Genuine Dispute – Set Aside a Statutory Demand

Genuine Dispute – Set Aside a Statutory Demand

The defence of genuine dispute under section 459H(1)(a) of the Corporations Act plays a crucial role in preserving fairness in the statutory demand regime.

Section 459K(1)(a) states:

(1) This section applies where, on an application under section   459G, the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates.

Parliament never intended statutory demands to become a back-door debt collection shortcut where a company is forced to pay simply to avoid the risk of being wound up.

Instead, the process is designed to test solvency, and only for debts that are truly undisputed.

As Young J said in Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379 at [54]:

The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the Commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the Commissioner’s decision.

This principle ensures that creditors cannot misuse the process to apply commercial pressure.

Courts have repeatedly emphasised that deploying a statutory demand where a real controversy exists is an abuse of process.

For example, in Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497, the court noted that a statutory demand should not be used against plainly solvent companies, and creditors who attempt to do so may be penalised with indemnity costs. Palmer J said at [32]:

… [t]he Statutory Demand process is not to be used for the coercive collecting of disputed debts from solvent companies. If it is, or ought to be, plain to a properly advised creditor that not only is there a dispute about the debt but, despite the creditor’s own strong view to the contrary, a Court is likely to find that the debtor has proved, to the low degree of satisfaction required, that the dispute is genuine, then the creditor should save its time and money by eschewing statutory demand litigation and commencing debt recovery proceedings immediately.

The practical effect of this policy is that any plausible contention requiring investigation is enough to defeat a demand.

As explained in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, the test is not whether the debtor will ultimately succeed, but whether the dispute is genuine and not “plainly vexatious or frivolous”.

In that case, Thomas J said:

It is often possible to discern the spurious, and to identify mere bluster or assertion.

This threshold deliberately prevents creditors from leveraging the insolvency system to force companies into paying amounts they legitimately contest.

Read our article here – Statutory Demand – Complete Guide

Abuse of Process and Misuse of Statutory Demands

An important aspect of the genuine dispute defence is its connection with the doctrine of abuse of process.

The statutory demand procedure is a summary insolvency tool, not a mechanism for ordinary debt collection.

Courts have repeatedly warned that using the process to exert commercial pressure in circumstances where there is a genuine controversy is an abuse.

In Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379, Young J explained that the statutory demand regime “should not be used to coerce a person to pay a disputed amount.”

Similarly, in Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497, the Court stressed that statutory demands should not be issued against plainly solvent companies, with indemnity costs ordered against creditors who misuse the process.

The courts have also held that the existence of parallel proceedings may itself demonstrate the presence of a genuine dispute.

This overlap is a strong indicator that the debt is genuinely disputed and unsuitable for the statutory demand regime.

Together, these authorities reinforce the underlying policy: the genuine dispute ground is not just about whether a claim is arguable, but also about preventing creditors from distorting the insolvency process to gain unfair leverage.

A demand issued in such circumstances risks being struck out as an abuse of process, with adverse costs consequences for the creditor.

The Statutory Framework at a Glance

The starting point for understanding how to resist a statutory demand is section 459H of the Corporations Act.

This section establishes two core pathways for a company to seek relief:

• Genuine dispute: under s 459H(1)(a), where “there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates.” This ground is engaged where the company can demonstrate a plausible contention requiring investigation, not a fanciful or illusory denial.
• Offsetting claim: under s 459H(1)(b), where the company has a genuine claim against the creditor by way of set-off, cross-demand, or counterclaim. This allows the debtor to reduce or extinguish the debt claimed in the demand.

The legislation then requires the Court to determine what is known as the substantiated amount.

Section 459H(2) provides that the Court must calculate this by taking the total amount of the debt claimed in the statutory demand and deducting any amount genuinely in dispute or subject to an offsetting claim.

If the substantiated amount falls below the statutory minimum (currently $4,000), the demand must be set aside.

Where only part of the debt is in dispute, the Court has the power to set aside or vary the demand. Section 459H(3) states that if the substantiated amount is less than the statutory minimum, the demand “must be set aside.”

Conversely, section 459H(4) provides that if the substantiated amount is equal to or greater than the statutory minimum, the demand is not wholly set aside but may be varied so that it only requires payment of the substantiated amount.

In that case, the order takes effect as though the varied demand had been served on the company when the original demand was served.

The courts have consistently applied this framework in practice. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61, the Victorian Supreme Court emphasised that the genuine dispute test is analogous to the threshold applied in applications for interlocutory injunctions: the company need only show “a plausible contention requiring investigation.”

Likewise, in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq explained that the statutory demand process is not the forum for resolving disputed debts, but a mechanism for testing solvency.

Read our article here – Setting Aside a Statutory Demand – Complete Guide

What Is a “Genuine Dispute”?

The expression “genuine dispute” in section 459H(1)(a) of the Corporations Act has been consistently interpreted by the courts as requiring no more than a plausible contention requiring investigation.

This formulation was adopted in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where McLelland CJ in Eq explained:

The expression ‘genuine dispute’ connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction.

This test means the debtor does not have to prove the defence on the balance of probabilities. It is enough to show that the claim is not fanciful, spurious or illusory.

In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, the Court confirmed that a genuine dispute exists if there are “matters which, on rational grounds, indicate an arguable case on the part of the company.”

Similarly, in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61, the Victorian Supreme Court linked the test directly to the standard applicable for interlocutory relief.

The threshold is deliberately set low. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the Full Federal Court observed:

… at least in most cases, it is not expected that the court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute. (citing Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61)

The role of the court in this context is limited. It is not to decide the ultimate merits of the dispute or to weigh the credibility of competing witnesses, except in extreme cases where the asserted dispute is so devoid of substance that no further investigation is warranted.

As was said in John Holland Construction & Engineering Pty Limited v Kilpatrick Green Pty Limited (1994) 12 ACLC 716, the court’s inquiry is confined to whether the grounds of dispute are propounded in good faith and amount to a plausible defence, not whether the company would ultimately succeed if sued for the debt. Young J said:

It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.

Accordingly, the genuine dispute defence ensures that companies are protected from being forced into insolvency on the back of contested claims, while still preventing abuse by debtors who put forward fanciful or contrived arguments.

Evidentiary Approach the Courts Expect

When seeking to set aside a statutory demand on the ground of genuine dispute, the evidentiary standard is clear: the supporting affidavit must do more than recite general denials or conclusory statements.

Courts demand particularity over assertion. This principle is often referred to as the Graywinter requirement, drawn from Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822.

In that case, Sundberg J made plain that the initial affidavit must disclose facts showing the grounds relied upon, rather than vague claims or bare denials. Sundberg J said:

In a s 459H(1)(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading.

The rationale is that the statutory demand procedure is a summary insolvency process.

The Court is not conducting a full trial, but it must still be satisfied that there is some genuine controversy warranting further investigation.

As McLelland CJ in Eq explained in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, the company must show “a plausible contention requiring investigation” — which requires evidence, not rhetoric.

Equally important, the Court will not accept uncritical or unsupported statements if reliable contemporaneous documents contradict them.

That said, the company does not need to prove its whole case at this stage. As explained in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, it is enough to establish matters which, on rational grounds, indicate an arguable case.

The Court’s role is not to resolve contested questions of fact or law, but to determine whether the dispute raised is real, not fanciful or illusory.

In practice, this means that affidavits must identify the specific controversy, refer to supporting documents where possible, and outline how the debt claimed is disputed.

The emphasis is on presenting a coherent and plausible basis for the dispute, not establishing success on the merits.

What Is Not a Genuine Dispute

While the threshold for establishing a genuine dispute under section 459H(1)(a) is deliberately low, the courts have been equally clear about what does not amount to a genuine dispute.

The defence is not available to companies that rely on bare denials, bluster, or hypotheses that lack objective existence or prima facie plausibility.

In Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, the Court held that a company cannot simply point to a creditor’s supposed lack of evidence as a basis for claiming a dispute. The onus is on the recipient of the demand to establish a genuine dispute.

A statutory demand will not be set aside merely because the debtor asserts the creditor has not yet proven its case.

Similarly, in Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039, the existence of an appeal against a judgment debt, or the granting of a stay of execution, was found insufficient to establish a genuine dispute.

In Hoare Bros Pty Ltd v Deputy Commissioner of Taxation [1996] FCA 78, the Full Federal Court explained that statutory demands are not to be set aside simply because the debtor has asked for further details about the debt.

The company must point to facts or circumstances showing that the debt is genuinely contested, rather than relying on silence from the creditor.

Courts are especially wary of disputes that are manufactured in response to the pressure of the statutory demand. As observed in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the case reinforces that the Court only needs to be satisfied there is a real, not frivolous or vexatious, dispute that “may have some substance.”

Contentions that are speculative, fanciful, or plainly untenable will not qualify.

In short, the genuine dispute defence cannot be built on hollow claims or tactical manoeuvres.

The company must show a genuine, arguable controversy, supported by objective grounds, rather than seeking to exploit the statutory demand process as a delay tactic.

Common Fact Patterns That Can Establish a Genuine Dispute

Courts have recognised a range of recurring fact patterns where a company may successfully demonstrate a genuine dispute under section 459H(1)(a) of the Corporations Act.

These scenarios typically involve issues that go to the very existence, scope, valuation, or quality of the debt being claimed, and they illustrate how the low threshold test is applied in practice.

Existence of the Contract or Debt

A common ground of genuine dispute arises where the existence of the contract or the debt itself is in doubt.

In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, the Court held that a genuine dispute exists where there are “matters which, on rational grounds, indicate an arguable case” that the alleged liability does not exist.

Questions of whether the contract was formed correctly, whether the signatory had authority, or whether conditions precedent were fulfilled may all give rise to an arguable case.

Scope and Valuation Disputes

Disagreements over scope and valuation are another classic source of genuine disputes.

In Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618 Beazley J said:

[T]he test to be applied for the purposes of s 459H is whether the court is satisfied that there is a serious question to be tried.

Where progress claims, variations, or additional charges are contested, the court is not concerned with who is right, but whether the dispute is genuine and supported by some rational basis.

Quality/Defect Contentions

Issues of quality and performance can also ground a genuine dispute.

In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq confirmed that even modest contentions about defective performance, if genuinely arguable, are sufficient to require further investigation and therefore defeat a statutory demand.

The process is not designed to resolve such disputes summarily; rather, it is enough to show that the alleged entitlement to payment is contested on rational grounds.

Set-offs vs Disputes

Finally, companies often face the question of whether their arguments amount to a genuine dispute under s 459H(1)(a) or an offsetting claim under s 459H(1)(b).

The distinction lies in whether the company challenges the creditor’s claim directly (dispute) or relies on an independent cross-demand (offsetting claim).

As explained by the authorities, both grounds can be pursued in tandem.

The key is to clearly articulate whether the contention goes to the existence or amount of the debt itself, or to a separate right to reduce or extinguish it.

Courts have repeatedly allowed companies to argue in the alternative, so long as the affidavits identify the correct legal basis with sufficient particularity.

Partial Disputes and the “Substantiated Amount”

Where only part of the debt in a statutory demand is genuinely disputed or subject to an offsetting claim, the court must calculate the “substantiated amount”.

Section 459H(2) of the Corporations Act directs the court to determine this by taking the total amount claimed in the statutory demand and subtracting the amount that is genuinely disputed and/or subject to offsetting claims.

The consequences flow directly from this calculation. Section 459H(3) provides that if the substantiated amount is less than the statutory minimum (currently $4,000), the demand must be set aside in its entirety.  It says:

(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

The courts have emphasised that once the threshold is not met, the presumption of insolvency cannot be triggered, and the statutory demand cannot stand.

However, where the substantiated amount is equal to or greater than the statutory minimum, section 459H(4) allows the demand to be varied rather than set aside altogether.  In says:

(4)  If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a)  varying the demand as specified in the order; and

(b)  declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

In that situation, the court makes an order reducing the amount payable to the substantiated amount, and the order has effect “as if the demand had required payment of the substantiated amount” from the time the original demand was served.

This ensures creditors cannot unfairly leverage disputed sums to trigger insolvency but still preserves the validity of the process for undisputed amounts.

In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the case reinforces that the Court only needs to be satisfied there is a real, not frivolous or vexatious, dispute that “may have some substance” must be set aside or varied to reflect the properly substantiated amount.

This statutory mechanism of calculating the substantiated amount ensures that the statutory demand regime remains a tool for testing solvency, not a device for enforcing questionable debts.

The Interplay with Offsetting Claims

Alongside the genuine dispute defence in section 459H(1)(a), the Corporations Act provides a companion pathway in section 459H(1)(b): the offsetting claim. It says:

(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

… (b) that the company has an offsetting claim.

An offsetting claim is defined in section 459H(5) as “a genuine claim that the company has against the person” who served the statutory demand, whether by way of counterclaim, set-off, or cross-demand, and regardless of whether it arises from the same transaction or a different one.  The section says:

“offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set – off or cross – demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

The threshold is deliberately similar to that of a genuine dispute. The claim must be authentic, in the sense that it is not frivolous, spurious, or illusory.

As the authorities explain, the court is not concerned with whether the company will ultimately succeed, but with whether the asserted cross-demand is a real claim pursued in good faith.

The courts also stress the importance of the good faith requirement. An offsetting claim cannot be conjured up as a tactical response to the statutory demand.

It must be a claim that the company genuinely holds and is prepared to pursue, consistent with the policy that the statutory demand regime is not a substitute for ordinary debt collection processes.

Practically, companies often plead offsetting claims in the alternative to genuine dispute, or even alongside it.

The difference is conceptual: a genuine dispute challenges the creditor’s claim itself, whereas an offsetting claim concedes the debt but seeks to reduce or extinguish it by reference to a counter-demand.

Courts accept that both may be run together, so long as the supporting affidavits identify the grounds with proper particularity.

By framing the defence on both fronts – genuine dispute and offsetting claim – companies maximise their protection against being wound up on contested or overstated debts.

Pitfalls That Can Sink a Meritorious Dispute

Even where a company has substantial grounds to challenge a statutory demand, many applications fail because of procedural missteps.

The courts emphasise that the statutory demand regime is strict and unforgiving, and that procedural compliance is just as important as the merits.

The unforgiving 21-day clock

The most critical pitfall is the 21-day time limit.

Section 459G requires that both the application and its supporting affidavit be filed and served within 21 days of service of the demand.

The courts have confirmed that this deadline is mandatory and incapable of extension.

In  David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43 who said:

The court may make an order extending the period for compliance with the statutory demand. If the company applies “in accordance with section 459G” to set aside the demand, then an order extending the time for compliance may be made.

And then went on to say:

The requirement in s 459G that the application to the court for which it provides be made only within 21 days after service of the demand … These reasons lead also to the rejection of the reliance by the appellants upon s 70 … However, the Law does not confer a power to extend the period within which an application may be made under s 459G.

The reason for the strict interpretation of the legislation is due to the intention of the legislature when drafting the Corporate Law Reform Act 1992 (CTH). David Grant said that:

The provisions of the new Pt 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.

In Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9 the Court said:

Unless the contrary intention appears in the Act, the power to extend the period for compliance is to be understood as including power to extend it even if the period has ended. But there are several features of Pt 5.4 of the Act which lead to the conclusion that a contrary intention does appear.

This decision has been followed in the Queensland Court of Appeal.

In Palmer Petroleum Pty Ltd v BGP Geoexplorer Pty Ltd [2016] QCA 149 the Queensland Court of Appeal said:

If the company applies in accordance with s 459G for an order setting aside the demand, there are then two possible periods for compliance. One possibility results from an order by the court for the extension of the period for compliance. The other possibility is where the period is not extended by the court, in which case, the period for compliance ends seven days after the application to set aside the demand is finally determined or otherwise disposed of.

McMurdo JA then went on to say (with Fraser JA, Philippides JA agreeing):

There is no power to extend the period for compliance once that period has expired. The High Court so held in Aussie Vic Plant Hire Proprietary Limited v Esanda Finance Corporation Limited [2008] HCA 9. Clearly then, the period for compliance expired … at which point, the demand was still in effect and the appellant had not complied with it, with the consequence that the appellant is taken to have failed to comply with the demand.

So, strict compliance with the 21-day time limit is required to pay, secure or compound for the debt.

Service of the Statutory Demand

Service of the statutory demand — and of the subsequent application to set it aside — is another common trap.

The authorities recognise that interstate service or unconventional methods can create difficulties.

In particular, while section 109X of the Act permits service on a company at its registered office, creditors who know the demand has not actually come to the company’s attention and fail to rectify this risk having their demand set aside.

in J & K Homes Pty Ltd v Evans Lawyers [2017] QSC 24 where Evans Lawyers issued J & K Homes Pty Ltd with a statutory demand on 19 December 2016, meaning that the time for compliance, or the time to file and serve an application and affidavit to set aside the demand, was 9 January 2017.

The defendant argued that they were disadvantaged because over the Christmas period the Courts were closed.

Citing David Grant & Co Pty Ltd the Supreme Court of Queensland said:

As the applicant did not file and serve its application within the 21-day period required, the Court has no power to make an order setting aside the statutory demand.

Recent developments also highlight the limits of electronic service. Unless expressly authorised by the rules of court or agreed by the parties, service by email may now be allowed.

Read our article – Can You Serve a Statutory Demand by Email in Australia?

Filing and serving the application and supporting affidavit

Finally, the application and affidavit must be in the correct form.

The affidavit must be filed and served with the originating process, and it must particularise the grounds relied upon.

As the Graywinter principle makes it clear, general denials or vague assertions are insufficient. The courts will not allow a debtor to supplement its evidence with fresh grounds later once the 21-day deadline has passed.

The lesson is stark: even the most meritorious dispute will be lost if the company fails to act swiftly and correctly.

The statutory demand regime is designed as a summary insolvency procedure, and strict compliance with time limits, service requirements, and affidavit formalities is the price of admission.

Building Your Affidavit: Practical Checklist

A company opposing a statutory demand must not only act quickly but also ensure that its affidavit is carefully constructed.

The courts have laid down clear guidance on what an effective affidavit must contain — and, just as importantly, what it must avoid.

Identify the precise controversy

The affidavit must clearly identify the controversy said to give rise to a genuine dispute under s 459H(1)(a).

In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, the Court stressed that a genuine dispute exists where there are “matters which, on rational grounds, indicate an arguable case.” Vague assertions or general complaints will not suffice.

The affidavit should set out in detail the nature of the dispute – whether about contract formation, scope of work, quality of performance, or calculation of sums due.

Provide contemporaneous documents

Where possible, the affidavit should annex or refer to contemporaneous records supporting the dispute.

Courts have cautioned that they will not accept uncritical assertions if contradicted by reliable documents.

In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the Full Court emphasised that the dispute “may have some substance” to be set aside.

Documentary support is often the key to demonstrating that substance.

Avoid conclusory assertions

The Graywinter principle makes clear that conclusory assertions or bare denials are fatal.

In Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822, the Court held that the initial affidavit must disclose facts showing the grounds relied upon.

Assertions of the form “we dispute the debt” or “the creditor is wrong” will not meet the test.

Show how the numbers move the needle

Finally, the affidavit should demonstrate how the dispute affects the substantiated amount under s 459H(2).

If the contested amounts reduce the debt below the statutory minimum, s 459H(3) requires the demand to be set aside entirely. If not, the court may vary the demand under s 459H(4).

In either case, the affidavit should set out calculations showing how the dispute or offsetting claim reduces the debt, and why the statutory demand cannot stand in its original form.

In short, the affidavit must be more than a procedural placeholder. It is the company’s opportunity to show the Court, with particularity and evidence, why the demand is based on a debt that is genuinely contested.

Done correctly, it can transform a precarious situation into a successful defence against insolvency proceedings.

Provide Source Documents, Not Mere Assertions

Courts are quick to strike down affidavits that rely solely on assertions without attaching supporting evidence.

Invoices, correspondence, contracts, or contemporaneous records should be exhibited wherever possible.

As emphasised in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, a dispute that “may have some substance” can be set aside.

Bare denials collapse under scrutiny, while documentary support demonstrates that the dispute has objective substance.

The Graywinter Principle: Particularity Is Essential

The Graywinter principle requires that the affidavit disclose the facts relied upon with particularity, not vague complaints.

In Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822, Sundberg J held that general denials or conclusory statements are fatal.

The affidavit must show the nature of the dispute and the evidence underpinning it.

John Holland: Defence Must Appear on the Face of the Affidavit

The affidavit cannot rely on later submissions or speculation to fill in the gaps.

In John Holland Construction & Engineering Pty Limited v Kilpatrick Green Pty Limited (1994) 12 ACLC 716, the Court stressed that its inquiry is limited to whether the affidavit discloses a plausible defence on its face.

The role of the court is not to weigh credibility or resolve contested facts, but to determine if the evidence shows a genuine dispute exists.

Show the Numbers Clearly

Finally, the affidavit should link the evidence back to the substantiated amount under s 459H(2).

If the disputed or offsetting sums reduce the debt below the statutory minimum, the demand must be set aside under s 459H(3). If not, the demand may be varied under s 459H(4).

Demonstrating how the figures shift the calculation reinforces the plausibility and coherence of the dispute.

In practice: a strong affidavit identifies the precise controversy, exhibits supporting documents, avoids conclusory denials, and shows how the numbers affect the substantiated amount.

Done correctly, it gives the court the material it needs to accept that the debt is genuinely in dispute.

Costs, Risk Management, and Strategic Considerations

The decision whether to resist a statutory demand is not only a legal question but also a strategic one.

Companies must weigh the strength of their dispute, the risks of adverse costs, and the practical implications of a varied demand.

When to fight

The courts have consistently emphasised that the statutory demand process is not to be used as a debt collection shortcut for genuinely disputed sums.

In Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379, the Court held that the policy of s 459H is to prevent creditors from compelling payment of debts that are genuinely contested.

Where there is a plausible, well-supported dispute, companies are justified in applying to have the demand set aside; they may even recover costs if the creditor has abused the process.

When to pay the undisputed part

However, if only part of the debt is disputed, it may be strategically sensible to pay the undisputed portion.

Section 459H(4) allows the Court to vary a demand so that it only requires payment of the substantiated amount — that is, the total debt minus the disputed or offsetting sum.

In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the Full Federal Court made clear that once a genuine dispute is raised, the demand will either be set aside or reduced to reflect the substantiated amount.

Voluntarily paying the undisputed balance can sometimes neutralise the creditor’s leverage and reduce the risk of adverse findings on costs.

Dealing with a varied demand

If the Court varies a statutory demand, the order has effect as if the varied demand had been served when the original demand was served.

This means the company must comply promptly with the reduced obligation to avoid the presumption of insolvency.

Strategically, companies must assess whether to engage in litigation or seek a commercial resolution.

A poorly founded challenge may expose the company to indemnity costs, particularly if the demand is found to have been issued adequately against a plainly solvent company, as noted in Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497. Conversely, a creditor who presses a disputed demand risks a costs order if the demand is set aside as an abuse of process.

The safest path is often to act swiftly: pay what is truly owed, contest what is genuinely disputed, and ensure the affidavit evidence is comprehensive. This approach balances legal rights with commercial pragmatism.

Genuine Dispute Case Law

Over the years, Australian courts have clarified what amounts to a “genuine dispute” under section 459H of the Corporations Act 2001 (Cth).

The cases show that the threshold is deliberately low: the company does not need to prove it will win, only that rational grounds support a real, arguable controversy.

The following decisions illustrate how courts apply this principle across different contexts, from contract disputes and valuation disagreements to questions of procedural fairness.

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

A “genuine dispute” means a plausible contention requiring investigation, comparable to the “serious question to be tried” threshold for interlocutory injunctions.

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681

Once the company shows an arguable issue with sufficient cogency, the statutory demand must be set aside or varied; the test is not demanding.

Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601

Reinforced that the court does not resolve the merits of the dispute at this stage; its task is only to identify whether a genuine dispute exists.

Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365

Clarified that genuine disputes can include questions of contractual interpretation, provided the contention has a rational basis.

Ligon 158 Pty Ltd v Huber [2016] NSWCA 330

Held that issues of credit or contested facts are rarely examined; only disputes that are “so devoid of substance that no further investigation is warranted.”

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601

Confirmed that a genuine dispute exists where there are “matters which, on rational grounds, indicate an arguable case.”

In the Matter of First Equilibrium Pty Ltd [2012] NSWSC 1625

Demonstrated that the Graywinter principle applies: affidavits must particularise the dispute; bare denials will not suffice.

First Sydney Properties Pty Ltd v Double Bay Project Pty Ltd [2004] NSWSC 1137

Confirms that a genuine dispute connotes a plausible contention requiring investigation and is analogous to the “serious question to be tried” standard for interlocutory injunctions. The focus is not on deciding the claim’s merits but whether the facts have sufficient plausibility to merit further consideration.

Rinfort Pty Limited & Anor v Arianna Holdings Pty Limited [2016] NSWSC 251

Summarises the test as requiring that the dispute is not plainly vexatious or frivolous, may have some substance, or involves a plausible contention requiring investigation. The courts emphasise that the bar for establishing a genuine dispute is not high.

Lodge Partners Pty Ltd v Pegum [2009] FCA 519

The Federal Court reiterated that the dispute must be bona fide and truly exist in fact, and the grounds for alleging the dispute must be real and not spurious, hypothetical, illusory, or misconceived.

In the matter of Vivo International Corporation Pty Limited [2013] NSWSC 1462

Finds that a genuine dispute will be established if there is a plausible contention requiring investigation that the company is not indebted as alleged, and that determining whether there is a genuine dispute does not involve deciding the merits.

Re Mammatus Pty Ltd [2022] VSC 789

Discuss that the threshold for a genuine dispute or offsetting claim is low. The supporting affidavit must set out the basis for the dispute, and courts are not required to resolve the merits, just to find enough to show the dispute is genuine.

Sharvine Pty Ltd v Bridge and Marine Enginering Pty Ltd [2001] NSWSC 833

Held that the court’s role is to consider whether there is a genuine dispute, not to weigh the merits, and that the threshold is quite low.

Drewniak & Anor v Air Rubber Pty Ltd No. SCCIV-01-1665 [2002] SASC 319

Confirms that a genuine dispute must involve real grounds, not spurious, hypothetical, illusory, or misconceived grounds.

Table of Cases on Genuine Dispute

Case law is central to understanding how the courts apply section 459H(1)(a) of the Corporations Act.

Over the years, judges have clarified what amounts to a genuine dispute, what evidence is required, and how strictly the rules must be followed.

The table below brings together the leading authorities, each with a short proposition showing why the case matters and how it can be used in practice.

These authorities show that the threshold for a genuine dispute is deliberately low, but the evidentiary burden is real.

Courts look for disputes that are plausible and supported by documents, not manufactured defences or bare denials.

By citing the right cases — from Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 to Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681 and beyond — companies can demonstrate to the court that their dispute falls within the established line of authority, giving their application the best chance of success.

Practical Examples: Genuine Dispute in Action

Understanding the principles is one thing — but seeing how the courts apply them in practice helps businesses appreciate the scope of the genuine dispute defence.

Below are a few anonymised case studies based on real scenarios where companies have successfully resisted statutory demands.

Case Study 1: Contractor Disputing Variations

A construction company received a statutory demand for unpaid progress payments.

The creditor claimed additional sums for variations that were not documented in writing.

The contractor argued that the variations were never agreed upon and that the alleged debt was overstated.

The Court accepted this was a genuine dispute, applying the test from Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61.

The company did not need to prove it would ultimately win the case — it only needed to show “a plausible contention requiring investigation.”

Because the contractor’s evidence, including correspondence about rejected variations, supported its position, the demand was set aside.

Case Study 2: Supplier Challenging Defective Goods Claim

A supplier of industrial parts was served with a demand for payment after the purchaser alleged defects and withheld payment.

The supplier produced delivery dockets and inspection reports showing that the goods conformed to specifications. The purchaser insisted that defects existed but had little documentary support.

The Court relied on Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, where McLelland CJ in Eq said that a genuine dispute arises wherever there is a “plausible contention requiring investigation.” As the supplier had credible evidence raising a real controversy, the statutory demand was set aside.

Case Study 3: Defective Performance in Service Contracts

A small business hired a subcontractor to provide specialised services, but disputed an invoice after alleging poor workmanship.

The subcontractor issued a statutory demand. The debtor produced reports from independent assessors showing defects in the work.

In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, the Court accepted that contentions about defective performance, where rationally arguable, are sufficient to establish a genuine dispute.

On that basis, the demand was set aside.

Key Lessons: These examples show that businesses can defend themselves against statutory demands when they have a genuine, evidenced controversy – whether about contract formation, variations, defects, or duplicative proceedings.

The threshold is deliberately low; what matters is showing the Court a dispute that is real, rational, and requires proper investigation.

Responding to a Statutory Demand on Genuine Dispute Grounds

When faced with a statutory demand, time is of the essence.

Courts have made it clear that strict compliance is essential, and even strong cases can fail if procedure is not followed.

The following checklist sets out the key steps to protect your company.

Review the Statutory Demand Immediately

In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43, the High Court confirmed that the 21-day deadline in s 459G of the Corporations Act is strict and cannot be extended.

The purpose of this rule is to facilitate the quick resolution of solvency issues, provided that disputes are raised promptly.

To comply, a debtor company must both file and serve the application and its supporting affidavit within 21 days of service of the statutory demand.

Identify if a Genuine Dispute Exists

Ask whether there is a plausible contention requiring investigation, not a fanciful or illusory defence.

As McLelland CJ in Eq put it in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, the test is comparable to whether there is a “serious question to be tried.”

The company need not prove it will succeed, only that the dispute is genuine and arguable.

Collect Documents (Contracts, Invoices, Correspondence)

Courts require more than bare assertions. The Graywinter principle demands particularity. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, the Full Court stressed that if a dispute “may have some substance,” it may be set aside.

Attaching contemporaneous documents such as contracts, invoices, or correspondence provides the objective foundation.

Draft the Affidavit (with Graywinter Compliance)

The supporting affidavit must clearly set out the facts showing the grounds of the dispute.

In Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822, Sundberg J held that conclusory assertions or vague statements will not suffice.

File and Serve the Application Within 21 Days

Both the originating process and the affidavit must be filed and served within 21 days.

There is no scope for extension and no equitable discretion to save late applications.

Key Takeaway: The statutory demand regime is deliberately strict.

Companies that act immediately, identify genuine disputes, collect documents, and file compliant affidavits within time are well-placed to protect themselves from insolvency risk.

Practical Tips for Company Directors

The genuine dispute defence offers vital protection against creditors who misuse statutory demands, but success depends on swift and strategic action.

Company directors can improve their chances by following a few practical tips.

Keep contracts and records organised

Courts will not accept bare denials or vague assertions.

The Graywinter principle makes clear that affidavits must disclose facts with particularity (Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822).

Keeping contracts, invoices, and correspondence well organised ensures that you can exhibit contemporaneous documents to demonstrate the dispute.

Act immediately on the service of a demand

The 21-day clock under s 459G of the Corporations Act is strict. In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43, the High Court confirmed that the 21-day limit in s 459G is strict and cannot be extended.

The purpose of the regime is the quick resolution of solvency issues, with disputes only entertained if raised promptly.

An application is valid only if, within 21 days, both the application and supporting affidavit are filed and served on the creditor..

Seek legal advice early

The courts have repeatedly held that statutory demands are not to be used as a debt collection shortcut.

In Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379, Young J said the policy behind s 459H is to prevent creditors from compelling payment of genuinely disputed amounts.

Getting legal advice early helps ensure that the dispute is framed correctly, that the affidavit complies with requirements, and that strategic options, such as negotiating withdrawal of the demand, are considered.

Top 5 Mistakes Companies Make in Genuine Dispute Applications

Even where a business has a strong case, many applications to set aside a statutory demand fail because of avoidable errors.

Courts apply the statutory scheme strictly, and companies that stumble on process or evidence often lose by default.

Missing the 21-day deadline

The biggest pitfall is failing to act within the strict 21 days allowed under s 459G of the Corporations Act. In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43, the High Court confirmed that the 21-day time limit in s 459G is strict and cannot be extended.

The purpose of Part 5.4 is the quick resolution of solvency issues, unless disputes are promptly raised.

An application is valid only if both the application and a supporting affidavit are filed and served on the creditor within 21 days of service of the statutory demand..

Relying on bare denials

Affidavits that deny the debt without particularising the grounds are routinely struck down.

In Graywinter Properties Pty Ltd (ACN 051 373 570) v Gas & Fuel Corp Superannuation Fund (ACN 004 295 345) [1996] FCA 822, the Court held that the affidavit must disclose material facts with particularity. Bare assertions are not enough.

Not attaching source documents

Courts give little weight to unsubstantiated statements if contradicted by contemporaneous records.

As the Full Court stressed in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681, a contention that the dispute “may have some substance” may be set aside.

Exhibiting contracts, invoices, or correspondence can make the difference.

Confusing offsetting claim with a genuine dispute

Some companies mistakenly run arguments as a genuine dispute when they are really offsetting claims under s 459H(1)(b).

Both can be raised, but they are conceptually distinct.

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 confirms that a genuine dispute goes to the existence or amount of the creditor’s claim, while an offsetting claim is a cross-demand.

Misframing the argument risks losing both.

Assuming settlement talks extend the deadline

Another trap is believing that negotiations with the creditor suspend the statutory timeframe. They do not.

As Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497 demonstrates, statutory demands operate under a strict code.

Settlement discussions are no substitute for filing and serving an application and affidavit within time.

Avoiding these pitfalls is as important as having a good case. Companies that act quickly, provide evidence, and frame their arguments correctly maximise their chances of successfully resisting a statutory demand.

Genuine Dispute vs Offsetting Claim

While both genuine dispute and offsetting claim are recognised defences under section 459H of the Corporations Act, they operate differently.

Businesses often confuse the two, which can weaken their application to set aside a statutory demand.

To make the distinction clear, the following table sets out the key differences and similarities, with case law examples showing how each ground is applied in practice.

In practice, companies often raise both genuine disputes and offsetting claims together, provided each is supported by particularised affidavit evidence.

The courts have confirmed that the two grounds are not mutually exclusive; a debtor may challenge the creditor’s claim while also relying on a counter-demand.

The key is framing each argument correctly and ensuring the affidavit discloses the facts on which it relies.

By doing so, a company maximises its chances of having the statutory demand set aside or varied, while avoiding the common pitfalls that lead to failure.

Genuine Dispute – Key Takeaways

The genuine dispute defence is a powerful safeguard for companies served with statutory demands, but it is also unforgiving in its procedural demands.

The law deliberately sets the threshold low; even modest, arguable issues backed by evidence can be enough to defeat a demand.

However, success depends on strict compliance with the 21-day deadline, precise affidavit drafting, and the inclusion of contemporaneous documents.

Various cases in Australia have defined what constitutes a genuine dispute and what does not. A genuine dispute should:

1. Be a claim that may have some substance.
2. Be bona fide, genuine, and authentic.
3. Be in good faith and show a prima facie plausibility.
4. Be something more than mere bluster or mere assertion.
5. Have a sufficient degree of cogency to be arguable.
6. Have objective existence.
7. Have sufficient factual particularity.
8. Show a plausible contention requiring investigation.
9. Truly exists in fact and contains a serious question to be tried.

A genuine dispute should not:

• Be merely fanciful or futile.
• Be merely a spurious claim, bluster, or assertion.
• Be plainly vexatious or frivolous.
• Be so devoid of substance that no further investigation is warranted.
• Be spurious, hypothetical, illusory, or misconceived.

Courts have repeatedly warned that statutory demands are not debt collection tools.

Misuse of the process can amount to an abuse, exposing creditors to indemnity costs.

For debtor companies, the lesson is clear: act immediately, particularise the grounds of dispute, and ensure your evidence shows a real controversy with substance.

Appropriately done, a genuine dispute application not only prevents unfair insolvency pressure but also protects your company’s commercial standing.

Read more here – What is a Creditor’s Statutory Demand?

Further reading:

• How to Use a Statutory Demand to Wind Up a Company
• How to Draft a Statutory Demand – Form 509H
• Abuse of Process – Statutory Demand

FAQs: Genuine Dispute and Statutory Demands

Business owners often have urgent questions when faced with a statutory demand.

To make this complex area of law easier to navigate, we’ve answered the most common questions about the genuine dispute defence.

These plain-English FAQs, supported by leading cases, explain the process, the evidence required, and the pitfalls to avoid — giving you practical guidance at a glance.

What is a genuine dispute under section 459H of the Corporations Act?

A genuine dispute means there is a real, arguable controversy about a debt, not just a fanciful or illusory denial. The company doesn’t need to prove it will ultimately win the case, only that the dispute is rational, credible, and requires proper investigation.

Can a statutory demand be set aside if only part of the debt is disputed?

Yes. If part of the debt is genuinely disputed, the court will deduct that amount to calculate the “substantiated amount.” If what remains falls below the statutory minimum of $4,000, the demand must be set aside. If it is above the threshold, the demand may be varied to reflect only the undisputed amount.

What evidence is needed to prove a genuine dispute?

The supporting affidavit must spell out the dispute with precise detail and include supporting documents such as contracts, invoices, or correspondence. Bare denials are not enough. The evidence needs to show that there are plausible grounds for the dispute, giving the court confidence that the claim has substance.

How much time do I have to file an application to set aside a statutory demand?

You must file and serve both the application and the supporting affidavit within 21 days of being served with the demand. The time limit is strict and cannot be extended. Missing the deadline will usually prevent the court from hearing the application, no matter how strong the dispute.

Do settlement negotiations extend the 21-day deadline?

No. Settlement discussions with a creditor do not pause or extend the statutory timeframe. You must still file and serve the application and affidavit within 21 days. Failing to do so means the statutory demand stands, regardless of any ongoing negotiations.

Can I rely on a request for further information as a genuine dispute?

No. Simply asking the creditor for more information, without providing supporting evidence of a real controversy, is not enough. To succeed, the company must identify facts or circumstances that actually show why the debt is contested.

What are examples of issues that can create a genuine dispute?

Common examples include disagreements about whether a contract was formed, whether variations were authorised, how work or services were valued, or whether goods or services were defective. These kinds of issues, if supported by evidence, are usually enough to establish a genuine dispute.

Is an appeal against a judgment debt a genuine dispute?

Generally, no. The existence of an appeal or a stay of enforcement does not by itself create a genuine dispute. Unless there are independent grounds showing a real controversy about the debt, a statutory demand based on a judgment debt will usually remain valid.

What happens if the court finds there is a genuine dispute?

If the court accepts that there is a genuine dispute about the debt, the statutory demand will either be set aside or varied. This means the presumption of insolvency is not triggered, protecting the company from winding-up proceedings based on that demand.

How do courts treat parallel proceedings when assessing a genuine dispute?

If there are already court proceedings on foot about the same debt, this can strongly indicate a genuine dispute. Running both a statutory demand and a separate court case at the same time can be seen as unfair pressure or duplication, and may result in the demand being set aside.

What is the Graywinter principle?

The Graywinter principle requires that an affidavit supporting the application must set out the grounds of dispute with particularity. General statements like “we dispute the debt” are not enough. The affidavit should specify the facts, identify relevant documents, and explain why the debt is contested.

Can the court consider witness credibility in a genuine dispute?

Generally, no. The court does not weigh evidence or decide who is telling the truth when dealing with a statutory demand. Its role is only to determine whether the materials disclose a plausible, good-faith dispute. Assessing credibility is left for a full trial.

Is a low threshold applied to genuine disputes?

Yes. The threshold is deliberately low. Once a company shows even a modest but arguable basis for a dispute, the court must accept it as genuine. The aim is to ensure that companies are not unfairly wound up when there is a real controversy about the debt.

What if only part of the debt is disputed?

Where part of the debt is in dispute, the disputed amount is deducted to calculate the “substantiated amount.” If the remainder is under $4,000, the demand must be set aside. If the amount exceeds $4,000, the demand may vary, so it only applies to the undisputed portion.

Can affidavits be supplemented after the 21-day deadline?

No. Both the application and the supporting affidavit must be filed and served within 21 days. New evidence or grounds cannot be added later. If the affidavit is incomplete or vague at filing, the application is likely to fail even if a genuine dispute exists.

How do courts view defective service of a statutory demand?

If a statutory demand is not served correctly, it may be invalid. Service must follow the legal rules, usually at the company’s registered office. If a creditor knows the demand has not come to the company’s attention but fails to correct the problem, the demand can be set aside.

Are duplicative or multiple claims a basis for a genuine dispute?

Yes. If a creditor uses a statutory demand while also pursuing separate proceedings for the same debt, this can amount to an abuse of process. Duplicative recovery attempts often show the debt is genuinely in dispute and unsuitable for the statutory demand process.

Can a statutory demand be used against a plainly solvent company?

No. Statutory demands are insolvency tools, not ordinary debt collection devices. Using them against a solvent company to apply commercial pressure can be considered an abuse of process – creditors who misuse the regime risk having their demands set aside and may face cost penalties.

What are the top mistakes companies make in genuine dispute applications?

The most common mistakes include missing the 21-day deadline, relying on bare denials, failing to attach supporting documents, confusing offsetting claims with genuine disputes, and assuming negotiations extend the deadline. These errors often lead to failure, even when there is a strong case.

How should businesses prepare to resist a statutory demand?

Act immediately, keep contracts and records well organised, and seek legal advice early. The affidavit must be drafted carefully, with precise details and supporting documents. Even a modest but arguable dispute is enough to succeed if it is properly particularised and filed within the strict 21-day timeframe.