Receiving a statutory demand is not a routine piece of mail. It is one of the most serious legal documents a company director can receive — and it comes with a hard 21-day deadline that courts will not move, even if both parties agree.
If your company has been served with one, the first thing to understand is this: you have options. But those options close quickly. This guide explains exactly what a statutory demand is, what the law requires, and what practical steps you should take right now to protect your business.
A statutory demand is a formal legal document that a creditor serves on a debtor company, requiring the company to pay an outstanding debt within 21 days. It is governed by section 459E of the Corporations Act 2001 (Cth) and is one of the most powerful debt recovery tools available to creditors in Australia.
The term “statutory” refers to the fact that the document derives its authority directly from legislation. It is not a letter of demand. It is not a reminder notice. A statutory demand is a precursor to winding up proceedings, and failing to respond to it correctly can result in your company being compulsorily liquidated.
Important: A statutory demand can only be issued against a company — not an individual. If you are a sole trader or individual, different debt recovery laws apply. For guidance on personal insolvency, speak to a BCR Advisory specialist.
The mechanism is deliberately powerful. If a company fails to comply with a valid statutory demand within 21 days and does not successfully apply to have it set aside, the law presumes the company is insolvent. That presumption is what enables a creditor to go directly to court and seek a winding up order — without needing to prove insolvency from scratch.
Not every debt qualifies. Under the Corporations Act, a creditor can only issue a statutory demand if all of the following conditions are met:
| Condition | Detail |
|---|---|
| The debtor is a company | Statutory demands apply to registered companies only. They cannot be used against individuals or sole traders. |
| The debt is at least $4,000 | The statutory minimum threshold is $4,000 (increased from $2,000 in July 2021). Debts below this cannot be the subject of a statutory demand. |
| The debt is due and payable | The debt must be presently owing — not prospective, contingent, or unliquidated. The creditor must be able to put a precise dollar figure on it. |
| No genuine dispute exists | There should be no genuine dispute about the existence or amount of the debt. If there is, the debtor may have grounds to set the demand aside. |
If your company owes multiple debts to the same creditor, they can combine them into a single statutory demand for the total amount, provided each individual debt meets the criteria above.
A statutory demand must comply strictly with the requirements of the Corporations Act. A court may set aside a demand — even if the debt is legitimate — if the document itself does not meet the prescribed form. These are the requirements a valid statutory demand must satisfy:
Note for creditors: Defects in a statutory demand can be costly. If your demand is set aside due to a technical error, the court may order you to pay the debtor’s legal costs. Get the document right from the outset, or seek specialist assistance before serving it.
A statutory demand must be served on the debtor company’s registered office address, either by post or by personal delivery. This is the address recorded with ASIC — not the company’s trading address.
If the registered office address has changed or is unknown to the creditor, the demand may also be served on a director of the company at an Australian address. Creditors must be aware of the Service and Execution of Process Act when serving interstate.
The 21-day clock starts from the date the demand is properly served. This is why it is critical that business owners check their company’s registered address with ASIC regularly — a demand can be validly served without you actually seeing it, and the clock is still running.
The moment a statutory demand is properly served, a 21-day countdown begins. This is not a guideline — it is a statutory deadline, and courts have consistently refused to extend it, even by a single day, even with the creditor’s consent.
During those 21 days, the following can happen:
From the date of valid service, your company has exactly 21 days to act. There is no grace period and no extension.
If no action is taken, your company is presumed insolvent by law. This presumption holds for 3 months and opens the door to winding up.
The creditor can apply to the Federal Court or a State Supreme Court to wind up your company — without proving insolvency independently.
Trading while insolvent is a criminal offence. Once the presumption exists, continuing to incur debts exposes directors to personal liability.
If your company has been served with a statutory demand, you have three lawful responses available to you within the 21-day window. Each has different implications, and the right choice depends on your specific circumstances.
The BCR Advisory team works with company directors across Australia to assess which of these options best protects your business. Book a confidential call to discuss your situation before the window closes.
Applying to set aside a statutory demand is not simply a delaying tactic — there must be valid legal grounds. The Corporations Act recognises the following as grounds on which a court may set aside a statutory demand:
| Ground | What It Means |
|---|---|
| Genuine dispute | There is a real, bona fide dispute about the existence or amount of the debt. The court does not need to determine who is right — it only needs to find a serious question to be tried. |
| Offsetting claim | The debtor company has a genuine claim against the creditor that, if successful, would reduce the debt below the $4,000 statutory minimum. This claim does not need to be for a fixed amount. |
| Defect in the demand | The demand contains a technical defect — such as a misstatement of the debt amount, misdescription of the creditor or debtor company, use of the wrong form, or a defective affidavit. |
| Some other reason | Courts have wide discretion here. This can include abuse of process, improper purpose for issuing the demand, or significant technical irregularities that would cause substantial injustice if not corrected. |
Importantly, a genuine dispute does not require you to prove the debt is wrong — only that there is a real dispute. This is a lower threshold than ordinary litigation, which is why the court application process is a legitimate and often effective avenue for directors facing contested debts.
That said, the 21-day filing deadline is absolute. Even where grounds exist, a company that misses this window loses the right to apply. Acting quickly is non-negotiable.
Doing nothing is the most dangerous option. If 21 days pass without your company paying the debt, negotiating a resolution, or filing a court application, the consequences follow automatically:
It bears repeating: a statutory demand cannot be ignored, and it cannot be managed informally. If you have received one, the time to act is today — not after you have spoken to your accountant, not after the weekend. Today.
BCR Advisory’s team includes registered insolvency practitioners with over 100 years of combined experience. We work with directors across Sydney, Brisbane, Adelaide, and nationally to assess the full picture before recommending a course of action.
Yes. A creditor can withdraw a statutory demand at any point before winding up proceedings are commenced. This typically happens when:
Withdrawal can be communicated orally, but the debtor company should always obtain written confirmation. A verbal agreement to withdraw the demand does not suspend the 21-day clock — only a signed, written withdrawal document provides certainty.
If a court sets aside a statutory demand, it may also order the creditor to pay the debtor’s legal costs. This is a meaningful deterrent against abusive or defective demands.
BCR Advisory is a specialist insolvency and corporate advisory firm based in Australia, with offices in Sydney, Brisbane, Adelaide, and Cairns. Our principals are registered insolvency practitioners and members of the Chartered Accountants Australia and New Zealand (CAANZ) and the Australian Restructuring Insolvency and Turnaround Association (ARITA).
When a business owner contacts us after receiving a statutory demand, here is what the engagement looks like:
Speak with a registered insolvency practitioner at BCR Advisory. Confidential, obligation-free, and senior-led from the first call.
Book a Confidential CallThe minimum threshold is $4,000. This was increased from $2,000 in July 2021. A creditor cannot issue a statutory demand for a debt below this amount. If multiple debts are owed, they can be combined into one demand provided the total exceeds $4,000 and all individual debts are due and payable.
No. The 21-day deadline is absolute under the Corporations Act. Courts have consistently refused to grant extensions, even where both parties consent. This is one of the most important things to understand about statutory demands. If you miss the window, you lose the right to apply to set the demand aside.
Not automatically. Receiving a statutory demand means a creditor is claiming you owe them money and is prepared to pursue winding up if you do not respond. The presumption of insolvency only arises if you fail to comply with or set aside the demand within 21 days. Many companies that receive statutory demands are solvent and resolve the matter before the deadline.
A genuine dispute exists when there is a real, arguable question about whether the debt exists or the amount claimed. The court does not determine who will ultimately succeed — it only needs to find that there is a serious question to be tried. This is a lower threshold than ordinary civil litigation, which is why it is worth exploring with an adviser if you believe the debt is wrong.
Yes. The Australian Taxation Office can and does issue statutory demands for unpaid tax debts, including GST, PAYG, and income tax. ATO statutory demands follow the same process and carry the same consequences as those issued by commercial creditors. If your company has received an ATO statutory demand, seek specialist advice immediately — BCR Advisory has extensive experience in ATO debt resolution.
When a winding up order is made, the directors lose control of the company. A registered liquidator takes over and investigates the company’s affairs, including the conduct of directors. Directors may face personal liability for debts incurred while the company was insolvent, and in serious cases, ASIC may take action for breach of director duties. BCR Advisory can advise directors on their obligations and options before a winding up application is made.
No. A letter of demand is an informal request for payment — it has no statutory backing and carries no automatic legal consequences. A statutory demand is a formal legal document under the Corporations Act. Failure to respond to a letter of demand may lead to litigation. Failure to respond to a statutory demand creates a legal presumption of insolvency and can lead directly to winding up. They are very different documents.
Yes. BCR Advisory provides services nationally, with offices in Sydney, Brisbane, Adelaide, and Cairns, and visiting offices in Parramatta, Canberra, Bella Vista, and Melbourne. Regardless of where your company is registered or where the demand was served, we can assist. Contact us to find your nearest adviser.
BCR Advisory’s first consultation is confidential, obligation-free, and senior-led. We will tell you exactly where you stand and what your options are.
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