What Is a Creditor’s Statutory Demand?
A creditor’s statutory demand is a formal written request issued by a creditor to a company under section 459E of the Corporations Act 2001 (Cth).
It requires payment of a debt exceeding the statutory minimum, currently set at $4,000, within 21 days of service.
Failure to comply with a creditor’s statutory demand may result in the company being presumed insolvent, opening the door for a winding-up application in the Federal or Supreme Court.
Unlike traditional litigation, which can be time-consuming and expensive, a Corporations Act statutory demand is a streamlined legal mechanism designed to pressure companies into paying debts promptly.
It is often the first step a creditor takes before initiating liquidation proceedings and is widely used in commercial debt recovery.
In this article, our statutory demand lawyers will give you a complete overview of the creditor’s statutory demand process.
Why Statutory Demands Matter for Creditors
For creditors, issuing a statutory demand is a powerful and cost-effective tool to recover unpaid debts.
It avoids lengthy legal disputes and compels debtor companies to act swiftly by paying the debt, negotiating, or challenging the demand.
If no response is made within the 21-day timeframe, the company is presumed insolvent under section 459C of the Corporations Act, which says:
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a) the company failed (as defined by section 459F) to comply with a statutory demand.
This enables the creditor to apply to wind up the company.
For companies receiving a creditor’s statutory demand for payment of debt, the consequences can be severe.
A statutory demand creates legal urgency but also reputational and financial risk.
It may disrupt ongoing operations, affect creditworthiness, and put directors under pressure to demonstrate the company’s solvency, often through court proceedings.
Benefits and Risks of Using Statutory Demands
The main benefit of a statutory demand for payment is its efficiency.
It allows creditors to avoid prolonged court battles and quickly move towards recovering funds or liquidating insolvent companies.
For businesses, the very threat of insolvency proceedings often prompts immediate resolution.
However, this tool is not without significant risk. A poorly prepared or improperly served demand can be challenged and set aside under section 459G Corporations Act, which says (inter alia):
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
Grounds for doing so include a genuine dispute, an offsetting claim, or formal defects in the document.
Courts have a low threshold for accepting such challenges and will not hesitate to order costs against creditors who misuse the process.
Whether you are issuing a statutory demand or seeking to set aside a statutory demand, it is essential to follow the statutory demand procedure precisely.
Legal advice should be sought early to minimise risk and protect your financial position, especially given the strict deadlines and complex procedural rules that govern statutory demands under Australian corporate law.
What is the Legal Definition of a Statutory Demand?
A creditor’s statutory demand is a formal legal notice issued by a creditor to a company demanding the payment of a debt due and payable.
It is governed by section 459E of the Corporations Act and is a key mechanism used in corporate insolvency proceedings.
This demand must meet strict legal requirements: it must be in writing, in the prescribed form (Form 509H), and accompanied by an affidavit if the debt is not a judgment debt.
The demand must state the amount owed and provide clear instructions on how the debt can be paid.
Under the law, only creditors with debts exceeding the statutory minimum, currently $4,000, may issue a statutory demand.
It applies exclusively to corporate debt. A creditor’s statutory demands cannot be used to recover debts from individuals.
Purpose and Use Under the Corporations Act 2001
The Corporations Act statutory demand is not just a demand for payment; it is a legal device that triggers significant consequences if ignored.
Its primary purpose is to create a statutory presumption of insolvency, which assists a creditor in initiating winding-up proceedings if the company fails to comply within 21 days.
Creditors – such as suppliers, lenders, landlords, or even the ATO – use the statutory demand process as a fast-track alternative to litigation.
By serving a creditor’s statutory demand for payment of debt, a creditor can pressure a company to resolve the matter quickly or risk being declared insolvent in court.
This demand can be a “shortcut to cash,” but also poses risks if not issued correctly.
The 21-Day Statutory Period
A critical feature of the statutory demand is the 21-day statutory period.
From the moment the demand is served correctly – typically via post to the company’s registered office – the debtor company has exactly 21 days to:
- Pay the debt in full; or
- Negotiate a settlement; or
- File and serve an application in the Federal or Supreme Court to set aside the statutory demand under section 459G of the Act.
This time limit is strict.
The courts will not allow an extension even with the creditor’s consent.
Failure to act within this window results in a legal presumption of insolvency under section 459C, which assists the creditor in filing for the company’s liquidation.
Relevance of Section 459E Corporations Act
Section 459E is the legislative backbone of every creditor’s statutory demand. It outlines the criteria for validity, including:
- The debt must be due and payable.
- The demand must be for at least the statutory minimum ($4,000.00).
- It must comply with format requirements and service rules; and
- Where the debt is not a court judgment, it must include a verifying affidavit.
This section ensures that the demand is not used frivolously or abusively.
Section 459E(1) states:
(1) A person may serve on a company a demand relating to:
(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.
Under subsection (1): A creditor may serve a statutory demand on a company for:
- A single debt that is due and payable and meets or exceeds the statutory minimum, or
- Two or more debts that are due and payable, with a combined total at least equal to the statutory minimum.
Section 459E(2) states:
(2) The demand:
(a) if it relates to a single debt–must specify the debt and its amount; and
(b) if it relates to 2 or more debts–must specify the total of the amounts of the debts; and
(c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor’s reasonable satisfaction, within the statutory period after the demand is served on the company; and
(d) must be in writing; and
(e) must be in the prescribed form (if any); and
(f) must be signed by or on behalf of the creditor.
Subsection (2): The statutory demand must:
- Specify the debt(s) and their amount(s).
- Require the company to pay, secure, or compound the amount to the creditor’s reasonable satisfaction within the statutory period.
- Be in writing, in the prescribed form, and signed by or on behalf of the creditor.
Section 459E(3) states:
(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b) complies with the rules of court.
Subsection (3): If the debt(s) are not judgment debts, the demand must be accompanied by an affidavit that:
- Verifies the debt(s) are due and payable, and
- Complies with applicable rules of court.
Creditors who misuse the process by issuing demands based on disputed debts or flawed documentation risk having their demands set aside for substantial injustice and may be ordered to pay costs.
Understanding section 459E of the Corporations Act is essential for both issuing and responding to a statutory demand for payment.
A valid demand can provide a strong legal advantage, but any error in form, content, or service may backfire and expose the creditor to legal and financial liability.
Read our complete guide – Statutory Demand – Complete Guide
When Can a Creditor’s Statutory Demand Be Issued?
A creditor’s statutory demand can only be issued when a company owes a debt that is due and payable of at least $4,000, the statutory minimum.
A creditor’s statutory demand must be directed at companies, not individuals, and follow strict legal requirements, including use of Form 509H, correct formatting, and a supporting affidavit if the debt is not a judgment debt.
Government bodies, private creditors, and insolvency practitioners may all issue such demands, but even minor errors in form, signature, or service can result in the demand being set aside by the court.
The Statutory Minimum Threshold
A creditor’s statutory demand may only be issued when the debt owed by a company meets or exceeds the statutory minimum, which is currently set at $4,000.
The Corporations Regulations 2001 (Cth) – Regulation 5.4.01AA states:
(1) For the purposes of paragraph (a) of the definition of statutory minimum in section 9 of the Act, the amount prescribed is:
(a) in relation to a company that is eligible for temporary restructuring relief–$20,000; and
(b) otherwise–$4,000.
This threshold is critical under the Corporations Act 2001 (Cth), and any demand issued for a lesser amount is liable to be set aside by the court.
The debt must also be due and payable, meaning it is not contingent, unliquidated, or subject to further conditions or calculations.
This minimum is strictly enforced. Whether you’re a commercial supplier, a landlord, or a government agency such as the ATO issuing an ATO statutory demand, the same threshold and procedural rules apply.
Who Can Issue a Statutory Demand?
A creditor’s statutory demand can be issued by any person or entity to whom a company owes a qualifying debt. This includes:
- Private creditors (individuals, businesses, and lenders).
- Government bodies such as the Australian Taxation Office.
- Liquidators or trustees seeking to recover debts on behalf of insolvent estates.
However, statutory demands can only be issued to companies, not individuals.
The demand serves as a preliminary step in the corporate statutory demand process and, if ignored, is often used to compel payment or initiate a liquidation application.
Requirements for Issuing a Statutory Demand
To be valid, a creditor’s statutory demand for payment of debt must comply with strict legal and procedural requirements outlined in section 459E of the Corporations Act and its accompanying regulations.
Form 509H
The demand must be in the prescribed format – Form 509H, as outlined in Schedule 2 of the Corporations Regulations 2001.
Using an outdated or modified form, or omitting required content, can render the demand invalid and subject to being set aside.
Written Format
The statutory demand must be in writing and clearly state:
- The total amount owed.
- The identity of the creditor(s).
- The name and ACN of the debtor company.
- How and when the debt arose.
- How the debt is to be paid.
Even minor clerical errors, such as misstatements of company names or addresses, can lead to costly court challenges and set aside statutory demand applications.
Accompanying Affidavit (Unless a Judgment Debt)
If the debt being claimed is not a judgment debt, an affidavit must accompany the statutory demand. This affidavit must:
- Be sworn or affirmed by a person with authority.
- Verify that the debt is due and payable.
- Verify that there is no genuine dispute about the debt.
- Be signed and dated in close temporal proximity to the date of the demand itself.
Numerous cases show that delays between the affidavit and demand or the deponent’s insufficient knowledge of the debt are common grounds for invalidation under section 459J.
Signature Requirements
The creditor’s statutory demand must be signed by or on behalf of the creditor, typically by a solicitor or an authorised representative.
The signature must be legible and appropriately placed on the correct page of the Form 509H.
Failure to sign correctly or inconsistencies between the demand and affidavit can be grounds to set aside a statutory demand.
Although issuing a statutory demand for payment may appear to be a straightforward method of debt recovery, the process is highly technical.
Creditors should ensure full compliance with these requirements before proceeding, as mistakes may invalidate the demand and result in adverse cost orders if challenged in court.
How to Issue a Statutory Demand
Issuing a creditor’s statutory demand requires strict compliance with legal and procedural rules.
Creditors must prepare the correct documents, most importantly, Form 509H and a supporting affidavit Form 7, if the debt is not a judgment debt.
Once the documents are complete, the demand must be served properly under section 109X of the Corporations Act, using one of three approved methods: post to the registered office, delivery to the office in person, or hand delivery to a company director.
Errors in form or service can render the demand invalid and expose the creditor to legal challenges.
Required Documents
To validly issue a creditor’s statutory demand for payment of debt, certain documents are mandatory and must be carefully prepared:
- Form 509H – Statutory Demand: This is the prescribed form under the Corporations Regulations and must be used without alterations. It outlines the debt amount, the debtor company’s identity, and how payment should be made.
- Form 7 – Affidavit in support: If the debt is not a judgment debt, an affidavit must accompany the demand. This affidavit must verify that the debt is due and payable and be sworn by a person with direct knowledge of the debt (typically the creditor or their authorised representative, like a director).
Both documents must be consistent, correctly signed, and free of clerical errors.
A failure to comply with this statutory demand procedure could lead to a successful application to set aside the stat demand on technical grounds.
Service Methods Under Section 109X
Once the documents are correctly prepared, the statutory demand must be served on the debtor company in accordance with section 109X of the Corporations Act.
Section 109X(1) of the Corporations Act states:
(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; or
(c) if a liquidator of the company has been appointed–leaving it at, or posting it to, the address of the liquidator’s office in the most recent notice of that address lodged with ASIC; or
(d) if an administrator of the company has been appointed–leaving it at, or posting it to, the address of the administrator in the most recent notice of that address lodged with ASIC; or
(e) if a restructuring practitioner for the company has been appointed–leaving it at, or posting it to, the address of the restructuring practitioner in the most recent notice of that address lodged with ASIC.
This section outlines several valid service methods:
- By Post
- Registered Office Delivery
- Director Hand Delivery
We will explain these in more detail below:
Service of a Statutory Demand By Post
The most common method is service by prepaid post to the company’s registered office.
Unless proven otherwise, this is deemed effective on the fourth business day after posting.
It’s essential that the address used exactly matches the company’s registered office listed on the ASIC register.
Registered Office Delivery
Alternatively, the creditor’s statutory demand can be delivered to the registered office in person.
Hand delivery may be more secure in urgent matters or where service by post may be disputed.
Director Hand Delivery
In some situations, delivery can also be made by personally serving a company director who resides in Australia.
This is particularly useful when a company has no physical presence at its registered office.
Common Mistakes That Render Demands Invalid
Several frequent errors can lead to a statutory demand being set aside, even if the underlying debt is legitimate:
- Incorrect or outdated form: Not using Form 509H, or modifying its structure, can invalidate the demand.
- Unsigned or improperly signed documents: An authorised person must sign the demand and affidavit.
- Affidavit errors: The demand may be defective if the affidavit is not sworn properly, is missing, or contains inconsistent information.
- Service mistakes: Serving the demand to the wrong address, using an unregistered address, or failing to prove service with an affidavit can derail the process.
- Time gaps between affidavit and demand: Significant delays between the affidavit being sworn and the date the demand is issued can be grounds for setting aside the demand.
To avoid these issues, creditors should exercise care when issuing a statutory demand and ideally seek legal advice to ensure full compliance with the procedure.
After Serving: What Happens Next
Once a creditor’s statutory demand has been served, a company enters a high-risk legal window that demands urgent attention.
The 21-day period following service is critical! If the company fails to act, it may be presumed insolvent under the Corporations Act.
This section outlines the immediate steps a company can take, the importance of strict deadlines, and the serious consequences that can follow inaction, including liquidation.
Understanding the statutory demand process at this stage is essential to protecting a company’s financial standing and legal position.
Company’s Options Upon Receiving a Statutory Demand
The clock starts ticking once a creditor’s statutory demand has been validly served on a company.
The recipient company has exactly 21 days from the date of service to take one of the following actions:
- Pay the debt in full — satisfying the demand and ending the process.
- Negotiate a settlement or payment arrangement — some creditors may accept a reasonable proposal within the 21-day window.
- Apply to set aside the statutory demand — if the company believes there is a genuine dispute, an offsetting claim, or a serious defect in the demand, it may file an application in the appropriate court under section 459G of the Act.
Each option has legal and financial consequences, and failure to act decisively can trigger severe implications for the company’s future.
Importance of the 21-Day Deadline
The 21-day statutory demand period is not negotiable.
It is a strict statutory timeframe, and the courts never grant extensions, even with the creditor’s agreement.
If a company intends to set aside the statutory demand, it must file and serve both the application and the supporting affidavit within those 21 days.
Delays, even by a single day, can be fatal to the company’s defence.
This deadline plays a critical role in the statutory demand process, as it determines whether the creditor can rely on the legal presumption of insolvency to initiate further action.
Failure to Respond = Presumption of Insolvency
If the company fails to comply with the creditor’s statutory demand within 21 days, by not paying the debt, negotiating, or lodging an application to set it aside, it is presumed to be insolvent under section 459C(2)(a) of the Corporations Act.
This is a powerful legal consequence.
The presumption does not require the creditor to prove actual insolvency; the law assumes it based solely on non-compliance with the statutory demand.
This shifts the burden onto the company to prove it is solvent if it wishes to resist further legal action.
Potential for Winding Up Proceedings
With the presumption of insolvency in place, the creditor is entitled to commence winding-up proceedings in the Federal Court or the Supreme Court.
This involves applying to have the company placed into liquidation, whereby a court-appointed liquidator will:
- Close the company’s operations.
- Sell off its assets.
- Distribute funds to creditors (if any).
- Ultimately, deregister the company.
Once winding up proceedings begin, options for defence narrow significantly.
Even if the company is solvent, it may struggle to rebut the legal presumption without strong, expensive, timely evidence.
Additionally, directors risk personal exposure if the company is found to have traded while insolvent.
In summary, receiving a creditor’s statutory demand for payment of debt is a legal event that requires immediate attention.
The 21-day window offers a brief but critical opportunity to respond. Ignoring it or misunderstanding the process can lead directly to insolvency proceedings and the end of the company’s existence.
How to Set Aside a Statutory Demand
A creditor’s statutory demand is not just a payment request – it’s a high-stakes legal trigger.
Under sections 459G, 459H, and 459J of the Corporations Act, the statutory regime provides companies with structured avenues to challenge demands, but only if they are acted on swiftly and correctly.
Seeking experienced legal guidance is essential for navigating this high-risk area of commercial law.
Grounds Under the 459G Corporations Act
A company served with a creditor’s statutory demand has the legal right to apply to the court to have it set aside—but only under certain conditions.
These rights are governed by section 459G of the Corporations Act, which outlines the procedure and the permissible grounds for objection.
To successfully set aside a statutory demand, the company must identify valid legal reasons and comply strictly with the procedural requirements.
Below are the main grounds available under the Act.
Genuine Dispute About the Debt (Section 459H(1)(a))
One of the most common grounds for setting aside a creditor’s statutory demand is the existence of a genuine dispute over the debt.
Under section 459H(1)(a), the company does not need to prove that the debt is invalid, only that a bona fide dispute exists, and is not frivolous, spurious, or illusory. It 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.
The threshold for proving a genuine dispute is relatively low but requires clear, specific evidence. Vague or unsupported claims are not sufficient.
If a court is satisfied that a genuine dispute exists, it will set aside the demand, and costs are typically awarded against the creditor.
Offsetting Claim (Section 459H(1)(b))
A company may also apply to set aside a statutory demand for payment if it has an offsetting claim.
Under section 459H(1)(b), this refers to a genuine counterclaim, set-off, or cross-demand against the creditor. 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.
The claim must be capable of reducing the total debt below the statutory minimum of $4,000.
The offsetting claim does not need to arise from the same transaction or be fully quantified at the time of application, but it must be legitimate and substantiated by evidence.
If accepted, the demand will either be set aside or the claimed amount reduced accordingly.
Substantial Injustice Due to Defects (Section 459J(1)(a))
Even if the debt is undisputed, a creditor’s statutory demand may be set aside due to formal defects that cause substantial injustice pursuant to section 459J(1)(a), which says:
(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.
Under section 459J(1)(a), common defects include:
- Incorrect company names or ACNs,
- Inaccurate amounts stated,
- Inconsistencies between the demand and the supporting affidavit.
Not all defects will invalidate a demand; the error must be serious enough to cause prejudice to the company.
Minor technical issues generally won’t suffice unless they impair the company’s ability to respond properly.
“Some Other Reason” (Section 459J(1)(b))
The most flexible ground to set aside a stat demand falls under section 459J(1)(b) , which says:
(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 could include:
- A demand issued for an improper purpose (e.g. coercion).
- A supporting affidavit sworn by someone without proper authority.
- An unreasonable lapse of time between affidavit and demand.
This discretionary power allows courts to ensure fairness, primarily where the demand is used as a weapon rather than a genuine attempt to recover a debt.
Read our complete guide – Setting Aside Statutory Demand – Complete Guide
Filing the Application in the Supreme or Federal Court
To challenge a creditor’s statutory demand, the company must file an application with either the Supreme Court of the relevant state or the Federal Court.
The application must be supported by a detailed affidavit outlining the grounds and relevant evidence.
Supporting Affidavit and Evidence
The supporting affidavit is not optional but a critical part of the application. It must be filed together with the court application, and must:
- Identify the specific ground(s) relied upon.
- Include supporting documents (e.g., contracts, correspondence, or accounting records).
- Be sworn by someone with first-hand knowledge of the facts.
Strict Timeline (Within 21 Days)
The Corporations Act imposes a strict timeline for filing.
The application to set aside the demand must be filed and served within 21 days of service of the statutory demand.
Failure to meet this deadline—by even one day—will usually bar the application entirely.
No extensions are available, and courts are rarely, if ever, willing to waive this timeframe.
Companies should act urgently and seek legal advice when the demand is received.
Risks of Ignoring or Missing the Deadline
Missing the 21-day window results in the presumption of insolvency becoming effective.
At that point, the creditor is entitled to file a winding-up application.
The court will presume the company is insolvent unless it can prove otherwise, a process that is typically difficult and costly.
Ignoring the demand, miscalculating the deadline, or failing to file proper documents in time can expose a company to serious consequences, including liquidation and director liability for insolvent trading.
Common Defects in Statutory Demands
A creditor’s statutory demand is a powerful legal tool, but its effectiveness depends entirely on its strict compliance with the Act.
Even minor errors in form or substance can render a statutory demand defective and allow it to be set aside under section 459J of the Act.
Understanding these common pitfalls is critical for creditors issuing the demand and companies responding to it.
Errors in Debt Description
An accurate and precise description of the debt is essential. The demand must specify what the debt relates to, such as unpaid invoices, loan repayments, or contractual amounts.
If the debt is vaguely described or lacks sufficient detail to identify its nature, a court may deem the creditor’s statutory demand invalid due to ambiguity.
Precision is critical when multiple debts are involved.
Incorrect Creditor or Company Name
A frequent cause for setting aside a statutory demand is misdescribing the creditor or debtor company.
If the company’s name is misspelled or does not match the Australian Securities and Investments Commission (ASIC) records, it could raise questions about the legal identity of the parties involved.
Similarly, the court may consider it a material defect if the creditor’s legal entity name is incorrect or inconsistent across the demand and the affidavit.
Incorrect ACN or Registered Address
Including the correct Australian Company Number (ACN) is mandatory.
An error in the ACN—or omission altogether—can invalidate a statutory demand for payment, especially if it causes confusion about which company is being served.
Likewise, any mistake in the company’s registered office address can result in improper service under section 109X of the Corporations Act.
Service must be made at the official ASIC-listed address or personally on a director residing in Australia.
Misstated Amounts
A misstatement of the amount owed is another defect that can be fatal to a statutory demand.
Overstating the debt, including amounts not yet due, or incorporating disputed sums may give rise to a genuine dispute under section 459H(1)(a).
If the amount claimed is inflated or inaccurate, the demand may be set aside, and the creditor could face a costs order for misuse of the process.
Affidavit Errors
Where the debt is not a judgment debt, the supporting affidavit is a legal requirement under section 459E(3) of the Corporations Act, which says:
(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b) complies with the rules of court.
Errors in the affidavit can seriously compromise the enforceability of a creditor’s statutory demand. Common issues include:
- Incorrect or missing dates – The affidavit must be sworn or affirmed on a date that closely aligns with the date of the demand. Significant gaps between the two can cast doubt on the reliability of the supporting evidence.
- Wrong person swearing the affidavit – The deponent must have proper authority and direct knowledge of the debt. If the affidavit is sworn by someone without access to the creditor’s financial records or legal standing, it may be considered defective.
- Inconsistencies with the demand – The affidavit must exactly support the information in the demand. Any mismatch in the amount, creditor name, or debt description can result in the demand being set aside.
A defective affidavit is not a minor oversight, and courts view such errors seriously, as they go to the heart of the statutory demand process.
Improper Service
Service of a creditor’s statutory demand must comply strictly with section 109X of the Corporations Act.
The demand may be deemed invalid regardless of its content if it is not properly served. Common service-related issues include:
- Serving the wrong address – The demand must be served at the company’s current registered office listed with ASIC. Using a trading address or a former registered office is insufficient.
- Lack of proof of service – Creditors must be prepared to prove service, typically by filing an affidavit of service. Without it, the timing of the 21-day statutory period can be challenged.
- Improper hand delivery – If served by hand, it must be delivered to the registered office or personally to a director residing in Australia. Delivering it to a receptionist, third party, or unrelated address could void the process.
Because the creditor’s statutory demand is the foundation for creating a presumption of insolvency, courts require strict adherence to the procedural rules.
Even technical breaches in the statutory demand procedure can lead to the demand being set aside, and creditors may be ordered to pay legal costs for their errors.
In conclusion, although a creditor’s statutory demand is a powerful enforcement mechanism, its success hinges entirely on precision.
From the form used and how it’s filled out, to the person swearing the affidavit and the method of service, each step must comply strictly with the law.
Creditors should take professional advice before issuing a statutory demand, and debtor companies should carefully examine any demand they receive for these common defects.
Legal Consequences of a Statutory Demand
A creditor’s statutory demand is not just a tool for recovering a debt, it is a trigger with serious legal consequences.
If a company fails to respond to the demand within the strict 21-day period, it activates a series of statutory presumptions and processes that can result in court-ordered liquidation.
Understanding these consequences is essential for directors, creditors, and companies alike.
Presumption of Insolvency (Section 459C)
Under section 459C(2)(a) of the Corporations Act, if a company fails to comply with a creditor’s statutory demand, it is presumed insolvent.
This legal presumption is not based on the company’s financial position, but on its failure to pay or respond to the demand.
The presumption of insolvency provides a powerful procedural advantage to creditors.
It shifts the burden of proof onto the company, which must demonstrate solvency to avoid further legal consequences.
If the company cannot rebut this presumption, it becomes vulnerable to an application for winding up.
Potential Winding Up by the Court
Once the presumption of insolvency is in place, the creditor can file an application to wind up the company in the Federal Court or the relevant Supreme Court.
This process begins formal insolvency proceedings, and the court may appoint a liquidator to take control of the company’s affairs.
The creditor must make this application within three months of the expiry of the statutory demand for payment.
If successful, the company will be declared insolvent, its operations will cease, and its assets will be sold to pay outstanding debts.
The creditor’s statutory demand is often used to recover debts and as a strategic tool to force companies into liquidation where payment is not forthcoming or commercial resolution has failed.
Director’s Liabilities (Trading While Insolvent)
A company served with a creditor’s statutory demand must consider not only its obligations to respond but also the duties of its directors.
Directors are legally responsible for ensuring the company does not trade while insolvent.
This means they must not allow the company to incur debts when it cannot pay existing obligations as they fall due.
If a winding-up application is successful, the appointed liquidator will investigate the conduct of the directors.
If it is found that the company continued trading during a period of insolvency, directors may face personal liability for the company’s debts.
This could result in civil penalties, compensation orders, and even disqualification from managing corporations.
The Liquidation Process
When a creditor’s statutory demand results in a winding-up order, the company enters liquidation.
A court-appointed liquidator takes over, with broad powers to:
- Sell company assets.
- Collect outstanding receivables.
- Examine transactions and director conduct.
- Distribute remaining funds to creditors.
The liquidation process also involves reporting to the Australian Securities and Investments Commission (ASIC), especially in cases involving suspected misconduct or breaches of directors’ duties.
The company is deregistered once the liquidation is complete and ceases to exist as a legal entity.
A creditor’s statutory demand is far more than an ordinary payment request; it is a formal legal mechanism that can lead directly to the presumption of insolvency, court-ordered liquidation, and director liability.
Both creditors and debtor companies must understand these serious consequences before issuing or ignoring such a demand.
Defending a Statutory Demand
When a company receives a creditor’s statutory demand, the response must be swift, strategic, and informed.
Ignoring the demand or responding without a sound legal basis can lead to insolvency proceedings.
However, the law provides clear defences and procedures that, when followed correctly, can stop the process in its tracks.
Understanding how to challenge a statutory demand is essential to protecting the company’s future and preventing liquidation.
Legal Strategies
A company can use several legal strategies to defend against a creditor’s statutory demand, depending on the nature of the debt and the circumstances surrounding the demand’s issue. Common approaches include:
- Arguing a genuine dispute exists regarding the existence or amount of the debt.
- Raising an offsetting claim where the creditor owes the debtor company money.
- Identifying formal defects or procedural errors that may invalidate the demand.
- Highlighting that the demand was issued for an improper purpose, such as commercial intimidation.
These defences must be presented formally to the court via a statutory demand set aside application under the Corporations Act 2001, supported by sworn evidence.
Role of Legal Advice
Obtaining legal advice is critical when responding to a creditor’s statutory demand for payment of debt.
The law surrounding statutory demands is technical and time-sensitive.
Statutory demand lawyers experienced in insolvency and commercial litigation can help assess whether a viable defence exists, prepare the necessary documents, and ensure compliance with the strict 21-day deadline.
Legal professionals also assist in evaluating whether the demand meets the formal requirements of section 459E and can identify any risks or advantages of pursuing litigation rather than negotiating a commercial resolution.
Gathering Evidence: Dispute, Set-Off, Errors
A company intending to defend a creditor’s statutory demand must gather robust evidence to support its position.
Courts require more than verbal claims or assumptions; the dispute must be substantiated with documents and detailed reasoning.
- Evidence for a Genuine Dispute: Emails, contracts, and correspondence showing disagreement over the debt – Invoices or financial statements showing inconsistencies
- Evidence for an Offsetting Claim: Documentation proving the creditor owes the debtor company money – Legal or contractual rights to a counterclaim or set-off
- Evidence of Errors or Defects: Mistakes in company names, amounts, or dates – Irregularities in the supporting affidavit – Service made to the wrong address
Well-prepared evidence strengthens a company’s position to set aside the statutory demand and increases the likelihood of recovering costs from the creditor.
Supreme Court Adjournment Options
If a winding-up application has already been filed following the expiry of the statutory demand, the company may seek an adjournment of the hearing in the Supreme Court.
Adjournment may be granted to allow the company additional time to:
- Negotiate a settlement with the creditor,
- Prepare financial evidence proving solvency,
- Rectify procedural issues that impacted its initial response.
This is a last-resort option and is subject to the court’s discretion.
Companies must act in good faith and demonstrate reasonable prospects of resolving the debt dispute or presenting a credible defence.
Defending against a creditor’s statutory demand is possible, but the window for action is narrow and unforgiving.
With expert legal guidance, well-documented evidence, and a clear legal strategy, a company can successfully challenge the demand and avoid the presumption of insolvency.
Case Studies and Examples
Understanding how courts deal with a creditor’s statutory demand in practice can provide valuable insight into what works and fails in the real world.
While each case depends on its own facts, several recent examples reveal common pitfalls that lead to demands being set aside and key lessons for creditors and debtors navigating this powerful legal tool.
Defective Affidavits and Invalid Service
A creditor’s statutory demand was struck out in one instance due to a defective supporting affidavit.
The affidavit had been sworn by someone who lacked proper authority and failed to verify that the debt was due and payable clearly.
The court held that such an error rendered the demand invalid, as the supporting affidavit must meet specific legal criteria under the Corporations Act statutory demand rules.
In another case, the demand was served on an outdated registered office address, despite a new address being listed with ASIC.
Because the service must comply with section 109X, the court found the demand had not been validly served and dismissed subsequent winding-up proceedings.
Genuine Disputes Over the Debt
Many statutory demands have been set aside based on a genuine dispute, even where creditors were confident in the existence of the debt.
In these cases, the debtor company produced credible evidence, such as ongoing contractual disagreements or conflicting invoice records, that raised a serious question to be tried.
The courts reiterated that they do not determine the dispute’s merits at this stage, only whether it is genuinely arguable.
These decisions highlight that even minor uncertainty surrounding the nature or amount of the debt can derail a creditor’s statutory demand, particularly when proper supporting documentation is not attached.
Successful Use of Offsetting Claims
Courts have also upheld applications to set aside demands where the debtor company had a valid offsetting claim against the creditor.
In one matter, the amount of the counterclaim exceeded the debt demanded, reducing the total below the statutory minimum threshold.
This was sufficient to defeat the presumption of insolvency and stop the winding-up process.
Overuse or Improper Purpose
One of the clearest patterns in these examples is the court’s willingness to penalise creditors who misuse the statutory demand process.
If a demand is issued for a disputed amount, or as a pressure tactic rather than a legitimate debt recovery tool, the court may not only set aside the demand but also award costs against the creditor.
Creditors are reminded that a creditor’s statutory demand for payment of the debt is not a tool for coercion or negotiation.
It is a formal legal process that must be supported by valid documentation, properly served, and used only when there is no genuine dispute.
Strict Compliance Is Non-Negotiable
The courts continue to enforce strict procedural compliance.
Whether it’s an error in Form 509H, a discrepancy in company details, or a lapse in affidavit requirements, any technical failure may result in the demand being set aside, even where the debt itself is legitimate.
This underscores the importance of legal advice before issuing a demand.
Recent case outcomes show that while a creditor’s statutory demand can be a powerful instrument for recovering debts, it must be approached carefully.
Defects, disputes, or improper motives can all undermine its effectiveness.
Both creditors and debtors should be aware of these precedents to avoid legal and financial setbacks.
Practical Tips for Creditors
A creditor’s statutory demand is one of the most effective debt recovery tools available under Australian corporate law—but it must be used with precision and purpose.
While it can prompt rapid payment or provide a pathway to wind up an insolvent company, it also carries legal risks if misused.
Here are some essential tips to help creditors use statutory demands lawfully and strategically.
When to Use a Statutory Demand
A creditor’s statutory demand for payment of debt is best used when:
- The debt is undisputed, due, and payable.
- The total amount exceeds the statutory minimum (currently $4,000).
- Attempts to resolve the matter informally have failed.
- The creditor is prepared to escalate to insolvency proceedings if necessary.
Statutory demands are not suitable for disputed debts or as a negotiating tactic.
Issuing one where the debt is contested can lead to the demand being set aside and the creditor potentially bearing adverse cost orders.
How to Ensure Compliance with the Corporations Act
To ensure a Corporations Act statutory demand is legally enforceable, strict compliance with procedural and documentary requirements is essential:
- Use Form 509H, the prescribed format.
- Ensure the demand is in writing and specifies the debt and payment method.
- Attach a supporting affidavit if the debt is not a judgment debt.
- Check that all details—company name, ACN, and registered address—are correct.
Serve the demand properly in accordance with section 109X, either by post to the registered office or by hand to a director.
Failure to meet these requirements may result in the statutory demand process being challenged in court and ultimately dismissed.
Alternatives to Statutory Demands
While a creditor’s statutory demand can be robust, it’s not always the best first step. Depending on the circumstances, other options may offer more flexibility and fewer risks:
- Formal letters of demand: A preliminary step that outlines the debt and requests payment without invoking legal consequences.
- Mediation or negotiation: Can help preserve business relationships and lead to repayment agreements without court involvement.
- Court proceedings: Where the debt is disputed, initiating litigation may be more appropriate than relying on the statutory demand mechanism.
- Debt collection services: May assist in recovering amounts through structured collection processes without immediate legal escalation.
Considering alternatives is especially important when the debt might be contested or the creditor is unwilling to proceed with winding up the company.
Using Statutory Demands Strategically
When used strategically, a well-timed creditor’s statutory demand can deliver a decisive result.
A creditor’s statutory demand can motivate a company to prioritise its debt with you over others, particularly when solvency is in question.
A creditor’s statutory demand may assist in confirming a company’s financial position; non-compliance within 21 days leads to a presumption of insolvency, creating leverage for a creditor.
When used after legal advice and due diligence, it can serve as a precursor to a winding-up application, giving the creditor access to a company’s assets through liquidation if necessary.
However, misuse or overreliance on statutory demands may backfire.
Strategic use means being selective, informed, and legally compliant.
A creditor’s statutory demand is a legal instrument of significant force, but it must be used carefully.
Ensure the debt is valid, follow the statutory demand procedure meticulously, and consider all available options before issuing one.
Strategic, lawful use can protect your rights and maximise your chance of recovery.
Practical Tips for Debtor Companies
Receiving a creditor’s statutory demand can be confronting, but ignoring it is not an option. The consequences for inaction are severe and swift.
However, if the company acts quickly and follows the proper legal process, it may avoid a presumption of insolvency and protect itself from potential liquidation.
Here are some essential steps debtor companies should follow if they are served with a statutory demand.
What to Do If You Receive a Statutory Demand
The moment a statutory demand for payment of debt is received, the 21-day clock begins ticking. This timeframe is critical. A company must:
- Check the details immediately: Confirm the amount, the creditor’s identity, and the registered office address.
- Determine the nature of the debt: Is it disputed, partially paid, or already subject to a counterclaim?
- Preserve all correspondence and documents: These may form the basis of a legal defence or negotiation strategy.
Failing to act within 21 days from the date of service results in a presumption of insolvency under the Corporations Act, significantly limiting the company’s options moving forward.
Seeking Immediate Legal Advice
The statutory demand process is legally technical, and any error or delay can be costly.
Engaging a solicitor immediately after receiving a creditor’s statutory demand is one of the most critical steps a company can take.
A lawyer can:
- Assess whether the debt is valid or genuinely disputed.
- Determine if a set-aside application under section 459G is viable.
- Help prepare the supporting affidavit and lodge court documents on time.
- Explore commercial options like settlement or negotiation.
Without timely legal advice, a company risks missing the 21-day deadline and may be presumed insolvent by default, even if it is solvent.
How to Challenge or Negotiate
There are multiple ways to respond to a creditor’s statutory demand, depending on the circumstances:
If the company believes the demand is invalid, it can apply to the court to set it aside within 21 days. Grounds for challenge include:
- A genuine dispute over the debt.
- An offsetting claim.
- A defect in the demand causing substantial injustice.
- Or some other reason under section 459J of the Corporations Act.
This application must accompany a properly drafted affidavit outlining the evidence supporting the challenge.
Read our guide on drafting a statutory demand – How to Draft a Statutory Demand Form 509H
Negotiate with the Creditor
If the debt is not disputed, the company may still avoid formal proceedings by:
- Offering immediate or staggered payment.
- Requesting the withdrawal of the demand in writing.
- Proposing a settlement agreement.
However, any negotiation must be finalised before the 21-day period expires. After that, the statutory demand process becomes significantly harder to reverse.
Avoiding Presumption of Insolvency
The key risk of inaction is the legal presumption of insolvency.
If a company fails to respond, the creditor can apply to wind up the company based solely on non-compliance.
Without further proof, the court will presume the company is insolvent, and liquidation proceedings may follow. To avoid this outcome:
- Respond within 21 days; or
- File a complete and compliant application if challenging; or
- Satisfy the debt or reach an agreement with the creditor.
Taking decisive steps immediately is the best way to preserve the company’s solvency, avoid litigation, and maintain control of the business.
Receiving a creditor’s statutory demand is a serious legal event, not a routine reminder.
Debtor companies must act quickly, seek professional advice, and explore every available option within the tight statutory window.
A well-timed response can mean the difference between resolution and ruin.
Creditor vs Debtor: What to Do When Dealing with a Statutory Demand
Navigating a creditor’s statutory demand requires fast, informed decision-making—whether issuing one or responding to it.
The steps, risks, and legal obligations differ significantly for creditors and debtor companies.
The table below outlines the key actions each party should take at every stage of the statutory demand process, helping you avoid costly mistakes and act with confidence.
| Step/Scenario | Creditor – What to Do | Debtor Company – What to Do |
| Determining eligibility | Confirm debt is due, payable, undisputed, and over $4,000 (statutory minimum). | Review whether the claimed debt is correct, due, or genuinely disputed. |
| Preparing documents | Use Form 509H, include all required details, and attach an affidavit if it is not a judgment debt. | Examine the demand and any accompanying affidavit for formal defects or errors. |
| Serving the demand | Serve via section 109X: post to registered office or personal delivery to a director. | Record date of service—this starts the strict 21-day response period. |
| If payment is not made | After 21 days, consider initiating winding-up proceedings under the presumption of insolvency. | Take action within 21 days: pay, negotiate, or file a court application to set aside. |
| Defending a response | Be prepared for the company to challenge the demand on the grounds of dispute or offsetting claim. | If disputing, file a 459G Corporations Act application with a detailed affidavit. |
| After expiry of the 21-day period | Apply to the court to wind up the company if no response is received. | If no action is taken, the company may be presumed insolvent—the risk of liquidation increases. |
| Strategic considerations | Use demands strategically for uncontested debts, but not as a negotiation tool. | Seek legal advice immediately to avoid costly errors or an automatic insolvency presumption. |
| Legal risks | If issued improperly, there is a risk of demand being set aside, cost orders, or misuse. | Risk of liquidation, director liability, or loss of business if demand is ignored. |
| Legal advice | Consult a lawyer to ensure compliance with the Corporations Act statutory demand rules. | Engage a solicitor to review the demand and respond appropriately within the deadline. |
Creditor’s Statutory Demand – Key Takeaways
A creditor’s statutory demand is a powerful legal mechanism available under the Corporations Act 2001.
It allows creditors to demand payment of debts exceeding the statutory minimum and creates serious consequences if not correctly addressed within 21 days.
Throughout this guide, we’ve explored:
- What is a statutory demand, when can it be issued, and how can it be served correctly?
- The strict requirements for Form 509H, supporting affidavits, and service under section 109X.
- The risks of non-compliance include the presumption of insolvency and potential winding-up proceedings.
- Defences available to companies include genuine disputes, offsetting claims, and procedural defects.
- Strategic tips for creditors and debtors in effectively using and responding to a creditor’s statutory demand.
Final Thoughts: Use With Care, Act Swiftly
While a creditor’s statutory demand for payment of debt is cost-effective and fast-acting, it is not without risks.
Creditors must issue demands with care, ensuring every procedural requirement is met.
Likewise, companies served with a demand must act swiftly—any delay beyond the strict 21-day period can result in liquidation proceedings based solely on non-compliance.
Errors in form, misstatements of debt, or improper service are common pitfalls that can backfire if challenged in court.
Whether issuing or defending a statutory demand, timing, accuracy, and legal compliance are paramount.
Encourage Early Legal Consultation
The importance of seeking legal advice early cannot be overstated.
For creditors, professional guidance helps avoid technical missteps that could undermine enforcement.
For debtor companies, a timely consultation may uncover valid grounds to set aside a statutory demand or negotiate a resolution before insolvency is presumed.
Whether you’re enforcing a debt or responding to a demand, a well-informed approach backed by legal expertise can protect your position, reduce risk, and ensure the best possible outcome.
FAQs – Creditor’s Statutory Demands (Australia)
Dealing with a creditor’s statutory demand can be complex and time-sensitive, whether you’re issuing one or responding to it.
To help you better understand your rights, obligations, and risks, we’ve compiled answers to the most common questions about the statutory demand process under Australian corporate law.
What is a creditor’s statutory demand?
A creditor’s statutory demand is a formal notice under section 459E of the Corporations Act 2001, requiring a company to pay a debt of at least $4,000 within 21 days. If the company fails to comply, it may be presumed insolvent, allowing the creditor to apply to wind up the company in court.
What is the statutory minimum amount for a statutory demand?
The statutory minimum is $4,000, as prescribed under Regulation 5.4.01AA of the Corporations Regulations 2001. If the debt is below this amount, a statutory demand cannot be legally issued. This threshold must be met with a single debt or the total of multiple debts that are due and payable.
Who can issue a statutory demand?
Any person or entity owed a debt by a company can issue a statutory demand, including individuals, businesses, the ATO, or insolvency practitioners. The debt must be due and payable and not subject to a genuine dispute. Only companies can be served with a statutory demand—not individuals or partnerships.
How must a statutory demand be served on a company?
A statutory demand must be served in accordance with section 109X of the Corporations Act. Acceptable methods include posting it to the company’s registered office, delivering it in person to the registered office, or serving it personally on a company director who resides in Australia. Service must be proven.
What is Form 509H?
Form 509H is the prescribed form for issuing a creditor’s statutory demand. It must be used without alteration and includes details such as the debt amount, the debtor company’s information, and payment instructions. Using the wrong form or omitting required content may result in the demand being set aside.
Do I need an affidavit with a statutory demand?
Yes, if the debt is not a judgment debt, the statutory demand must be accompanied by an affidavit verifying that the debt is due and payable. The affidavit must be sworn by someone with authority and comply with court rules. Without it, the demand may be invalid under section 459E(3).
What happens if a company ignores a statutory demand?
If a company does not respond within 21 days by paying, negotiating, or applying to set aside the demand, it is presumed insolvent under section 459C of the Corporations Act. The creditor can then apply to have the company wound up in the Federal or Supreme Court.
Can a statutory demand be issued for a disputed debt?
No. A statutory demand must only be issued for debts that are not subject to a genuine dispute. If a company can show there is a real and substantial dispute over the debt, the court will likely set aside the demand under section 459H(1)(a), and costs may be awarded.
How long does a company have to respond to a statutory demand?
A company has 21 days from the date of service to respond. The response may include paying the debt, entering into a payment arrangement, or applying to the court to set aside the demand. There are no extensions—missing the deadline results in a presumption of insolvency.
What are some common reasons for setting aside a statutory demand?
Statutory demands can be set aside due to:
- A genuine dispute over the debt,
- An offsetting claim,
- A formal defect causing substantial injustice,
- Or “some other reason” under section 459J, such as improper purpose or invalid service.
All applications must be filed within 21 days of service.
Can a statutory demand be withdrawn?
Yes, a creditor may choose to withdraw a statutory demand at any time before initiating winding-up proceedings. This is often done during negotiations or after receiving partial payment. A withdrawal should be done in writing, and both parties should keep a copy for legal clarity.
What is a judgment debt?
A judgment debt is a debt confirmed by a court order. If the statutory demand is based on a judgment debt, no affidavit is required to accompany the demand. The judgment itself provides sufficient evidence that the debt is due and payable under section 459E(3).
Can a creditor issue multiple statutory demands?
Yes, a creditor may issue more than one statutory demand if there are separate debts or the original demand is withdrawn or set aside. However, repeated or abusive use of statutory demands may be seen as coercive or improper, and courts can penalise such conduct under section 459J.
Can I serve a statutory demand on an overseas company?
No. Statutory demands under the Corporations Act apply only to Australian-registered companies. You cannot serve a statutory demand on foreign companies unless they are registered in Australia under the Corporations Act and maintain a registered office locally.
What if the creditor uses the wrong company name or ACN?
Errors in the company name or ACN can render a statutory demand defective. The name and ACN must match the company’s registered details with ASIC. If there is a discrepancy, the demand may be set aside under section 459J due to a defect causing substantial injustice.
What are the risks of misusing a statutory demand?
Misusing a statutory demand—for example, issuing one for a disputed debt or for an improper purpose—can result in the demand being set aside and the creditor being ordered to pay legal costs. Courts take misuse seriously and will penalise creditors who abuse the process.
Can a director be personally liable after a statutory demand?
Yes, if a company trades while insolvent after receiving a statutory demand, directors may be personally liable for new debts. Under insolvent trading provisions, a liquidator may bring claims against directors if they allowed the company to incur debts while insolvent.
What is the role of legal advice in statutory demand matters?
Legal advice is critical. For creditors, it ensures the demand is legally valid and properly served. For debtor companies, it helps identify defences, prepare applications to set aside the demand, and avoid the presumption of insolvency. Delays or errors can be financially and legally damaging.
Can the ATO issue a statutory demand?
Yes, the Australian Taxation Office (ATO) regularly issues statutory demands for unpaid tax debts. Like any creditor, the ATO must follow the statutory minimum and procedural requirements. Failure to comply with an ATO statutory demand can result in winding-up proceedings.
What is an offsetting claim?
An offsetting claim is a legitimate counterclaim, set-off, or cross-demand the company has against the creditor. If the offsetting claim reduces the total debt below the $4,000 threshold, the company may succeed in having the demand set aside under section 459H(1)(b) of the Corporations Act.
