What is a statutory demand?
A statutory demand is a formal legal notice issued under section 459E of the Corporations Act 2001 (Cth) requiring a company to pay an outstanding debt within 21 days. It's one of the most powerful tools available to creditors in Australia because non-compliance creates a legal presumption that the company is insolvent.
Unlike a letter of demand, a statutory demand carries specific legal consequences under the Corporations Act. If the debtor company doesn't pay, agree to pay, or successfully apply to set aside the demand within 21 days, you can apply to wind up the company.
When to use a statutory demand
A statutory demand is appropriate when:
- The debtor is a company (not an individual or sole trader)
- The debt is $4,000 or more (the current statutory minimum)
- The debt is due and payable — not contingent on a future event
- The debt is not genuinely disputed — there's no real question about whether the money is owed
- A letter of demand has been ignored or the debtor has refused to pay
The $4,000 threshold
The statutory minimum for a statutory demand is currently $4,000. This threshold was increased from $2,000 to ensure the tool is used for debts of sufficient size. If your debt is below $4,000, we'll recommend alternative recovery methods such as a letter of demand or court proceedings in the Local Court or Small Claims division.
The 21-day compliance window
Once served, the debtor company has exactly 21 days to either:
- Pay the debt in full (including any interest claimed)
- Reach an agreement with the creditor to satisfy the demand
- Apply to the court to have the demand set aside (on grounds of genuine dispute or offsetting claim)
The 21-day period runs from the date of service and cannot be extended — not even by agreement between the parties. This hard deadline is what makes the statutory demand so effective.
Consequences of non-compliance
If the company fails to comply within 21 days, the court will presume the company is insolvent under s459C(2) of the Corporations Act. This presumption is the gateway to a winding-up application. For company directors, this is an extremely serious consequence — it can lead to:
- Appointment of a liquidator to take control of the company
- Investigation of the directors' conduct, including potential insolvent trading claims
- Personal liability for directors under s588G if the company traded while insolvent
- Loss of the company as a going concern
This is precisely why a statutory demand is so effective — the consequences of ignoring it are severe enough that most company debtors take immediate action.
Setting aside a statutory demand
A company can apply to set aside a statutory demand under s459G of the Corporations Act, but only within the 21-day period and only on limited grounds:
- Genuine dispute — there's a real question about whether the debt is owed (not just a delaying tactic)
- Offsetting claim — the company has a legitimate counter-claim that reduces the amount below the statutory minimum
- Defect in the demand — the demand doesn't comply with the formal requirements (which is why proper legal drafting is essential)
Before we issue any statutory demand, we carefully assess whether the debt could be genuinely disputed. This protects you from the cost and delay of a set-aside application.
Our process
Here's how we handle statutory demands for our clients:
- Step 1: Assessment — We review your debt documentation to confirm the demand will withstand any challenge
- Step 2: Preparation — We draft the statutory demand in strict compliance with the Corporations Act requirements
- Step 3: Service — We arrange proper service on the debtor company (service must comply with specific legal requirements)
- Step 4: Monitoring — We track the 21-day period and advise you immediately on any response
- Step 5: Next steps — If the company doesn't comply, we advise on winding-up proceedings or negotiate a payment arrangement
The information on this page is general in nature and should not be relied upon as legal advice. Please contact us for advice specific to your situation.
