Creditor’s statutory demands: setting aside or serving a demand

A creditor’s statutory demand gives a company 21 days to pay a debt of $4,000 or more. If the company does not comply, the creditor can apply to wind it up and rely on a presumption of insolvency. A company that disputes the debt must file and serve a court application within the same 21 days, which cannot be extended.

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Key points

A demand can be served for debts that are due and payable and total at least $4,000.
It must be in the prescribed form (Form 509H). A debt that is not a judgment debt must be verified by affidavit.
The company has 21 days after service to pay, or to secure or compound the debt.
To set a demand aside, the company must file and serve an application and affidavit within those 21 days.
Serving a demand for a debt known to be genuinely disputed risks an abuse of process finding and costs.

General guidance only – not legal advice. Please obtain independent legal advice before relying on any of this information. The law is stated as at September 2026.

What is a creditor’s statutory demand?

A statutory demand is a formal demand for payment under Part 5.4 of the Corporations Act 2001 (Cth). It can only be served on a company.

Under section 459E, the debt or debts must be due and payable and total at least the statutory minimum. That minimum is currently $4,000, under regulation 5.4.01AAA of the Corporations Regulations 2001 (Cth).

The demand must specify the debt and be in writing, in Form 509H, signed by or for the creditor. It must require payment within 21 days after service, or security or compounding to the creditor’s reasonable satisfaction. Unless the debt is a judgment debt, an affidavit verifying that it is due and payable must accompany the demand.

What happens if the company does not comply?

If the 21 days pass without compliance or a set-aside application, the company is taken to have failed to comply (section 459F).

The creditor can then apply to have the company wound up. If it applies within three months after the failure, the court must presume the company is insolvent (section 459C). The company can displace that presumption only by proving it is solvent.

Under section 459S, the company then needs leave to oppose winding up on grounds that could have supported a set-aside application. Leave requires the ground to be material to proving solvency. The winding-up application must also be published on ASIC’s insolvency notices website.

How can a statutory demand be set aside?

Under section 459G, the company must do two things within 21 days after the demand is served:

file the application and a supporting affidavit with the court, and
serve copies of both on the person who served the demand.

The court has no power to extend this time. See David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. The affidavit must set out the facts relied on, not bare assertions.

The grounds are:

Genuine dispute (s 459H) about whether the debt exists, or about its amount.
Offsetting claim (s 459H), such as a genuine counterclaim, set-off or cross-demand.
Defect (s 459J(1)(a)) in the demand that will cause substantial injustice unless it is set aside.
Some other reason (s 459J(1)(b)), such as an abuse of process.

The court does not decide who is right about the debt. It asks whether the dispute or claim is genuine and arguable.

Applications are usually made to the Federal Court of Australia or the Supreme Court of Queensland. Costs usually follow the outcome, so an unsuccessful party will generally pay the other side’s costs.

See also our article on grounds to set aside a creditor’s statutory demand.

When should a creditor use a statutory demand?

A demand can be a cost-effective recovery tool for a clear, undisputed debt of at least $4,000.

It is not a substitute for court proceedings where the debt is contested. Serving a demand for a debt the creditor knows is genuinely disputed can be an abuse of process. In Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774, the demand was set aside with costs against the creditor.

Before serving a demand, creditors should check:

whether the debtor has raised a dispute or claim
that the amount, including any interest and charges, is accurate
whether proceedings, enforcing security or a payment plan would suit better.

If the demand is not met, the creditor has three months to apply to wind up the company relying on the presumption.

What should you do if your company receives a statutory demand?

Act immediately. The 21 days run from service, not from when someone reads the demand.

Record the date and method of service, and diarise the deadline.
Do not rely on informal talks with the creditor to stop the clock.
Collect the contract, invoices and correspondence showing any dispute or claim.
Get legal advice early. The application and affidavit take time to prepare.
If the debt is owed, consider paying it or agreeing terms in writing.
If the company cannot pay its debts as they fall due, directors should get advice on their duties and restructuring options.

How Taylor David can help

We act for companies, directors, creditors, financiers and insolvency practitioners. We can:

review a demand and how it was served, and confirm the deadline
assess the grounds to set it aside, then prepare, file and serve the application
negotiate with the other side
for creditors, prepare demands and run winding-up applications
advise directors on solvency, safe harbour and restructuring options.

This work sits within our insolvency and litigation practices.

Frequently asked questions

Questions we are often asked

Can the 21-day deadline to set aside a statutory demand be extended?

No. The application and supporting affidavit must be filed, and copies served on the creditor, within 21 days after service. The High Court has held that the court has no power to extend this period. If the deadline is missed, the company generally cannot have the demand set aside, and may face a winding-up application.

What if only part of the debt is disputed?

The court deducts any genuinely disputed amount, and any genuine offsetting claim, from the amount demanded. If what remains is less than $4,000, the court must set the demand aside. If it is $4,000 or more, the court may vary the demand to that amount. The company must then pay that amount in the time allowed.

Does a mistake in the demand make it invalid?

Not automatically. The court must not set aside a demand merely because of a defect (section 459J(2)). It may do so if the defect will cause substantial injustice unless the demand is set aside. The argument must still be raised in an application filed and served within the 21 days.

What happens if our application to set aside the demand fails?

The company will usually be ordered to pay the creditor’s costs. Unless the court orders otherwise, the company then has seven days after the application is finally determined to comply with the demand (section 459F). If it does not comply, the creditor can apply to wind the company up.

Can a creditor serve a statutory demand for a disputed debt?

It should not. Using a demand to pressure payment of a debt the creditor knows is disputed can be an abuse of process. The demand is likely to be set aside, and the creditor may be ordered to pay costs. For a contested debt, court proceedings are usually the appropriate path.

General guidance only – not legal advice. Please obtain independent legal advice before relying on any of this information. The law is stated as at September 2026.

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To discuss your situation in confidence, call Scott D. Taylor on +61 7 3229 9800, email [email protected] or send us an enquiry online.

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