A statutory demand Australia is a legislative mechanism that can trigger a presumption of insolvency.

A statutory demand is one of the most effective debt recovery tools available to creditors in Australia. It is issued under section 459E of the Corporations Act 2001 (Cth) and can place a debtor company under immediate pressure to either pay a debt, settle it, or take urgent legal action.

Unlike a standard letter of demand, a statutory demand has strict legal consequences. If a company does not comply with a valid statutory demand within 21 days, the company may be presumed insolvent under the Corporations Act—allowing the creditor to commence winding up proceedings.

This guide explains:

• What a statutory demand is, and when it can be used
• The $4,000 minimum threshold
• The 21-day deadline and how it is calculated
• How a company can apply to set aside a statutory demand
• What happens if the demand is ignored
• Practical risks for directors
• How Allen Law can help

If you are looking for broader debt recovery steps before insolvency action, you may also find helpful our guide on how to get paid for unpaid invoices:
Read About: Unpaid Invoices

What Is a Statutory Demand Australia?

A statutory demand Australia is a formal written demand served on a company requiring it to pay a debt that is:

• due and payable, and
• at least $4,000 in total.

Statutory demands apply to companies only. They do not apply to individuals (who are generally governed by bankruptcy procedures).

A statutory demand is often used after initial recovery steps have failed—such as payment reminders, follow-up correspondence, and a letter of demand. If you need a practical overview of letters of demand, you can read more here:
Read About: Letter Of Demands

The $4,000 Threshold and “Due and Payable” Debt

The minimum statutory threshold for a statutory demand is $4,000.

A creditor can combine more than one debt to reach that threshold, provided each debt is genuinely due and payable.

A debt is generally “due and payable” when the obligation to pay is immediate and not dependent on a contingency (for example, it is not merely a claim for unliquidated damages).

If a debt is disputed, or the amount is not properly determined, statutory demands can become risky—because the company may apply to set it aside and seek costs against the creditor.

Statutory Demand vs Letter of Demand

A letter of demand is typically a commercial step: it requests payment and warns of legal consequences.

A statutory demand is a legislative mechanism that can trigger a presumption of insolvency.

As a general approach:

• Letters of demand are often appropriate for early-stage recovery or negotiated resolution.
• Statutory demands are usually appropriate where the debt is clear, due, and unpaid, and the creditor is prepared to escalate.

If you are already in a broader dispute with a debtor company (beyond simple non-payment), it may be better to consider a litigation strategy. You can read more here:
Read More: Commercial Litigation Melbourne

How to Issue a Statutory Demand (Key Requirements)

Statutory demands are technical documents. Courts generally expect strict compliance because the consequences for the debtor company can be severe.

A statutory demand must:

• be in writing and comply with the prescribed form (commonly Form 509H);
• correctly identify the debtor company (including the correct ACN);
• specify the debt amount and describe its basis (for example, unpaid invoices);
• specify an address in Australia for payment; and
• be served properly under the Corporations Act.

Verifying Affidavit

If the statutory demand is not based on a court judgment, it must usually be accompanied by a verifying affidavit confirming:

• the debt is due and payable; and
• there is no genuine dispute about the debt.

A common technical issue is the affidavit’s timing. If the affidavit is sworn incorrectly (including timing issues), it can expose the demand to being set aside.

Service of a Statutory Demand (Why It Matters)

Service is crucial because it triggers the 21-day deadline.

A statutory demand can generally be served by:

• sending it to the company’s registered office (as recorded with ASIC);
• leaving it at the registered office; or
• serving a director personally.

Because timing is critical, service should be done in a way that can be proven (for example, tracked delivery or documented personal service).

What Happens After a Statutory Demand Is Served? The 21-Day Deadline

Once the statutory demand is served, the company has 21 days to:

1. pay the debt in full; or
2. reach an agreement with the creditor (ideally recorded in writing); or
3. file and serve an application to set aside the demand.

The 21-day deadline is strictly enforced and usually cannot be extended. Companies should not “wait to see what happens”—delays can be fatal.

Responding to a Statutory Demand: Your Options

If you receive a statutory demand, the key is to act quickly and choose the right pathway.

Option 1: Pay the Debt

If the debt is admitted and funds are available, payment within the 21 days will generally resolve the statutory demand.

Option 2: Negotiate Settlement or Payment Terms

If cash flow is the issue, negotiated terms may be possible. This should be recorded in writing, and the creditor should confirm withdrawal of the demand.

Option 3: Apply to Set Aside the Statutory Demand

If the debt is disputed, or there is a legal issue with the demand, the company must apply to set it aside within the 21 days.

Grounds for Setting Aside a Statutory Demand

The Corporations Act provides several established grounds.

Genuine Dispute (s 459H)

A demand may be set aside if there is a genuine dispute about:

• the existence of the debt; or
• the amount claimed.

This is not a full trial. The question is whether the dispute is real and not merely invented to delay recovery.

Offsetting Claim (s 459H)

An offsetting claim is a counterclaim, set-off or cross-demand that reduces the amount owed.

If the substantiated amount (debt minus the offsetting claim) falls below $4,000, the demand must be set aside.

Defect Causing Substantial Injustice (s 459J)

Errors in a demand do not automatically invalidate it. The defect must cause substantial injustice unless the demand is set aside.

“Some Other Reason” (s 459J)

This is broader and may apply where:

• the demand is an abuse of process;
• the creditor used the demand for an improper purpose; or
• there is a serious procedural defect (including problems with affidavits).

What Happens If the Demand Is Ignored?

If the company does not comply within 21 days, the company is presumed insolvent.

That presumption lasts for three months, during which a creditor may commence winding up proceedings. Once winding up proceedings are filed, the reputational and commercial impact can be serious, including impacts on:

• supplier relationships
• credit terms
• banking relationships
• business reputation

Director Risk and Insolvent Trading

Statutory demands can also be a practical warning sign for directors.

If a company is insolvent (or becomes insolvent), directors can face personal exposure for insolvent trading in certain circumstances.

Receiving a statutory demand—and failing to comply—may later be relied upon as evidence of insolvency from that time.

Directors should seek advice urgently if:

• the company cannot pay the debt;
• multiple creditor issues exist; or
• cash flow pressures are worsening.

Frequently Asked Questions

What is a statutory demand in Australia?

A statutory demand is a formal demand issued under section 459E of the Corporations Act 2001 (Cth) requiring a company to pay a due and payable debt of at least $4,000 within 21 days.

What happens if a company does not respond to a statutory demand within 21 days?

If the company does not comply within 21 days, it may be presumed insolvent. A creditor can then use that presumption to commence winding up proceedings.

Can a statutory demand be set aside?

Yes. A statutory demand can be set aside where there is a genuine dispute about the debt, an offsetting claim, a defect causing substantial injustice, or another recognised reason under the Corporations Act.

Can the 21-day statutory demand deadline be extended?

Generally, no. The 21-day timeframe is strictly enforced and companies should obtain urgent advice immediately upon receiving a statutory demand.

Should I issue a statutory demand if the debt is disputed?

Usually not. If the debt is genuinely disputed, the demand may be set aside and the creditor may face adverse cost consequences. Legal advice should be obtained before issuing a demand.

Is a statutory demand the same as a letter of demand?

No. A letter of demand is a pre-action request for payment, whereas a statutory demand is a formal insolvency mechanism that can trigger a presumption of insolvency if not complied with.

How Allen Law Can Help

Allen Law regularly assists businesses and individuals with:

• issuing statutory demands correctly
• responding to statutory demands within the 21-day deadline
• preparing urgent court applications to set aside demands
• advising on debt recovery strategy and enforcement
• acting in winding up proceedings and broader commercial disputes

If you require advice on debt recovery strategy more broadly, you can also review:
Read More: Get paid unpaid invoices

Or if your matter involves a wider dispute and may require court strategy:
Read More: Commercial Litigation