Table of Contents
Toggle- Statutory Demands in Construction
- What is a Creditor’s Statutory Demand?
- Common Usage Scenarios in Construction
- Legal Requirements and Risks for Creditors
- Setting Aside a Statutory Demand
- Practical Examples of Reasons a Statutory Demand is Set Aside
- Consequences of Non-Compliance
- Statutory Demands vs Security of Payment Act
- Strategic Considerations for Builders and Developers
- Regulatory Compliance with QBCC and Licensing Risks
- Legal Advice and Best Practices
- Practical Case Examples
- Statutory Demands in Construction – Key Takeaways
- Statutory Demand – Risks & Benefits Table
- Statutory Demands in Construction – FAQ with Answers
- What is a statutory demand in the construction industry?
- How does a statutory demand differ from a letter of demand?
- What is the 21-day compliance rule for statutory demands?
- When should a builder issue a statutory demand in construction?
- What are the risks of issuing a statutory demand incorrectly?
- Can a statutory demand be used if the debt is disputed?
- What happens if a statutory demand is ignored?
- How can a construction company set aside a statutory demand?
- What is an offsetting claim in response to a statutory demand?
- What counts as a defect in a statutory demand?
- What is the difference between a statutory demand and BIFA adjudication?
- When should BIFA adjudication be used instead of a statutory demand?
- What are the consequences of liquidation following a statutory demand?
- How does the QBCC treat directors after a statutory demand leads to liquidation?
- Can a statutory demand harm a builder’s reputation?
- What formal requirements must a statutory demand meet?
- Why is legal advice important before issuing or responding to a statutory demand?
- What are common mistakes when issuing a statutory demand?
- How should a company respond to a statutory demand?
- What are the key risks and benefits of statutory demands in construction?
Statutory Demands in Construction
Statutory Demands in Construction – The risk of delayed or unpaid invoices is a persistent operational concern in the Australian construction industry, particularly for small to medium-sized enterprises.
- 70% of Australian construction companies experience late payments annually.
- 92% of Australian construction firms reported overdue invoices in the last 12 months.
- 39% of overdue invoices in the Australian construction industry were more than 30 days late.
- The construction industry had the highest number of payment disputes.
Whether you’re a subcontractor chasing progress payments or a head contractor managing multiple streams of outgoings, maintaining healthy cash flow is essential to the viability of your business.
When a payment dispute arises and all reasonable attempts at resolution have failed, creditors can use a creditor’s statutory demand as a legal remedy.
This is a formal demand issued under the Corporations Act 2001 (Cth), requiring a company to pay a debt within a strict timeframe or face severe legal consequences.
In practice, it is a highly effective tool to recover undisputed debts, and its implications are particularly significant in the construction sector, a sector prone to complex contractual relationships, cascading subcontracting arrangements, and tight margins.
Statutory demands are not simply a collection notice; they carry the weight of corporate insolvency law.
Failure to comply within the statutory timeframe gives rise to a presumption of insolvency, assisting a creditor with winding-up proceedings against the debtor company.
The process, although procedural, can have devastating consequences for builders, including the cancellation of licences, permanent disqualification as a director, director’s liability, and reputational damage.
In the construction context, statutory demands are frequently used where there is a delay or failure in responding to a payment claim, where a debt arises from a terminated contract, or where final claims remain unpaid.
However, their use is not without risk. If misused, for example, where a genuine dispute exists, a statutory demand can be set aside, and the issuing party may be ordered to pay costs.
This guide is written for builders, subcontractors, and business owners operating in the construction industry who are either contemplating issuing a statutory demand or have been served with one.
It is intended to explain the process in plain terms, outline legal risks and compliance requirements, and highlight key considerations unique to construction industry participants, such as licensing consequences and industry-specific defences.
Used correctly, statutory demands can be a decisive step in recovering debts.
Misused, they can be a costly and strategic misstep.
Understanding the mechanics, risks, and consequences of this legal tool is critical to making informed decisions in the commercial realities of construction.
What is a Creditor’s Statutory Demand?
A creditor’s statutory demand is a formal notice issued by a creditor to a company, requiring the payment of an outstanding debt within 21 days.
It is governed by section 459E of the Corporations Act 2001 (Cth) and is a serious step in the debt recovery process.
It is not a letter of demand, nor is it an informal attempt at negotiation, it is a preliminary step toward proving a company is insolvent.
Section 95A of the Corporations Act states:
(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.
To be valid, the debt claimed must be at least $4,000, and it must be due and payable at the time of service, and there must not be any genuine dispute about the debt.
A statutory demand must be in writing, in the prescribed form (509H in the Corporations Schedule), and accompanied by a Form 7 supporting affidavit unless the debt is a judgment debt.
In the construction industry, statutory demands are commonly used to recover unpaid invoices, retention amounts, or final claims where the debtor has failed to respond to repeated requests for payment.
It is particularly desirable to small and medium-sized businesses because it applies significant pressure on the debtor as the 21-day clock starts ticking the moment it is served.
The 21-Day Compliance Rule
Once the statutory demand is served on the debtor company, it has 21 days to take one of the following actions:
- Pay the debt in full.
- Reach an agreement with the creditor (e.g., payment arrangement); or
- Apply to the Court to have the statutory demand set aside.
This 21-day timeframe is strictly enforced. If the company does not respond appropriately within that period, it is presumed to be insolvent under section 459C of the Corporations Act.
That presumption can then be relied on by the creditor (or any other creditor) to apply to the Court for the company to be wound up in insolvency.
You may not want to wind the debtor up in insolvency, but this is good leverage in settlement negotiations.
Legal Implications for Non-Compliance
If a company fails to comply with a statutory demand within 21 days, the law deems the company insolvent unless it can prove otherwise.
This triggers a chain of legal consequences, including:
- Exposure to a winding-up application.
- Appointment of a liquidator.
- Loss of control of the business and its assets.
- Potential QBCC licence cancellation (for construction companies in Queensland).
- Ineligibility of directors and other “influential persons” to hold a QBCC licence for at least three years; and
- Possible reputational and financial damage to both the business and its key personnel.
It is important to note that statutory demands are not designed to resolve genuine disputes about debts.
If there is a bona fide dispute, for example, about the quality of work, compliance with contract terms, or amounts claimed, the company should promptly seek legal advice and apply to set the demand aside.
We have a great article here – Setting Aside Statutory Demand – Complete Guide
However, this application must be made within the same 21-day period, or the statutory consequences of non-compliance will apply.
For construction companies, this process is particularly critical.
Serving or receiving a statutory demand can significantly impact your operations, licensing status, and commercial relationships.
It is not a tool to be used lightly, nor a notice to be ignored.
Common Usage Scenarios in Construction
Statutory demands are commonly issued in construction for the recovery of unpaid progress claims, particularly where:
- The payment schedule under the relevant contract or legislation has not been provided.
- A claim has been certified but not paid.
- The parties have failed to reach an agreement over the final claim despite completion of the project.
Another common scenario involves disputed invoices, particularly where the contractor or subcontractor has completed works and submitted invoices, but the principal or head contractor raises vague or unsupported objections to avoid payment.
A statutory demand may be issued if there is no bona fide dispute about the amount claimed, and the amount exceeds the statutory threshold (currently $4,000).
The process of issuing a statutory demand must be approached carefully. It is not a debt recovery tool for disputed claims. The creditor must be confident that:
- The debt is due and payable.
- There is no genuine dispute about the existence or quantum of the debt; and
- The debtor company has no offsetting claim that could reduce the debt to below the statutory threshold.
If those conditions are met, the creditor must then comply with the strict formal requirements.
This includes preparing the demand in the prescribed form, including a supporting affidavit (unless relying on a judgment debt), and properly serving the demand on the registered office of the company (pursuant to 109X of the Corporations Act).
In practical terms, the use of a statutory demand in the construction sector often leads to one of three outcomes.
- First, the debtor may promptly pay to avoid the reputational and legal risk of being wound up.
- Second, the debtor may apply to the court to set aside the demand, citing a genuine dispute or offsetting claim.
- Third, if no response is received within the 21-day period, the creditor may proceed with an application to have the company placed into liquidation — a serious step with wide-ranging consequences for the company and its directors, including potential cancellation of construction licences.
Issuing a statutory demand is not a decision to be made lightly.
It should only be pursued where the creditor is confident in the legal basis for the debt and prepared to follow through with enforcement action if necessary.
Legal advice should always be sought before taking this step in the construction industry, where ongoing commercial relationships and licensing issues may be affected.
Legal Requirements and Risks for Creditors
While a statutory demand in construction can be a powerful tool in recovering unpaid debts, its effectiveness depends entirely on strict compliance with legal requirements.
In the construction sector, where contractual relationships are often complex and payment claims can be disputed, the risk of misusing this tool, or issuing a defective demand, is particularly high.
A creditor, especially a builder or subcontractor seeking to recover progress payments or outstanding invoices, must ensure that the statutory demand is valid both procedurally and substantively.
A failure on either front can render the demand vulnerable to being set aside by the court, with cost consequences for the issuing party.
Formal Requirements of a Statutory Demand
To issue a valid statutory demand in construction, the creditor must comply with the Corporations Act 2001 (Cth), which prescribes the format, content, and supporting documentation required.
Firstly, the demand must be in the approved form, stating the amount of the debt and giving the debtor 21 days to comply.
Form 509H is located at schedule 2 of the Corporations Regulations 2001 (Cth). If you are drafting a statutory demand yourself, then you need to get a copy from there.
If the debt is not a judgment debt, the demand must be accompanied by an affidavit verifying that the debt is due and payable. The Form 7 is available for download.
This affidavit must be sworn or affirmed and filed at the same time (the same day) the demand is served. It must align precisely with the demand and not contain inconsistent or misleading information.
A common point of failure in the construction industry involves the description of the debt.
The statutory demand and affidavit must describe the debt accurately, including its legal basis – for example, whether the debt arises from a contractual entitlement (such as an unpaid progress claim under a construction contract).
Mischaracterising the legal source of the debt can create significant problems. The courts have emphasised that the affidavit must not be misleading and must match the nature of the claim asserted in the demand.
A statutory demand that inaccurately refers to a contractual entitlement, when no contract exists, may be set aside on the basis of formal defect or substantial injustice.
Furthermore, the demand must be properly served on the registered office of the debtor company. If service is defective, the demand may be unenforceable — even if the debt itself is valid.
Misuse of Statutory Demand in Construction
Using a statutory demand inappropriately, or without proper legal footing, can expose a creditor to strategic, reputational, and financial risk. A key example of this is the misidentification of the legal basis of the debt.
Issuing a statutory demand based on an uncertain legal position, or before the dispute has been properly ventilated, may lead the court to conclude that the demand is being used for improper purposes.
In such cases, the creditor may fail to recover the debt and be ordered to pay the debtor’s legal costs.
In summary, statutory demands in the construction industry must be used with precision, discipline, and legal clarity.
The courts expect creditors to do more than fill out a form — they must establish that the debt is certain, undisputed, and accurately described.
A failure to do so may turn a powerful recovery tool into a costly legal misstep.
Setting Aside a Statutory Demand
For construction companies — particularly small to medium-sized builders and subcontractors — receiving a statutory demand can be a serious commercial threat.
If not dealt with within 21 days of service, it leads to a presumption of insolvency and opens the door to winding-up proceedings.
However, not every statutory demand is valid, and there are several legal grounds on which it can be challenged.
This section outlines the key ways a debtor company can apply to set aside a statutory demand and provides practical examples that frequently arise in the construction industry.
Under the Corporations Act, a company may apply to the court to set aside a statutory demand based on any one (or more) of four grounds. These are discussed below.
Ground | Explanation |
Genuine Dispute | Bona fide disagreement over debt’s existence or amount. |
Offsetting Claim | Debtor has valid counterclaim equal to or exceeding debt. |
Defect in Demand | Formal error causing substantial injustice. |
Some Other Reason | Abuse of process, oppression, or unfairness. |
Genuine Dispute
A statutory demand may be set aside where there is a genuine dispute about the existence or the amount of the debt.
Section 459H(1)(a) of the Corporations Act says:
(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;
So, you can (quickly) apply to the Court for an order setting aside the statutory demand if there is a genuine dispute about the existence of the debt, or the quantum of the debt.
This does not require the company to prove it will succeed at trial, only that the dispute is genuine, bona fide, and involves a serious question to be tried.
The threshold is not high, but the company must show there is more than mere assertion or tactical denial.
In the construction context, genuine disputes are common. For example:
- The scope of works may be contested.
- There may be disagreement about the quality or completeness of work.
- The builder may allege unauthorised variations or incorrect calculations in the payment claim.
Where such a dispute is supported by evidence — such as emails, site reports, expert opinions, or valuation differences — the demand is likely to be set aside.
Offsetting Claims
An offsetting claim is a genuine monetary claim that the debtor company has against the creditor.
Section 459H(5) of the Corporations Act defines offsetting claim to mean:
“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).
So, the main points to consider are:
- The claim must be genuine.
- The claim must be a counterclaim, set-off, or cross-demand; and
- The claim need not arise out of the same transaction.
If the value of the offsetting claim equals or exceeds the amount of the statutory demand, the demand may be set aside in full.
Offsetting claims frequently arise in construction where:
- The builder incurs rectification costs due to defective work by a subcontractor.
- Liquidated damages are payable by the creditor for delay in completion.
- The builder suffers losses from engaging replacement contractors due to abandonment of works or unlawful suspension.
The offsetting claim must be specific, and evidence of the amount claimed is essential. Vague or estimated figures will not suffice.
Defects in the Demand Causing Substantial Injustice
A statutory demand may also be set aside where there is a defect in the demand and that defect causes or is likely to cause substantial injustice.
Section 9 of the Corporations Act defines the word “defect” to mean:
“defect“, in relation to a statutory demand, includes:
(a) an irregularity; and
(b) a misstatement of an amount or total; and
(c) a misdescription of a debt or other matter; and
(d) a misdescription of a person or entity.
Section 459J(1)(a) if the Corporations Act states:
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside …
This includes errors or omissions in the document that may confuse or mislead the debtor company.
Defects might include:
- Failing to attach a supporting affidavit.
- Misdescribing the legal nature of the debt (e.g., describing a quantum meruit claim as contractual).
- Providing insufficient particulars to identify the debt.
- Failing to identify the correct debtor company.
If the court finds that a reasonable person could be misled as to the nature or enforceability of the demand, it may be set aside.
Some Other Reason
Finally, a statutory demand can be set aside for “some other reason”, a broad residual category intended to capture improper or unfair use of the statutory demand procedure.
Section 459J(1)(b) if the Corporations Act states:
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
… (b) there is some other reason why the demand should be set aside.
This includes circumstances where the demand is an abuse of process or where proceeding with the demand would otherwise be unjust.
Examples might include:
- Where court proceedings are already on foot for the same debt.
- Where the parties are subject to a mandatory dispute resolution process under a construction contract that has not been followed.
- Where the demand was issued oppressively, such as applying commercial pressure in unrelated negotiations.
Read our complete guide here – Setting Aside Statutory Demand
Practical Examples of Reasons a Statutory Demand is Set Aside
The courts have recognised several recurring situations in the construction industry that may support an application to set aside a statutory demand.
Non-Compliant Invoices
If the creditor relies on a payment claim that fails to comply with the Building and Construction Industry (Security of Payment) Act (BIFA), the debtor may argue that the statutory demand is based on an invalid or unenforceable claim.
This could arise where:
- The payment claim was not served in the correct form.
- The due date for the claim had not yet passed.
- The claim did not relate to construction work covered under BIFA.
In such cases, the demand may be vulnerable to being set aside for lack of a due and payable debt.
Defective Work and Liquidated Damages
A frequent basis for both genuine disputes and offsetting claims is the existence of defective work.
If a subcontractor’s work was incomplete, non-compliant, or required significant rectification, the builder may argue that any amount claimed is subject to reduction, or that damages arising from defects exceed the amount claimed.
Similarly, if the subcontractor caused delays to the project, the builder may be entitled to liquidated damages under the head contract, which can form part of an offsetting claim.
Improper Service or Premature Demand
Another common issue arises where the statutory demand is served prematurely, before a dispute resolution clause under the contract has been followed, or improperly, such as by leaving it at the wrong address or serving it on a related entity rather than the debtor company itself.
Improper service can result in the court refusing to recognise the demand as valid, and timing errors can deprive the demand of legal effect altogether.
Section 109X of the Corporations Act says (inter alia):
(1) For the purposes of any law, a document may be served on a company by:
(a) leaving it at, or posting it to, the company’s registered office; or
(b) delivering a copy of the document personally to a director of the company who resides in Australia or in an external Territory …
Read our article – Can You Serve a Statutory Demand by Email in Australia?
Defending against a statutory demand requires urgency, precision, and supporting evidence.
The statutory 21-day period to apply to set aside the demand is strict, and any application must be supported by an affidavit setting out the grounds relied upon.
For builders and contractors, prompt legal advice can mean the difference between preserving your business and facing liquidation proceedings, even where the underlying debt is disputed or offset.
Understanding these defences and their application in construction is essential when navigating a statutory demand.
Consequences of Non-Compliance
The consequences of failing to comply with a statutory demand are significant and often irreversible.
For companies operating in the construction industry, where margins are tight, licensing is mandatory, and commercial reputation is vital, non-compliance can result in legal, regulatory, and financial consequences that extend well beyond the original dispute.
A statutory demand must be dealt with within 21 days of service.
If it is ignored, overlooked, or not properly challenged in court within that period, the law imposes an automatic legal presumption that the company is insolvent.
That presumption can then be used to support a winding-up application by any creditor.
The Presumption of Insolvency
Under the Corporations Act, failure to comply with a statutory demand within 21 days gives rise to a statutory presumption of insolvency.
This presumption operates automatically and does not require any further inquiry into the company’s actual financial position.
In effect, the law deems the company to be unable to pay its debts as and when they fall due — the legal test for corporate insolvency.
Once that presumption is established, the creditor (or any other creditor) can use it to assist with a winding-up application.
The Federal Court or Supreme Court may then appoint a liquidator to take control of the company, realise its assets, and distribute funds to creditors.
Significantly, once the 21-day period has passed without action, the company’s ability to defend itself is substantially reduced.
The consequences of being placed into liquidation are severe in the construction sector.
Project contracts may be terminated, retention funds may be withheld, and ongoing government and private-sector work eligibility may be lost overnight.
Director and Licensee Consequences
In Queensland, liquidation following a statutory demand can have regulatory implications for building and construction licences.
Under the Queensland Building and Construction Commission Act 1991 (QBCC Act), an individual who is a director, secretary, or “influential person” of a company that goes into liquidation is deemed an excluded individual.
Section 56AC(2) of the QBCC Act says:
(2) This section also applies to an individual if—
(a) a construction company, for the benefit of a creditor—
(i) has a provisional liquidator, liquidator, administrator or controller appointed; or
(ii) is wound up, or is ordered to be wound up; and
(b) 3 years have not elapsed since the event mentioned in paragraph (a) (i) or (ii) (“relevant company event” ) happened; and
(c) the individual—
(i) was, when the relevant company event happened, a director or secretary of, or an influential person for, the construction company; or
(ii) was, within the period of 2 years immediately before the relevant company event happened, a director or secretary of, or an influential person for, the construction company.
This exclusion lasts for three years from the date of the insolvency event. During that time, the person cannot:
- Hold a QBCC contractor, nominee supervisor, or site supervisor licence.
- Be a director or secretary of a company that holds a QBCC licence; or
- Be in a position to control or substantially influence a licensed company.
Where an individual is involved in two separate insolvency events, they may face permanent exclusion from the industry.
This applies even if the events occur years apart or relate to different entities. For many construction professionals, this can be catastrophic.
It prevents them from trading under their licence, managing their business, or even holding a silent role in another licensed company.
The QBCC treats financial responsibility seriously, and directors are expected to avoid insolvency through proper financial management and dispute resolution.
Notably, the exclusion applies regardless of the underlying cause of liquidation.
Even where the company is solvent in reality, but fails to respond to a statutory demand in time, the legal presumption of insolvency triggers the winding-up process, which triggers the exclusion process if wound up.
Business Reputation and Commercial Impact
Beyond the legal and licensing consequences, non-compliance with a statutory demand can damage a company’s reputation and credibility.
Suppliers, subcontractors, and clients often conduct ABN checks or ASIC searches as part of routine due diligence.
A history of statutory demands, winding-up applications, or liquidation may result in:
- Reluctance from other contractors to enter into joint ventures or subcontracting agreements.
- Suspension or cancellation of commercial supply accounts.
- Withholding of retention monies or performance bonds; and
- Loss of repeat business from government or institutional clients.
In addition, liquidation — even one initiated due to oversight rather than insolvency — can affect banking and finance arrangements.
Trade credit insurers, lenders, and other suppliers may withdraw support, tighten terms, or call in personal guarantees.
Directors may face increased scrutiny when applying for future finance or seeking to establish a new business entity.
For SMEs in the building sector, where cash flow and reputation are tightly linked, these consequences can significantly limit opportunities and drive an otherwise viable company out of the market.
In summary, failing to respond to a statutory demand within 21 days carries far-reaching consequences — legal, regulatory, and commercial.
For building professionals, the risks go well beyond the immediate debt. They include loss of licence, directorship eligibility, and irreparable harm to professional standing.
Early legal advice, careful document management, and timely action are essential in avoiding these outcomes.
Statutory Demands vs Security of Payment Act
Debt recovery in the construction industry often involves strategic decision-making about which legal mechanism to pursue.
Two of the most commonly used enforcement tools are statutory demands, issued under the Corporations Act 2001 (Cth), and adjudication processes under the relevant Security of Payment legislation, such as the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFA) or its equivalent in other jurisdictions.
While both mechanisms aim to address unpaid debts in construction projects, they serve very different functions, and the consequences of using one over the other can be significant.
Understanding the interaction and distinction between the two is critical, particularly for small to medium-sized construction businesses seeking to recover unpaid amounts.
Strategic Differences and Interaction
A statutory demand is a corporate insolvency tool. It is not a mechanism for resolving disputed claims, nor is it intended to determine legal entitlements to payment.
Instead, it operates as a procedural trigger: if the debtor does not respond within 21 days, a legal presumption of insolvency arises, and the company may be wound up.
By contrast, BIFA is explicitly designed for the building and construction industry.
It provides a rapid, interim payment process where contractors and subcontractors can pursue progress claims and receive binding adjudication determinations.
These determinations can then be enforced through court proceedings as debts.
Read our article on – Making a Payment Claim – BIFA (QLD)
In practical terms, a BIFA adjudication is about obtaining and enforcing a certified payment entitlement. In contrast, a statutory demand is a pressure tool that threatens corporate insolvency unless a debt is paid or disputed in court.
That said, the two may sometimes overlap.
A creditor who obtains an adjudication determination under BIFA may, if the debtor fails to pay, choose to rely on that amount as the basis for a statutory demand — but only once the debt is due and payable, and only if there is no genuine dispute or offsetting claim.
BIFA vs Corporations Act Enforcement
From a legal standpoint, BIFA claims, and statutory demands differ in both enforcement process and risk profile.
BIFA adjudication is governed by its own legislative framework. It is designed to resolve payment claims quickly, typically within weeks.
The process is initiated by serving a valid payment claim, and if no payment schedule is issued in time, the claimed amount may become payable by default.
If there is a payment schedule, the claimant can apply for adjudication, and the decision is binding unless overturned by a court.
Read our article here – Making a Payment Claim – BIFA (QLD)
Read our great article on Making an Adjudication Application in Queensland.
You can also seek a judicial review of the adjudication decision in the Court.
Statutory demands, by contrast, operate under the Corporations Act and have nothing to do with the merits of the underlying contract.
The focus is on whether the debt is due, payable, and undisputed. If a debtor applies to set the demand aside based on a genuine dispute or an offsetting claim, the demand may be invalidated, regardless of how strong the creditor believes their claim to be.
There is also a higher risk associated with misusing statutory demands.
If a demand is based on a disputed BIFA claim — or mischaracterises the legal basis of the debt — it may be struck out, and the creditor may be ordered to pay the debtor’s legal costs.
Courts have clarified that statutory demands should not be used to shortcut or bypass the adjudication process.
When to Use BIFA Adjudication Instead
For most builders, subcontractors, and suppliers, BIFA adjudication should be the preferred mechanism for disputes about the amount claimed or where formal contractual processes have broken down.
It provides a quick, low-cost method of resolving payment disputes without requiring proof of insolvency or the threat of liquidation.
BIFA is beneficial when:
- The debtor has failed to issue a payment schedule.
- There is a clear entitlement under the contract for work completed.
- The creditor seeks a binding determination on the payment amount.
- The parties need to preserve an ongoing commercial relationship.
Statutory demands may become appropriate after a BIFA adjudication — but only once the determination has been registered as a judgment debt or the amount is otherwise uncontested.
Even then, it must be approached cautiously. The creditor must ensure the debt is not subject to appeal, cross-claim, or set-off, or risk the demand being set aside.
BIFA and statutory demands are fundamentally different tools.
SME builders and contractors should consider BIFA as the starting point for most unpaid claims, reserving statutory demands for situations where the debt is final, enforceable, and beyond dispute.
Comparison: Statutory Demand vs. BIFA Adjudication
Criteria | Statutory Demand | BIFA Adjudication (Qld) |
Purpose | To apply commercial pressure by threatening insolvency and liquidation if the company does not pay. | To obtain a binding determination of a payment entitlement under construction contracts. |
Best Used When | Debt is clear, due & payable, and undisputed. No genuine dispute or offsetting claim exists. The creditor is willing to proceed to winding up if unpaid. | Debt relates to progress payments, variations, or final claims under a construction contract. There may be a dispute about entitlement. |
Debt Status | Must be undisputed, certain, and over $4,000. | Can be disputed, as adjudication resolves the dispute over payment entitlement. |
Legal Framework | Corporations Act 2001 (Cth) — insolvency law. | Building Industry Fairness (Security of Payment) Act 2017 (Qld) — industry-specific. |
Timeframe | Debtor has 21 days to pay, negotiate, or apply to set aside. | Adjudication decision usually within weeks of application. |
Risk Profile | High risk: if there’s a genuine dispute or defect, demand may be set aside and creditor pays costs. | Lower risk: process designed for quick, interim resolution of disputes. |
Regulatory Impact (Qld) | If winding-up proceeds, directors may face QBCC licence cancellation and exclusion. | No direct QBCC licensing impact; focuses on payment entitlement, not insolvency. |
Commercial Relationship Impact | Often damages relationships due to an insolvency threat. | More neutral: provides a lawful determination while preserving ongoing relationships. |
Enforceability | If unpaid and uncontested, the presumption of insolvency applies — the creditor can apply for liquidation. | An adjudicated amount can be enforced as a judgment debt if unpaid. |
When NOT to Use | Where a genuine dispute exists, the debt is not yet due. Debt is below $4,000 where relationship preservation is important. | Where the debt is already final and uncontested. Where you do not want an interim determination. |
Recommended First Step? | Use only as a last resort for clear, undisputed debts. | Preferred first step in construction payment disputes, even if disputed. |
Strategic Considerations for Builders and Developers
The decision to issue a statutory demand should never be made lightly.
While it is a powerful enforcement tool under the Corporations Act, its misuse can be financially and commercially costly.
Understanding the strategic timing and risks associated with this process is essential for builders and developers, particularly those operating small to medium-sized enterprises.
Statutory demands can be highly effective in recovering undisputed debts, especially where repeated attempts to resolve the issue have failed.
However, if the demand is issued prematurely or without proper legal footing, it may be challenged, set aside, and leave the creditor liable for legal costs.
Worse, it may damage valuable commercial relationships or even trigger retaliatory claims.
This section explores when to issue a demand, the risks of getting it wrong, and alternative pathways that may be more appropriate in certain circumstances.
When to issue a demand
A statutory demand is most effective when:
- The debt is clearly due and payable.
- The amount exceeds the $4,000 statutory threshold.
- There is no genuine dispute about the existence or quantum of the debt.
- The debtor has failed to respond to other requests for payment; and
- The creditor is prepared to follow through with winding-up proceedings if necessary.
In the construction context, this may include:
- A certified progress payment under a construction contract that has not been paid.
- A final payment claim following practical completion.
- An acknowledgement that the debt is owing, they can’t pay it yet (commonly, waiting for a big payment to come in themselves).
- An adjudication determination under the Security of Payment regime, where payment has not been made and the determination is enforceable.
Where these conditions are met, issuing a statutory demand can apply commercial pressure and lead to swift resolution.
However, this approach requires confidence that the debt is not only valid but also beyond serious contest.
Risks of Premature or Invalid Demands
Using a statutory demand in the wrong circumstances carries significant legal risk.
If the debt is genuinely disputed, if there is an unresolved offsetting claim, or if the demand is not drafted and served strictly in accordance with legal requirements, it is likely to be set aside by the court.
Common examples of premature or invalid demands include:
- Serving a demand while the parties still negotiate variations or final accounts.
- Relying on invoices or claims not complying with contractual or legislative requirements.
- Attempting to recover payment for works performed outside the terms of a contract, where the legal basis of the claim is unclear (e.g., restitution rather than contract).
- Failing to attach a valid supporting affidavit or misdescribing the debt’s nature.
The court may also set aside a statutory demand where it finds that it was misused, such as pressuring the debtor in a broader commercial dispute.
In these situations, the creditor may be ordered to pay the debtor’s legal costs, which can be substantial.
Moreover, in the construction industry, where licensing and compliance obligations are strict, a failed demand followed by an unsuccessful winding-up application can have regulatory consequences, particularly in Queensland, where QBCC licensing rules impose penalties for directors of companies placed into liquidation.
Regulatory Compliance with QBCC and Licensing Risks
For builders and construction businesses operating in Queensland, regulatory compliance with the Queensland Building and Construction Commission (QBCC) is more than just a box-ticking exercise; it is integral to maintaining the right to trade.
A failure to manage financial risk appropriately, including the failure to comply with statutory demands or respond to creditor action, can result in licence suspension, cancellation, or personal exclusion from the industry.
The QBCC licensing framework imposes strict obligations on both companies and individuals, particularly with regard to financial solvency and responsible management.
The consequences of company insolvency or liquidation go far beyond business closure; they may have lasting implications for a builder’s or director’s ability to hold or be associated with a licensed entity.
Insolvency Triggers Exclusion Under QBCC
Under the QBCC Act, a person may be declared an excluded individual if they were a director, secretary, or influential person of a construction company that experiences an insolvency event.
This includes where a liquidator, provisional liquidator, administrator, or controller is appointed, or where the company is wound up.
An insolvency event automatically triggers a three-year exclusion for the relevant individual, meaning they are disqualified from:
- Holding a QBCC contractor or nominee supervisor licence.
- Being a director or secretary of a company that holds a QBCC licence; and
- Being in a position to control or substantially influence a licensed company.
This exclusion applies regardless of whether the individual was actively involved in the company’s day-to-day affairs at the time of insolvency. It is sufficient that they held a role of influence within two years before the insolvency event.
Importantly, if a person is involved in two separate insolvency events, they may face a lifetime exclusion unless the second event arises from the same circumstances as the first.
This regulatory approach is designed to remove those who have demonstrated an inability to manage financial risk from the industry.
Liquidation Effects on the Company and Directors
When a company holding a QBCC licence enters liquidation, it does not just lose its legal existence; it also immediately loses its right to operate as a licensed builder.
The company’s licence is cancelled, and its projects may be halted.
Contracts are typically terminated by operation of law or contract terms, and funds held under retention or security may be withheld by principals or head contractors.
The consequences are just as serious for directors and key personnel.
Upon liquidation, the QBCC will issue a show cause notice to affected individuals, inviting them to explain why they should not be declared excluded.
In most cases, the exclusion is automatic unless a valid exemption applies.
Excluded individuals are barred from:
- Being involved in any other licensed building company.
- Operating in partnership with a licensed contractor; or
- Applying for a new licence until the exclusion period expires.
This creates a situation in which experienced builders may be unable to continue working in the industry, not because of poor workmanship or misconduct, but because of regulatory consequences flowing from insolvency.
Legal Advice and Best Practices
Statutory demands are deceptively simple in form but highly technical in substance.
Their consequences are serious, and the rules that govern them are unforgiving.
Whether you are a creditor looking to enforce a debt or a builder who has just been served with a demand, seeking prompt legal advice is essential.
Many problems that arise in statutory demand disputes, and the costs that follow, are entirely avoidable with proper guidance and attention to detail.
SME builders and subcontractors must understand that the statutory demand process is not a casual step in chasing payment.
It is a formal step under the Corporations Act that triggers a 21-day countdown to possible insolvency and liquidation.
Errors in process or delays in response can lead to a company being wound up — even if it is otherwise solvent — and can expose directors to exclusion from the building industry under QBCC rules.
Importance of Seeking Legal Advice
If you intend to serve a statutory demand, legal advice is vital to ensure the debt is legally due, undisputed, and adequately described.
Building and construction lawyers can also assist in preparing the required affidavit verifying the debt, identifying whether there is a risk of the demand being set aside, and advising on whether an alternative enforcement path, such as adjudication or court proceedings, may be more appropriate.
Legal advice should be sought immediately if you are on the receiving end of a demand.
The 21-day deadline to respond is strict. There is no room for negotiation, and the court has no discretion to extend the time limit.
A construction lawyer can assess whether there is a genuine dispute, an offsetting claim, or a defect in the demand that would justify setting it aside.
If an application is to be made, it must be filed and served within the 21-day window — no exceptions.
Template Errors and Affidavit Inconsistencies
One of the most common reasons a statutory demand is challenged successfully is because of technical errors in the form or content of the documents.
Using a template from the internet or copying a previous demand without adjusting for the specific facts of your case is a dangerous practice.
The demand must:
- Use the correct statutory form.
- Clearly describe the debt and how it arises.
- Be accompanied by a supporting affidavit that accurately reflects the same debt and legal basis as stated in the demand.
Common pitfalls include:
- Failing to attach the affidavit at the time of service.
- Describing a debt as contractual when it is a restitutionary claim (or vice versa).
- Listing amounts or invoices that are disputed or not yet due and payable.
- Failing to include supporting documents, especially where the debt is not based on a court judgment.
The court will not hesitate to set aside a statutory demand if it finds the demand is misleading, confusing, or defective, particularly where those defects cause substantial injustice to the recipient.
Responding within 21 Days: Do’s and Don’ts
Once a statutory demand is served, the 21-day response period begins immediately.
This is a strict deadline. If no action is taken within this time, the company is presumed to be insolvent, and a winding-up application can be filed.
For builders, this can result in not only the end of the company but also the loss of their QBCC licence and a ban on future industry participation.
Do:
- Seek legal advice as soon as the demand is received.
- Review the demand for any inaccuracies or defects.
- Check whether you have a genuine dispute or offsetting claim supported by evidence.
- Prepare a detailed affidavit if you intend to apply to set the demand aside.
- Ensure all documents are filed and served within the 21 days.
Don’t:
- Ignore the demand or assume it is a bluff.
- Delay seeking legal advice — time is critical.
- Attempt to negotiate without first protecting your legal position.
- Assume that informal discussions or settlement talks will extend the deadline.
- Wait until day 20 or 21 to start preparing your response.
Even a strong defence will fail if it is filed too late. The courts have clarified that they will not rescue a company from the consequences of missing the deadline, no matter how strong the underlying case.
In conclusion, statutory demands are not a routine debt collection notice.
They are a statutory mechanism with serious insolvency implications, especially for builders and subcontractors subject to QBCC regulation.
Whether you are issuing a demand or defending one, proper legal advice, accurate documentation, and timely action are not optional — they are essential.
Practical Case Examples
Builders and subcontractors navigating debt recovery should be aware that the courts have provided clear guidance on the limits and risks of statutory demands, particularly in the construction industry.
Several recent cases highlight how statutory demands can be challenged and set aside — not because the creditor was necessarily wrong about being owed money, but because the demand was issued improperly, prematurely, or based on a legally flawed premise.
Below are three important judicial decisions that provide practical lessons for construction professionals and creditors.
CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd
CM Luxury Pty Ltd v Menzies Civil Australia Pty Ltd [2023] WASC 340 highlights the critical importance of correctly identifying the legal basis for a debt in a statutory demand.
The creditor, a civil works contractor, had performed works for the principal as part of a recreational development.
Although there were negotiations toward entering into a contract, the principal never signed the agreement.
Despite this, the contractor issued several payment claims and was paid for most, but not all, of them.
When the final two claims, totalling approximately $1.3 million, remained unpaid, the contractor issued a statutory demand asserting that the debt was contractual.
The debtor challenged the demand, arguing there was no binding contract.
In response, the creditor conceded that no contract existed and sought to reframe the debt as a restitutionary claim (i.e., payment for work under a quantum meruit).
The court held that this change of legal characterisation was not permissible at that stage. Seaward J said at [53]:
In this case, the description of the debt is materially inaccurate and misleading. The statutory demand describes the debt as being an outstanding contractual debt and states that the contract between the parties is dated 21 November 2021. Whilst the statutory demand does refer to the underlying nature of the works performed pursuant to the alleged contract (being construction works) and the two unpaid payment certificates, each are referred to as being concerned with work performed under the purported contract. The fact that the defendant did not appreciate that a contract did not exist and that only the defendant had signed the draft contract, is not to the point. It is one thing to describe the debt in general terms by reference to the work performed without a reference to the legal nature of the debt, but it is another to include additional inaccurate and misleading information about the legal source of that debt. By including this additional inaccurate and misleading information, the statutory demand contains a defect.
Seaward J concluded at [61]:
Therefore, in all the circumstances, I am of the view that the inaccurate and misleading nature of the specification of the debt in the statutory demand is a defect in the statutory demand. I am also satisfied that it is not ‘merely a defect’ for the purposes of s 459J(2), and that a substantial injustice will arise in this case unless the statutory demand is set aside.
The court found that these defects created a risk of substantial injustice, as the debtor was unable to respond properly. The demand was set aside.
Lesson for the industry: Builders and contractors must ensure that the legal nature of the debt they are claiming is correctly and consistently described.
If the claim arises under quantum meruit or unjust enrichment, it cannot be presented as a contractual entitlement.
Errors of this kind can invalidate an otherwise legitimate demand.
In the matter of HWC Contracting Pty Ltd
In the matter of HWC Contracting Pty Ltd [2021] NSWSC 1684 involved a builder who issued a statutory demand for unpaid construction work.
The debtor, however, challenged the demand based on an offsetting claim, specifically, the costs incurred in rectifying defective work performed by the creditor. Rees J said at [19]:
HWC Contracting submits that it has an offsetting claim against Lidco because it is apparent from the payment schedule served by Janco that there is a bona fide and genuine offsetting claim in respect of the costs of rectifying defective work performed by Lidco. There is no suggestion that the payment schedule is anything other than bona fide. What it demonstrates is that the client has identified and formed a rough assessment of the costs of rectifying the defective work. That is work which will ultimately be something for which HWC Contracting is responsible in one way or another and it looks to Lidco Corporation to pay damages under its subcontract with HWC Contracting in due course.
The court accepted that the offsetting claim was genuine and substantial and supported by evidence, including expert assessments and costings for the rectification works.
As a result, the court concluded that the debtor had a legitimate basis to challenge the demand, and it was ultimately set aside. Rees J said at [22]:
Having regards to the payment schedule prepared by a third party, Janco, together with evidence that Heworth intends to recover any loss related to Lidco’s allegedly defective work from HWC Contracting, which intends to recover same from Lidco, I am satisfied that the offsetting claim is plausible and bona fide. It is not for this Court to determine whether that offsetting claim will succeed, but simply that it is genuine and I am so satisfied. On that basis, the statutory demand should be set aside.
The decision reinforced the principle that even where some payment is owed, the existence of a counterclaim or offsetting entitlement, if supported by evidence, may defeat a statutory demand.
Lesson for the industry: If you are a builder issuing a statutory demand, you must consider whether the debtor may have a genuine offsetting claim, such as for defects, delays, or incomplete work.
Similarly, if you are on the receiving end of a demand and have documented costs associated with remediation or damages, you may be able to rely on those as a defence.
The courts will require evidence — not just bare assertions — to support the offsetting claim.
Statutory Demands in Construction – Key Takeaways
For small to medium-sized businesses in the construction industry, statutory demands represent both a powerful enforcement tool and a significant legal risk.
While they can be effective in prompting payment where a debt is clear and uncontested, they should not be used as a first resort or as leverage in a disputed commercial relationship.
As the courts have repeatedly made clear, statutory demands are not a substitute for adjudication or litigation, and misuse can result in serious cost, reputational, and regulatory consequences, particularly under QBCC licensing laws.
Throughout this guide, we have explored the formal requirements and strategic considerations involved in both issuing and responding to statutory demands.
These include the need for a clear legal basis for the debt (contractual or restitutionary), the risks of template errors or affidavit inconsistencies, and the strict 21-day response period, which — if missed — can lead to a presumption of insolvency and winding-up proceedings.
We have also examined the impact of statutory demands on builders and directors in Queensland, where licensing laws impose exclusion periods following insolvency events.
In some cases, a failure to respond to a demand can lead to the liquidation of an otherwise solvent company, triggering a three-year exclusion from the industry, or even a lifetime ban after multiple events.
These regulatory consequences must be considered in every decision to serve or ignore a statutory demand.
For industry players — particularly SME builders and subcontractors — the recommendation is clear: seek legal advice early, assess the dispute and supporting evidence, and choose the right tool for the job.
BIFA adjudication remains the preferred pathway for resolving payment claims in many construction matters, especially where there is uncertainty or disagreement about entitlement.
Statutory demands are best reserved for clear-cut, uncontested debts where no genuine dispute or offsetting claim exists.
Looking ahead, there is growing recognition that the interaction between insolvency law and construction payment disputes is an area in need of reform.
The availability of statutory demands as a quasi-debt collection mechanism — without judicial oversight — has drawn criticism, particularly where it undermines the principles of security of payment legislation.
As a result, we may see future legislative amendments that tighten the circumstances in which a statutory demand can be used in building and construction disputes, or that require preliminary adjudication before insolvency procedures can be invoked.
In the meantime, construction professionals should approach statutory demands with caution, clarity, and legal precision.
Used appropriately, they can serve as an effective enforcement mechanism.
When used in error, they can lead to costly litigation, regulatory sanctions, and long-term consequences for a business’s and professional’s standing.
Statutory Demand – Risks & Benefits Table
Aspect | Benefits | Risks |
Speed | Quick 21-day deadline to elicit payment. | Strict deadlines to respond or defend. |
Leverage | Strong commercial pressure on debtor. | May sour business relationships permanently. |
Legal Standing | Presumption of insolvency aids winding-up. | Invalid if debt is disputed or not properly documented. |
Costs | Low initial cost. | High if challenged and set aside — possible costs order. |
Regulatory Impact | None if paid. | Directors risk QBCC exclusion and licence cancellation. |
Statutory Demands in Construction – FAQ with Answers
Below are answers to the most frequently asked questions about statutory demands in the construction industry.
This FAQ section explains key concepts, risks, and strategies to help builders, subcontractors, and developers navigate statutory demands effectively.
What is a statutory demand in the construction industry?
A statutory demand is a formal legal notice issued under the Corporations Act 2001 (Cth), requiring a company to pay an undisputed debt of at least $4,000 within 21 days. In construction, it’s often used by builders and subcontractors to recover unpaid invoices, progress claims, or retention amounts. If ignored, it creates a presumption of insolvency, exposing the company to liquidation – Read more – What is a Statutory Demand?
How does a statutory demand differ from a letter of demand?
A statutory demand is a formal legal step under the Corporations Act with serious insolvency consequences, whereas a letter of demand is informal and carries no statutory force. A statutory demand, if unpaid, creates a legal presumption of insolvency and enables winding-up proceedings. A letter of demand simply requests payment and is often a preliminary step in debt recovery.
What is the 21-day compliance rule for statutory demands?
Once served, a company has exactly 21 days to either pay the debt in full, reach a settlement, or apply to set aside the statutory demand in court. This timeframe is strict — missing it creates a presumption of insolvency. Builders and subcontractors must act urgently to avoid winding-up proceedings and potential loss of licences or commercial damage.
When should a builder issue a statutory demand in construction?
A statutory demand should only be issued when the debt is clear, due and payable, undisputed, and above $4,000. Builders often use it for certified progress payments, final claims, or adjudicated amounts under the Security of Payment Act. You should only proceed if prepared to follow through with winding-up proceedings, as misusing a demand carries significant legal and commercial risks.
What are the risks of issuing a statutory demand incorrectly?
Issuing a statutory demand for a disputed or improperly documented debt can result in it being set aside, with the creditor ordered to pay the debtor’s legal costs. In construction, misuse can also damage commercial relationships and harm your reputation. Courts expect creditors to clearly describe the debt’s legal basis and comply with strict procedural rules.
Can a statutory demand be used if the debt is disputed?
No — statutory demands are only appropriate for clear, undisputed debts. If a genuine dispute exists about the debt’s existence or amount, the debtor can apply to have the demand set aside. In construction, disputes about defective work, variations, or payment calculations often make statutory demands inappropriate. Always seek legal advice if there’s any doubt.
What happens if a statutory demand is ignored?
If a company fails to respond to a statutory demand within 21 days, it is presumed insolvent under the Corporations Act. Creditors can then apply to wind up the company in liquidation. For construction companies, this can result in QBCC licence cancellation, director exclusion from the industry, loss of projects, reputational harm, and financial collapse.
How can a construction company set aside a statutory demand?
A construction company can apply to court within 21 days to set aside a statutory demand on four main grounds: a genuine dispute over the debt, an offsetting claim, a defect causing substantial injustice, or some other reason such as abuse of process. Evidence and a supporting affidavit are required. Delays beyond 21 days can be fatal to the application.
What is an offsetting claim in response to a statutory demand?
An offsetting claim is a genuine counterclaim, set-off, or cross-demand by the debtor against the creditor that equals or exceeds the amount claimed in the statutory demand. In construction, common offsetting claims include rectification costs for defective work, liquidated damages for delay, or costs of engaging replacement contractors. Documentary evidence is essential to support such claims.
What counts as a defect in a statutory demand?
A defect in a statutory demand includes errors such as misdescribing the debt, incorrect company details, a missing affidavit, or failing to specify the debt clearly. If such a defect causes substantial injustice, the court may set aside the demand. Builders must draft demands carefully to avoid procedural mistakes that can invalidate the process and result in costs orders.
What is the difference between a statutory demand and BIFA adjudication?
A statutory demand is an insolvency tool under the Corporations Act, used for undisputed debts. By contrast, adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) resolves payment disputes quickly through a binding determination. Adjudication is preferred for disputed construction claims, while statutory demands apply pressure when the debt is final, clear, and enforceable.
When should BIFA adjudication be used instead of a statutory demand?
BIFA adjudication is ideal for disputed construction payment claims, where the debt’s entitlement needs determination. It provides a fast, interim decision without threatening insolvency. Statutory demands are better suited for undisputed, overdue debts. Builders and subcontractors are encouraged to pursue adjudication first, reserving statutory demands for situations where the debt is clearly beyond dispute and enforceable.
What are the consequences of liquidation following a statutory demand?
Liquidation following a statutory demand can be devastating for construction companies. Projects are halted, licences cancelled, retention funds withheld, and directors excluded from holding QBCC licences for at least three years. It also damages commercial credibility and makes future financing or contracting more difficult. Even if the company was solvent, failing to respond in time can lead to liquidation.
How does the QBCC treat directors after a statutory demand leads to liquidation?
Under the QBCC Act, directors and “influential persons” of a construction company placed into liquidation after a statutory demand become excluded individuals for three years. They cannot hold a QBCC licence, direct a licensed company, or substantially influence one. A second insolvency event can lead to permanent exclusion from the industry, regardless of the debt’s cause.
Can a statutory demand harm a builder’s reputation?
Yes — statutory demands can harm your company’s reputation even if the debt is ultimately resolved. Creditors, clients, and suppliers may view statutory demands and winding-up proceedings as signs of financial instability. In construction, this can result in loss of contracts, suppliers refusing credit, retention funds being withheld, and damage to long-term commercial relationships.
What formal requirements must a statutory demand meet?
A statutory demand must be in the prescribed Form 509H, specify a debt of at least $4,000, clearly describe the debt’s legal basis, and give 21 days for compliance. If the debt is not a judgment debt, a sworn supporting affidavit (Form 7) is also required and must match the demand exactly. Proper service at the company’s registered office is essential.
Why is legal advice important before issuing or responding to a statutory demand?
Legal advice ensures the debt is legally due, properly documented, and that the statutory demand complies with strict procedural rules. For recipients, advice is crucial to identify if there’s a genuine dispute, offsetting claim, or defect justifying an application to set aside. Given the tight 21-day timeframe and serious consequences, early legal guidance can avoid costly mistakes.
What are common mistakes when issuing a statutory demand?
Common mistakes include issuing a demand for a disputed debt, using the wrong legal basis (e.g., calling a restitution claim contractual), missing the required affidavit, or misidentifying the debtor. Procedural errors such as defective service or incorrect amounts can lead to the demand being set aside, with the creditor ordered to pay costs. Accuracy and legal compliance are critical.
How should a company respond to a statutory demand?
Upon receiving a statutory demand, a company should immediately seek legal advice and review the demand for accuracy, genuine disputes, offsetting claims, or defects. If grounds exist, it must file and serve an application to set aside the demand within 21 days. Ignoring the demand or delaying action risks liquidation and regulatory consequences under QBCC licensing rules.
What are the key risks and benefits of statutory demands in construction?
The main benefit of statutory demands is applying strong, fast pressure on debtors for clear, undisputed debts. They can elicit payment within 21 days. However, risks include misuse, damage to relationships, court costs if set aside, and regulatory consequences if the debtor is wound up. They should only be used when the debt is certain, enforceable, and legally sound.