A court will set aside a statutory demand for a genuine dispute, an offsetting claim, a defect causing substantial injustice or some other reason. The bar for a genuine dispute is low, but it must be cleared with facts in an affidavit filed and served within 21 days. Bare assertions, and grounds raised too late, fail.

For the basics of how demands work and the 21-day process, see our statutory demands page. This article explains how courts apply each ground in practice.

The statutory grounds

Section 459H of the Corporations Act 2001 (Cth) deals with genuine disputes and offsetting claims. Section 459J deals with defects and “some other reason”.

Each ground has its own test. An application can, and often should, rely on more than one.

Genuine dispute: the test in Eyota

The leading formulation comes from McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785. A genuine dispute requires a “plausible contention requiring investigation”.

His Honour likened the threshold to the “serious question to be tried” test for interlocutory injunctions. The company does not have to prove it will win.

The same judgment sets a limit. The court need not accept every statement in an affidavit uncritically. Statements that are equivocal, imprecise, inconsistent with undisputed contemporary documents or inherently improbable can be rejected (at 787).

Genuine dispute: the approach in Spencer Constructions

The Full Federal Court confirmed the court’s limited role in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452. It asks only whether a genuine dispute exists. It does not attempt to weigh or resolve the merits.

In practice, the hearing is not a trial. It is usually decided on the affidavits and documents.

What evidence is enough

The strongest evidence is contemporaneous. Complaints about defective work, disputed invoices or rejected variations, made before the demand arrived, carry real weight.

Disputes that surface only after the demand is served attract scepticism. So do affidavits that assert a dispute without saying what it is, or that contradict the company’s own emails.

Ask whether the affidavit says what the dispute is, why it is arguable and which documents support it.

The Graywinter principle: the affidavit sets the boundaries

Section 459G(3) requires a supporting affidavit. The leading case is Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. Sundberg J held that the affidavit “must say something that promotes the company’s case”.

It must disclose facts showing a genuine dispute. “A mere assertion that there is a genuine dispute is not enough.”

Later affidavits may supplement grounds disclosed within the 21 days. They cannot introduce new grounds, or cure an affidavit that disclosed no facts at all. Everything turns on the first affidavit.

The Victorian Court of Appeal reaffirmed this in BRC Group Pty Ltd v Watagan Park Pty Ltd [2025] VSCA 36. A passing reference to an agreement, without exhibiting or summarising it, was not enough to raise a genuine dispute.

This sits alongside the High Court’s decision in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. The 21-day limit cannot be extended, so a deficient affidavit usually cannot be fixed.

Offsetting claims and the s 459H calculation

An offsetting claim is a genuine counterclaim, set-off or cross-demand the company has against the creditor. It need not arise from the same transaction (s 459H(5)).

The claim must be genuine and capable of being valued in money. A vague intention to sue will not do.

The court then performs a statutory calculation under s 459H(2):

  • start with the admitted total, being the debt less any genuinely disputed part
  • subtract the offsetting total
  • the result is the “substantiated amount”.

If the substantiated amount is below the $4,000 statutory minimum, the court must set the demand aside (s 459H(3)). If it is $4,000 or more, the court may vary the demand to that amount (s 459H(4)).

So quantification matters. An affidavit should state what the offsetting claim is worth and how that figure is reached.

Defects causing substantial injustice

A “defect” includes an irregularity, a misstatement of an amount, or a misdescription of a debt, person or entity. Under s 459J(2), the court must not set aside a demand merely because of a defect.

The company must show the defect will cause substantial injustice unless the demand is set aside (s 459J(1)(a)). In Spencer Constructions, defects that caused no injustice could not justify setting the demand aside.

An overstated amount is often cured through the s 459H variation mechanism. A defect that leaves the company unable to identify the debt, or who to pay, is more likely to succeed.

“Some other reason”

Section 459J(1)(b) is a residual discretion. It commonly covers abuse of process, such as using a demand to pressure payment of a debt known to be disputed.

Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd [2023] QSC 26 shows its reach. The dispute there was not about the existence or amount of the debt. It was about whether the loan was due and payable when the demand was served.

Ryan J held that a genuine dispute about whether a debt was due and payable is capable of being “some other reason” (at [95]). The demand was set aside. The court also found the demand process had been used for a purpose beyond its intended purpose (at [9]).

Costs

Costs generally follow the event. A creditor that serves a demand for a debt it knows is disputed risks paying the company’s costs, and possibly costs on the higher indemnity basis.

In Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774, the court inferred that the creditor knew there was a genuine dispute when he served the demand, and served it to pressure the company into paying. He was ordered to pay the company’s costs, and the claim for indemnity costs was listed for a separate hearing.

A company that runs a weak dispute risks a costs order and a shortened window to pay the debt.

Reform watch

The statutory minimum remains $4,000 (Corporations Regulations 2001 (Cth) reg 5.4.01AAA). The Government has referred broader insolvency reform to the Productivity Commission, and we will update this article if the rules change. For the wider reform picture, see insolvency reform on hold.

What to do if you intend to challenge a demand

  • Identify every available ground now. You cannot add grounds after the 21 days.
  • Gather contemporaneous documents showing the dispute or counterclaim existed before the demand.
  • Quantify any offsetting claim and show the working.
  • Make sure the affidavit states facts, not conclusions, and exhibits the key documents.
  • Check whether the dispute is about timing, which may fall under s 459J(1)(b).

If the demand is not set aside or paid in time, the creditor can apply to wind up the company. See winding-up applications.

What creditors should check before serving

  • Search your file for any complaint, dispute or counterclaim raised by the debtor.
  • Confirm the debt was due and payable on the date of service.
  • Check that the amount, debtor name and debt description are accurate.
  • Consider whether the debtor could quantify an offsetting claim that reduces the debt below $4,000.
  • If the debt is genuinely contested, consider proceedings instead. See debt recovery.

To discuss a statutory demand, contact Scott D. Taylor on +61 7 3229 9800 or send us an enquiry online.

This article is general information only and is not legal advice.

Sources: Corporations Act 2001 (Cth) ss 9, 459G, 459H, 459J; Corporations Regulations 2001 (Cth) reg 5.4.01AAA; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, as applied in Viva 4 Enterprises Pty Ltd v Octobay Pty Ltd [2011] QSC 281; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452; Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265; Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd [2023] QSC 26; Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774; BRC Group Pty Ltd v Watagan Park Pty Ltd [2025] VSCA 36.