Statutory Demand: Guide to Issuing & Responding

A statutory demand is a formal written demand for payment issued under the Corporations Act 2001 (Cth). It is a powerful recovery tool creditors use when company debts remain unpaid. This guide explains what a statutory demand is, who can issue one, the legal requirements, and how a company can respond or apply to have it set aside.

What is a statutory demand?

A statutory demand is a formal written demand for payment of a debt under the Corporations Act 2001 (Cth). It is governed by statutory rules that create a strong presumption: if a company fails to comply within the prescribed time, the creditor may apply to the court for a winding-up order on the basis that the company is insolvent.

A statutory demand is not a simple letter of demand. It must meet formal requirements and has significant consequences if mishandled. The key consequence is that failure to comply within the compliance period creates a presumption of insolvency, which can trigger winding-up proceedings.

Key references:

• Corporations Act 2001 (Cth) — https://www.legislation.gov.au/Details/C2004A00818
• ASIC Regulatory Resources — https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-company-directors/statutory-demands-and-winding-up/
• Case law and precedents — http://www.austlii.edu.au/

Who can issue a statutory demand?

A statutory demand can be issued by:

• An unsecured or secured creditor where the debt is a company debt
• An assignee or person who holds the debt by operation of law
• Representatives or agents acting on behalf of a creditor (provided authority is documented)

Practical considerations when issuing a demand:

• Only issue a statutory demand for debts above the statutory threshold; check the Corporations Act for current monetary limits
• Avoid issuing a demand where the debt is genuinely disputed on substantial grounds; an improperly issued demand risks being set aside and may attract adverse costs

When is a statutory demand appropriate?

A statutory demand is appropriate when:

• The debt is due, payable and not genuinely disputed
• The amount meets or exceeds the statutory minimum threshold
• Negotiation or commercial recovery options (payment plans, deeds of deferral) have failed or are unsuitable
• You intend to use the demand as a prelude to winding-up proceedings because the debtor appears insolvent

Statutory demands can be an effective component of a broader recovery strategy. Sometimes commercial options like invoice financing or short-term lending can be more practical than immediate litigation. Consult with an insolvency practitioner to explore alternatives before issuing a demand.

Key legal requirements and formalities

A statutory demand must comply with statutory formalities. Missing any formal requirement can make the demand defective and liable to be set aside.

Core elements a valid demand must include

• The amount claimed and the date the debt became due
• A clear demand for payment of the specified sum
• A statement of the company's options (pay, apply to set aside, or negotiate)
• The compliance period (commonly 21 days from service—verify current timeframes under the Corporations Act)
• Creditor details and a signature by the creditor, solicitor or authorised agent

Affidavit verifying the debt

An affidavit (sworn statement) must accompany the demand to verify the debt and the facts of service. It should set out in straightforward terms:

• Where the debt came from and how the amount was calculated
• Confirmation the creditor is entitled to claim the debt
• Any attempts to recover the debt before issuing the demand
• Details of any security, set-offs or payments

Keep the affidavit concise and evidence-based. Contracts, invoices and payment records should be attached.

Service and proof of service

• Serve the demand and affidavit together using lawful, provable methods: personal service, leaving at the registered office, or using prescribed postal methods. Check court practice notes and ASIC guidance for acceptable service methods
• Preserve proof of service: postal receipts, affidavit of service, witness statements, and any contemporaneous records of delivery

If service is disputed, the court will closely examine the evidence.

Step-by-step: How to issue a statutory demand

Follow this checklist to issue a compliant statutory demand:

1. Verify eligibility — Confirm the debt is a "company debt" and exceeds the statutory threshold
2. Prepare documentation — Draft the demand with required particulars and attachments. Prepare and swear the affidavit verifying the debt
3. Obtain authorisation — Document authority to issue the demand (board resolution or written authorisation where needed)
4. Plan service — Choose a lawful service method and arrange reliable proof of service
5. Serve the demand — Serve the demand and affidavit together; record date and method of service
6. Retain evidence — Preserve originals, copies, delivery receipts and the affidavit of service
7. Monitor the compliance window — Note the expiry date (usually 21 days) and prepare for next steps
8. If not complied with — Prepare a winding-up application with affidavit, proof of service and supporting documents

At a glance checklist:

• Demand drafted with amount, due date and compliance period — yes/no
• Affidavit sworn and attached — yes/no
• Authorisation documented — yes/no
• Service arranged and evidence preserved — yes/no
• Winding-up documents ready if required — yes/no

What happens after a company is served?

Immediate effects:

• The company has the compliance period (commonly 21 days) from the date of service to:
  • Pay the debt in full, or
  • Apply to the court to set the demand aside, or
  • Negotiate a written agreement with the creditor

If the company does nothing and the demand is valid, the creditor may file a winding-up application. Service often creates strong commercial pressure and frequently prompts negotiation or payment.

Directors receiving a demand should review corporate duties and solvency positions.

Responding to a statutory demand: Options for the recipient

If your company is served with a statutory demand, act immediately. Your options include:

• Pay the debt if it is genuinely owed and payment is possible
• Negotiate with the creditor for an extension, instalment plan, or full settlement
• Apply to set the demand aside (usual grounds are explained below)
• Apply for more time to pay through the court
• Do not ignore the demand; failure to act risks winding-up proceedings

Recipient checklist:

• Note the date of service and diarise the deadline
• Preserve all contracts, invoices, correspondence and reconciliations
• Collate evidence of any dispute or offset (credit notes, emails, ledger entries)
• Seek legal or insolvency advice promptly

Grounds to set aside a statutory demand

Courts will set aside demands where established grounds exist:

• Genuine dispute: A bona fide dispute about the existence or amount of the debt with supporting documents and sworn evidence
• Offsetting claim: A cross-claim that reduces or extinguishes the creditor's claim
• Defective demand: The demand fails to meet statutory requirements (wrong amount, missing affidavit, unsigned)
• Debt not a company debt: The obligation is to a director or another entity, not the company
• Debt extinguished: Payment has been made or the debt discharged
• Stay of proceedings: Another process (for example, arbitration) suspends court action

Evidence courts expect:

• For a genuine dispute: specific facts and supporting documents (contracts, emails, reconciliations)
• For a defect: clear proof showing the demand did not meet statutory requisites
• For an offset: enforceable cross-claims with supporting records

Procedure to apply to set aside (court process & timelines)

Practical steps and timing:

1. File an application in the appropriate court seeking an order to set aside the demand
2. File supporting affidavits explaining the grounds and attaching documents
3. Act promptly — the 21-day compliance window is critical. Seek urgent interim relief if immediate harm would result
4. Attend hearings where parties exchange affidavits and submissions
5. Be aware of costs risks—unsuccessful applicants may face adverse costs orders

Typical timeline:

• 21 days from service for compliance—file and seek directions early if you intend to contest
• Courts may list expedited hearings in urgent cases

Evidence pack:

• Affidavit from a company officer or director
• Contracts, invoices, correspondence and ledger entries
• Proof of payment or set-off where applicable

Consult the Corporations Act, court practice notes and consider legal representation.

Consequences and next steps if the demand is not set aside

If the demand is not set aside and the company does not pay:

• The creditor may apply for a winding-up order and seek appointment of a liquidator
• Commercial consequences include loss of control for directors, reputational damage and credit impacts
• Liquidators can realise assets, investigate transactions, and pursue recoveries
• Directors may face scrutiny over solvency decisions

Winding-up proceedings are costly and can be contested; creditors should weigh the benefits and risks before proceeding.

Practical tips, common mistakes and best practice

Avoid these mistakes:

• Issuing a demand without checking for genuine disputes or set-offs
• Drafting demands that omit required particulars or lack a sworn affidavit
• Improper service or failing to keep proof of service
• Underestimating the evidence needed for winding-up or set-aside proceedings

Best practice:

• Document the debt trail thoroughly before issuing a demand
• Use a solicitor or experienced agent to prepare and serve the demand
• Keep contemporaneous records and a dedicated service file
• If you receive a demand, preserve documents, notify relevant insurers and get legal or insolvency advice promptly

FAQ

Key takeaways

Act immediately on receipt of a statutory demand and preserve all relevant documents. Seek professional legal or insolvency advice as soon as possible, as timeframes are tight and evidence is critical. Consider commercial alternatives before issuing a demand, and always verify the debt and proper service requirements.

Further reading

• ASIC — Statutory demands and winding up: https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-company-directors/statutory-demands-and-winding-up/
• Corporations Act 2001: https://www.legislation.gov.au/Details/C2004A00818
• AustLII for case law: http://www.austlii.edu.au/
• Insolvency Practitioners Association of Australia: https://ipaust.com.au/

This article is general information only and is not legal, tax or financial advice.