Statutory demands at a glance
- Available only against a company, not an individual or sole trader.
- Minimum debt: $4,000, whether one debt or a total of several debts.
- The debt must be due and payable when the demand is served.
- Use prescribed Form 509H and identify the debt with enough precision for the company to understand and assess it.
- Unless the debt is a judgment debt, the demand must be accompanied by a qualifying affidavit verifying that the debt is due and payable and that there is no genuine dispute about it.
- The company ordinarily has 21 days after service to pay, secure or compound, or to file and serve a setting-aside application and supporting affidavit.
- A request for withdrawal, a promise to pay or ongoing negotiations do not themselves stop time.
What is a statutory demand?
A statutory demand is a creditor-initiated procedure under Part 5.4 of the Corporations Act 2001 (Cth). It is directed to corporate insolvency, not simply to proving or recovering a disputed debt. The demand tells the company that a specified debt is due and requires compliance within a short statutory period.
If the company fails to comply, section 459C(2)(a) permits insolvency to be presumed in a winding-up proceeding commenced within three months after the failure. The presumption is powerful, but it is not itself a winding-up order. The creditor must still commence a winding-up application, establish standing and satisfy the Court that an order should be made.
For creditors deciding whether this route is commercially sensible, Stonegate Legal’s guide to winding up a company that owes money explains the later court process and the difference between pressure for payment and collective insolvency administration.
When can a creditor issue a statutory demand?
The debtor must be a company
The procedure applies to a “company” within the definition in section 9. It is not available against an individual, a sole trader in their personal capacity or an unincorporated business name. Confirm the debtor’s exact registered name and ACN from a current ASIC company extract. A trading name is not a substitute for the legal entity that incurred the debt.
The statutory minimum is $4,000
The current statutory minimum is $4,000 under regulation 5.4.01AA of the Corporations Regulations 2001 (Cth). One creditor may rely on a single debt or two or more debts that together reach the minimum: section 459E(1). Interest should only be included if the entitlement and calculation are supportable.
The debt must be due and payable
A future, contingent or uncrystallised liability will not do. Check the contract, invoice terms, any notice requirement, any condition precedent and any acceleration clause. If payment terms expire next Friday, a demand served today is premature even if non-payment appears inevitable.
The creditor also needs to distinguish a debt from an unliquidated damages claim. A claim that defective work caused an estimated $80,000 loss may support ordinary proceedings, but it is not necessarily a presently due debt suitable for a statutory demand.
There should be no genuine dispute or offsetting claim
The Act does not state this as an element in section 459E(1), but it is a decisive pre-service risk. Under section 459H, the Court calculates a “substantiated amount” by deducting any genuinely disputed amount and any genuine offsetting claim. If the result falls below $4,000, the demand must be set aside.
The threshold is deliberately low. A company does not have to prove at the setting-aside hearing that it will ultimately win. It must show a serious question to be tried or a plausible contention requiring investigation. Bare assertion, artificial argument and mere delay are not enough. Stonegate Legal’s separate guides examine the tests for a genuine dispute in a statutory demand application and an offsetting claim against a statutory demand in greater detail.
| Question before service | Why it matters | Safer course if uncertain |
| Is the debtor the contracting company? | A demand against the wrong entity may be defective and commercially useless. | Obtain the contract, invoices and current ASIC extract. |
| Is at least $4,000 presently due? | The statutory minimum and due-date requirements are fundamental. | Recalculate principal and interest; wait until the debt matures. |
| Has liability or quantum been disputed? | A genuine dispute may lead to the demand being set aside with costs. | Use ordinary civil proceedings where the dispute needs a trial. |
| Does the company assert a cross-claim? | A genuine offsetting claim may reduce the substantiated amount below $4,000. | Investigate evidence and quantify the cross-claim first. |
| Is liquidation a rational end point? | Winding up is collective insolvency relief, not a private execution process. | Compare judgment and enforcement options before serving. |
How to prepare a valid statutory demand
Use Form 509H
A demand must be in writing, in the prescribed form and signed by or on behalf of the creditor: section 459E(2). The prescribed form is Form 509H in Schedule 2 to the Corporations Regulations 2001 (Cth). Do not treat it as a loose template. Retain its operative requirements and warning, and complete each field consistently.
Identify the parties and debt precisely
Use the company’s current registered name and ACN. Identify the creditor by its correct legal name, not merely by a business name used on invoices. The schedule should let a director understand the source and composition of the demand without reconstructing it from guesswork. Useful particulars commonly include contract or account details, invoice numbers and dates, the work or goods supplied, credits allowed, principal, interest basis and the total.
A mistake does not automatically invalidate a demand. “Defect” is defined broadly in section 9, while section 459J(1)(a) requires substantial injustice before a defect alone compels setting aside. That is no reason to be casual. An ambiguous schedule gives the debtor an avoidable forensic point and can undermine the affidavit assertion that there is no genuine dispute. Stonegate Legal’s analysis of errors and defects in statutory demands deals with common examples.
Prepare the supporting affidavit when required
If the demand does not rely on a judgment debt, section 459E(3) requires an affidavit accompanying the demand. In a Queensland Supreme Court matter, rule 5.2 of Schedule 1A to the Uniform Civil Procedure Rules 1999 (Qld) prescribes Form 7. The affidavit must verify that the debt is due and payable and that there is no genuine dispute, and Form 7 requires it to be made no earlier than seven days before the demand. A demand founded wholly on a judgment debt does not require that affidavit, although the judgment and any payments still need to be checked carefully.
The deponent should have an adequate basis for the statements made. Before swearing that there is no genuine dispute, review the correspondence, contractual notices, complaints, credit claims and any asserted cross-demand. The affidavit is not a ceremonial attachment.
Sign, date and cross-check the package
Check that the demand, schedule and affidavit identify the same debtor, creditor, debts and total. Check arithmetic down to the cent. Confirm that credits and part-payments have been applied, and that the amount will still be correct on the proposed service date. The demand must be signed by or on behalf of the creditor.
How to serve a statutory demand
Section 109X(1) provides familiar methods of service on a company: leaving the document at, or posting it to, the company’s registered office; or personally delivering a copy to a director who resides in Australia or an external Territory. Obtain a current ASIC extract immediately before service and keep it with the file.
Postal service brings timing and proof issues. Section 160 of the Evidence Act 1995 (Cth) creates a rebuttable presumption that a prepaid postal article addressed within Australia was received on the seventh working day after posting. That is not a licence to calculate casually: the mode of delivery, evidence of actual delivery and any returned item may affect the analysis. Preserve the envelope, covering letter, tracking record, proof of lodgment and delivery information.
Electronic delivery is fact-sensitive. The technology-neutral provisions in Part 1.2AA, including sections 110C and 110D, may permit documents within their scope to be sent electronically where statutory conditions are met. The recipient’s nominated electronic address, the accessibility of the document and proof of transmission and receipt all matter. The safer course is not to assume that sending an attachment to an address found somewhere in old correspondence is effective service. See Stonegate Legal’s detailed guide to serving a statutory demand by email.
Real-world example: proving service
A creditor posts a demand to the registered office shown on an ASIC extract and keeps only a screenshot of the tracking page. Two months later, the tracking data is no longer available and the company disputes delivery. The creditor has created an avoidable evidentiary problem. A disciplined service file would contain the ASIC extract, the addressed envelope, the complete demand and affidavit, the postal receipt, archived tracking events and an affidavit from the person who prepared and posted the package.
What must a company do after receiving a statutory demand?
The first task is to identify the date and method of service. The second is to calculate the deadline and preserve evidence. The third is to make a legal and commercial decision quickly. The available paths are not interchangeable.
| Response | What it requires | Main risk |
| Pay | Payment of the demanded debt within the compliance period. | A late tender may not remove the debt or the insolvency presumption. |
| Secure or compound | Security or a payment arrangement to the creditor’s reasonable satisfaction. | A proposal is not compliance merely because the company considers it reasonable. |
| Obtain withdrawal | An unequivocal withdrawal by the creditor, preferably in writing. | A request or negotiation does not stop the 21-day clock. |
| Apply to set aside | File the application and supporting affidavit, then serve both within 21 days. | Late filing or service deprives the Court of jurisdiction under section 459G. |
| Do nothing | No compliance step is taken. | The company is presumed insolvent for a qualifying winding-up application. |
Pay, secure or compound for the debt
Section 459F treats the company as failing to comply unless, by the end of the compliance period, it pays the amount or secures or compounds for it to the creditor’s reasonable satisfaction. “Compound” usually means reaching an arrangement about payment, which may involve instalments or a different amount. In Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445, the Court treated reasonable satisfaction as an objective question, not whatever the creditor happens to prefer.
A proposal is not enough. If the creditor has not accepted it and a court would not regard rejection as unreasonable, the company remains exposed. Record the terms, security, payment dates, releases and treatment of the demand in a signed agreement.
Real-world example: negotiations do not stop time
A building company receives a demand on 1 September. On day 10 it offers six monthly instalments and asks the creditor to withdraw the demand. The creditor says it is “considering the proposal” but gives no answer. The company cannot treat that exchange as compliance. Unless it obtains an unequivocal withdrawal, reaches an accepted arrangement amounting to securing or compounding, pays, or files and serves a setting-aside application in time, the statutory clock expires.
Apply to set aside the statutory demand
Under section 459G(2) and (3), an application may only be made within 21 days after service. Within that period the company must file a supporting affidavit and serve a copy of both the application and the supporting affidavit on the person who served the demand. This is a jurisdictional deadline. A near miss is still a miss.
The principal statutory grounds are:
- a genuine dispute about the existence or amount of the debt under section 459H(1)(a)
- a genuine offsetting claim under section 459H(1)(b)
- a defect that would cause substantial injustice under section 459J(1)(a)
- some other reason to set the demand aside under section 459J(1)(b)
The affidavit filed within time must raise the essential factual foundation relied upon. Later evidence may elaborate a ground adequately identified within time, but it cannot safely be used to invent a new case after the jurisdictional period has expired. Stonegate Legal’s complete guide to setting aside a statutory demand examines the procedure and evidence in detail.
Case example: David Grant and the unforgiving 21-day limit
In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, the High Court held that the time requirement in section 459G is an essential condition of the statutory right to apply. The application, supporting affidavit and service steps must occur within the prescribed period. The Court cannot use a general procedural power to cure non-compliance.
The practical lesson is blunt. A company should work backwards from the service date, allow time for evidence and registry requisitions, and serve sealed documents well before the last day. Correspondence seeking withdrawal should run in parallel, not consume the time needed to protect the company’s position. Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9 confirms that the period for compliance cannot be extended after it has expired.
Case example: a genuine dispute is not a mini-trial
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, the Full Court of the Federal Court emphasised that the statutory-demand process is not the occasion to resolve a genuinely disputed debt. The issue is whether there is a serious question to be tried, not which side will ultimately succeed after discovery and cross-examination.
That distinction controls strategy. If contemporaneous documents show a coherent dispute about performance, variations, payment or set-off, the creditor should usually litigate the debt in the ordinary way. Serving a demand to force settlement of that dispute invites a setting-aside application and an adverse costs order.
How the 21-day period is calculated
The day of service is excluded from the count. Day one is the following day. If the last day falls on a Saturday, Sunday or relevant holiday, section 36(2) of the Acts Interpretation Act 1901 (Cth) may move the deadline to the next day that is not one of those days. Court filing arrangements, registry hours and electronic filing cut-offs must still be checked.
The safest professional approach is to record both the calculated final day and an earlier internal deadline. If the service date is arguable, calculate on the earliest reasonably available date and do not rely on the dispute unless necessary.
Withdrawing a statutory demand
The Act does not prescribe a withdrawal form. In Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 50 FCR 426, the Federal Court accepted that an unequivocal written withdrawal within the compliance period leaves no demand with which the company can fail to comply. Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602 indicates that writing is not essential to validity, but it is plainly desirable as proof.
A debtor should ask for words that are unconditional and unambiguous: the creditor withdraws the identified statutory demand with immediate effect. A proposal to “hold the demand in abeyance”, a promise not to act for the moment or an agreement to keep negotiating may not achieve the same result.
A creditor who recognises a genuine dispute, a material defect or a mistaken amount should consider withdrawal promptly. Persisting can increase costs exposure. Section 459N expressly deals with costs where the company succeeds in setting a demand aside.
What happens if the company does not comply?
Failure to comply gives rise to the presumption in section 459C(2)(a) for a winding-up application made within three months after the failure. An eligible creditor may apply under section 459P and, if relying on the demand, must comply with the requirements in section 459Q. The application ordinarily must be determined within six months unless the Court makes a qualifying extension order under section 459R.
The company can attempt to rebut the presumption by proving solvency, usually through detailed and current evidence of cash flow, assets and liabilities, access to funding and the reliability of financial records. That exercise is considerably more expensive and uncertain than responding properly within 21 days. Stonegate Legal’s guide to rebutting the presumption of insolvency explains the evidentiary task.
A further trap appears in section 459S. At the winding-up stage, the company generally cannot rely on a ground it could have used to set aside the demand unless the Court is satisfied the ground is material to proving solvency or there is another reason it should be considered. The setting-aside deadline therefore affects not only the immediate application but also the defences available later.
Risks for the creditor
A statutory demand can be effective where the debt is clear and the creditor is prepared to pursue winding up. It is a poor substitute for ordinary proceedings where liability needs to be tried. The main creditor risks are:
- the demand is set aside because of a genuine dispute or offsetting claim;
- a defect causes substantial injustice or there is another reason for setting it aside;
- the creditor pays the company’s costs of the application;
- service cannot be proved, so the compliance period and presumption cannot be established;
- the company is genuinely insolvent and liquidation produces little or no dividend; and
- a payment received shortly before liquidation is later challenged as an unfair preference.
The Federal Court’s observation in Topfelt Pty Ltd v State Bank of New South Wales Ltd [1993] FCA 589 remains apt: a creditor seeking the benefit of the insolvency presumption should state the debt clearly, correctly and unambiguously.
Practical statutory demand checklist
For a creditor before service
- Confirm the correct company name, ACN and current registered office.
- Verify that at least $4,000 is due and payable and apply all credits and payments.
- Review every communication for a dispute or cross-claim.
- Decide whether winding up is a commercially rational next step.
- Complete Form 509H accurately and particularise each debt.
- Prepare a compliant affidavit if the debt is not a judgment debt.
- Cross-check names, dates, totals, attachments and signing authority.
- Choose a defensible service method and preserve a complete proof-of-service file.
For a company on receipt
- Record when, where and how the demand was received or delivered.
- Calculate the 21-day deadline immediately and set an earlier internal deadline.
- Preserve the demand, envelope, email and delivery metadata.
- Identify whether the debt is admitted, disputed or subject to an offsetting claim.
- Gather contracts, invoices, payment records, correspondence and witness evidence.
- Negotiate if useful, but do not let negotiations displace a protective court application.
- If applying to set aside, file and serve the application and supporting affidavit within time.
- Obtain any withdrawal or payment arrangement in clear written terms.
Frequently asked questions about statutory demands
Can a statutory demand be served on an individual?
No. The Part 5.4 procedure is for companies. Different processes apply to individuals, including bankruptcy notices where the statutory conditions are met.
Can several invoices be combined?
Yes. Section 459E permits two or more debts owed to the creditor to be totalled, provided the total is at least $4,000 and each relied-on debt is due and payable. The schedule should identify each invoice and credit clearly.
Does a creditor need a court judgment first?
No. A demand may rely on a non-judgment debt, but it must then be accompanied by the affidavit required by section 459E(3). A prior judgment may reduce the scope for disputing the debt, but it does not excuse errors in amount, identity or service.
Can the parties agree to extend the 21 days?
They can negotiate, withdraw the demand or enter an arrangement, but they cannot privately enlarge the jurisdictional period in section 459G. Do not rely on an informal extension.
Does a defect automatically invalidate the demand?
No. Under section 459J, a defect must cause substantial injustice before it requires setting aside on that ground. A demand may also be set aside for some other reason. The effect of an error depends on its nature and the evidence.
Is non-compliance proof that the company is insolvent?
It creates a rebuttable statutory presumption for a qualifying winding-up proceeding; it is not conclusive proof and does not itself place the company into liquidation.
Final position
A statutory demand should be used with a winding-up strategy in mind, not as an aggressive letter of demand. For the creditor, accuracy before service is cheaper than defending a setting-aside application. For the company, the central fact is the deadline: determine the service date, obtain advice and protect the position before the 21 days expire.
