding-up application — preserves far more options.
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What should a creditor be aware of when issuing a statutory demand?
A creditor issuing a statutory demand should be aware that:
- The debt must be due and payable and must not be genuinely disputed. Issuing a demand in respect of a disputed debt can expose the creditor to an order that the demand be set aside with costs.
- The demand must comply strictly with the prescribed form and content requirements.
- A statutory demand is generally not an appropriate tool where the creditor is aware of a genuine dispute about the debt.
- Serving a demand in circumstances designed to pressure a solvent company, rather than to address genuine non-payment, can attract adverse court comment and costs consequences.
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In which courts and under which laws does this apply?
Statutory demands are creatures of federal law — the Corporations Act 2001 (Cth) — and the procedures apply across Australia. In Queensland, applications to set aside a statutory demand are typically heard in the Supreme Court of Queensland exercising corporations jurisdiction, or in the Federal Court of Australia or Federal Circuit and Family Court of Australia, depending on the circumstances and the court in which the application is filed.
The threshold debt amount, prescribed forms, and procedural requirements are set by federal legislation and associated regulations, which can be amended from time to time. This page reflects the general position as at the time of publication. The law changes, and the precise requirements and thresholds should always be confirmed against the current legislation.
This information concerns the Queensland, Australia context. Comparable but different regimes apply in other Australian states and territories, and the position differs entirely in other countries.
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Considering next steps
BA Legal is a Gold Coast commercial litigation and dispute resolution firm. Principal Antoni Berardone is a Legal Practice Director and an accredited mediator. BA Legal acts in statutory demand matters — whether for companies served with a demand seeking to understand their options, or for creditors seeking to use the statutory demand process as part of a debt-recovery strategy.
Given the strict time limits involved, prompt attention to a statutory demand matter is important. An initial consultation can assist in identifying the relevant deadlines, assessing whether grounds to set aside a demand may be available, and understanding what the process generally involves in the context of a particular situation.
Contacting BA Legal does not create a solicitor-client relationship.