Statutory Demand: How to Respond in 21 Days

A statutory demand is a specific creditor tool under the Corporations Act (s 459E). It requires a debt, or debts aggregating, of at least the statutory minimum, currently due and payable. It is not a letter of demand, not a debt collection notice, and not a court judgment. It is a formal step whose purpose is to create a presumption of insolvency if it is not satisfied.

For it to be valid it must be for a debt of at least $4,000, be in the prescribed form — Form 509H — specify the debt and its amount, be accompanied by an affidavit verifying the debt unless it is a judgment debt, and be served on the company's registered office in accordance with s 109X.

Defects matter. A demand with a genuine defect may be able to be set aside — but only within the 21 days, and only by application to the court.

The clock starts on service, not on the date printed on the document, and not when you happened to open it. Service is effected by leaving the demand at, or posting it to, the registered office (s 109X(1)(a)). Where it is served personally or electronically with consent, that day is day zero and the 21 days run from the next day. Where it is posted, service is deemed to occur on the seventh business day after posting unless the contrary is proved (Acts Interpretation Act 1901 s 29, read with Australia Post delivery standards). Establishing the posting date precisely is therefore the first thing to do.

It cannot be extended. Not by the creditor agreeing, not by negotiations being underway, not by you being on leave. The court has no jurisdiction to extend the time to file and serve an application to set a demand aside (David Grant & Co v Westpac (1995) 184 CLR 265).

1. 1.Pay it in full. Ends the matter. Confirm in writing that the demand is withdrawn.
2. 2.Reach a documented agreement. A payment arrangement can resolve it — but get the demand formally withdrawn in writing as part of the deal. An informal understanding leaves the presumption of insolvency intact.
3. 3.Apply to set it aside. Available where there is a genuine dispute about the existence or amount of the debt, or an offsetting claim (s 459H), or a defect in the demand that would cause substantial injustice (s 459J). The application must be filed and served within 21 days. This needs a lawyer, and it needs one immediately.
4. 4.Use the time to deal with the underlying insolvency. If the debt is genuinely owed and cannot be paid, the demand is a symptom rather than the problem. This is the window in which restructuring or an orderly liquidation is still a choice you make rather than one made for you.

If the demand is unsatisfied, the company is presumed insolvent (s 459C). The creditor can then apply to the court to wind it up, and the presumption makes that application substantially harder to resist. Raising grounds you could have raised in a set-aside application needs the court's leave (s 459S), and proving solvency takes audited, contemporaneous cash flow and balance sheet evidence rather than assertion.

Consequences follow quickly from there. Once a wind-up application is filed it is usually advertised, which is when banks and other creditors find out. Facilities get reviewed. Suppliers tighten terms. And critically, the restructuring options that were available on day 1 may no longer be practical.

If a statutory demand has been served, the date of service is the most important fact in your business right now — establish it precisely today. If the debt is disputed, you need a lawyer this week, not next. If it is genuinely owed and unpayable, the 21 days are the last part of this process where you still have a choice about what happens to the company. Either way, the worst available option is to negotiate informally and let the clock run out.