A statutory demand is a formal legal notice requiring a debtor company to pay an outstanding debt of at least $4,000 within 21 days. Miss that deadline, and the company is presumed insolvent, which gives creditors the right to apply to have it wound up without separately proving it can’t pay its debts.
That presumption is what makes a statutory demand so powerful. For creditors, it creates genuine leverage over a debtor who might otherwise string out negotiations indefinitely. For the company that receives one, it compresses what could be a complex commercial dispute into a 21-day window with no extensions available and serious consequences for inaction.
This article covers the legal requirements for issuing a valid demand, how it must be served, what debtors can do in response, and how the ATO uses the process differently from trade creditors.
What Is a Statutory Demand?
A statutory demand is not the same as a letter of demand. Any creditor can write a letter demanding payment, which carries no automatic consequences beyond the obvious. A statutory demand is different: if the debtor company doesn’t respond within 21 days, it is deemed by law to be insolvent.
The demand can only cover debts with a fixed, calculable dollar amount. It cannot be used for prospective debts, contingent obligations, or unliquidated claims where the amount is still to be determined.
Issuing a statutory demand typically results in one of three outcomes:
- The debtor pays the debt in full
- The debtor applies to the court to have the demand set aside
- The company fails to respond, and the creditor commences winding-up proceedings.
Requirements for a Valid Statutory Demand
Minimum debt threshold
The debt must be at least $4,000 at the time the demand is issued (the threshold that has applied since 1 July 2021). Any demand made below that amount is liable to be set aside by the court. A separate, temporarily elevated threshold applies to companies that have formally entered the small business restructuring process, but this exception is narrow and doesn’t apply to ordinary trade creditors.
The prescribed form
The demand must be prepared using Form 509H, the prescribed form under Schedule 2 of the Corporations Regulations 2001.
Form 509H must include:
- The total amount owed
- The creditor’s identity
- The debtor company’s full legal name and Australian Company Number (ACN), matching ASIC records
- A description of how and when the debt arose
- The method by which the debt is to be paid
The creditor or their authorised agent must sign the demand.
Supporting affidavit
Unless the debt arises from a court judgment, the demand must be accompanied by a supporting affidavit. This affidavit must:
- Be sworn or affirmed by someone with authority to verify the debt
- Confirm that the debt is due and payable
- Confirm there is no genuine dispute about the debt
Critically, the affidavit cannot be dated before the demand itself.
How to Serve a Statutory Demand
There are three permitted methods:
- Hand-delivered to the company’s ASIC-registered address
- Sent by post to the registered office, with proof of postage retained
- Delivered directly to a director who resides in Australia
Registered office
The demand must be addressed and sent to the exact registered office address as it appears on the ASIC register. Courts have set aside statutory demands for address errors that might seem trivial.
The 21-Day Deadline and What Happens Next
From the moment a valid statutory demand is served, a strict 21-day countdown begins. The debtor company has three options:
- Pay the debt in full
- Reach an agreement to the creditor’s reasonable satisfaction
- Apply to the court to have the demand set aside
No extension of time can be granted. Informal discussions with the creditor, whether by phone calls or email exchanges, don’t pause or satisfy the legal requirements.
The presumption of insolvency
If none of the three steps is taken within 21 days, the company is presumed insolvent. Even a genuinely solvent company is then fighting an uphill battle. It must produce evidence of its solvency in court and defend against a winding-up application from a position of legal disadvantage.
Grounds for Setting Aside a Statutory Demand
If you’ve been issued a statutory demand, you need to file an application to set it aside within the 21-day window. There are three primary grounds on which courts will set aside a demand:
Genuine dispute: Where a real question exists as to whether the debt is owed, or the correct amount.
Offsetting claim: Where the company has a legitimate counterclaim, set-off, or cross-demand against the creditor that would reduce the total debt below $4,000.
Defects in the demand: Where the demand or supporting affidavit contains errors that would cause substantial injustice if the demand were allowed to stand.
ATO Statutory Demands
The Australian Taxation Office is one of the most active users of statutory demands in Australia, issuing them for unpaid income tax, GST, PAYG withholding, and superannuation guarantee charges. The same procedural rules apply, but there’s one distinction worth knowing.
It is sometimes possible to negotiate a payment arrangement with the ATO even after a winding-up application has been filed. This isn’t guaranteed, and it becomes harder the further the process has progressed, but the ATO has a public interest in recovery rather than liquidation where a company is otherwise viable. Acting early opens up far more options than waiting until after it lapses.
Need Advice on a Statutory Demand?
The 21-day window moves faster than most people expect, and errors on either side of the process can be expensive. A creditor who issues a defective demand may end up paying the debtor’s legal costs. A company that ignores a demand can find itself presumed insolvent before it’s had a chance to make its case.
The SV Partners team advises both creditors issuing statutory demands and companies responding to them. Contact us for a confidential discussion about your situation.