A statutory demand is a formal document under the Corporations Act that a creditor uses to demand payment of a debt from a company. Many business owners treat it like an ordinary letter of demand and put it aside. That is very dangerous.
Why 21 days matters
A company that receives a statutory demand generally has 21 days either to pay (or settle with the creditor) or to apply to the court to set it aside. If it does neither, the company is presumed insolvent and the creditor can apply to wind it up. The deadline to apply to set aside is strict and the court generally cannot extend it.
Common grounds to set a demand aside
- There is a genuine dispute about the debt, for example defective goods or services, or the amount is wrong.
- The company has an offsetting claim against the creditor, for example the creditor owes money or caused loss.
- A defect in the demand that would cause substantial injustice.
The application must be supported by an affidavit and served on the creditor within the deadline. Time is tight, so see a lawyer the day the demand arrives.
If the debt is not disputed
If the money is owed, pay within the deadline or quickly agree a written payment plan with the creditor, including that it will not apply to wind up the company meanwhile. Directors should also be aware of personal risk if the company trades while insolvent, and talk to their accountant about the company’s position.
If you are the creditor
A statutory demand is a powerful tool but only suits debts that are not genuinely disputed. If the debtor shows a genuine dispute, you may have to pay its legal costs. Assess whether the debt is clear and the evidence complete before serving one. See commercial disputes and debt recovery.
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This article is general information only and is not legal advice. You should not rely on it for any particular matter. For advice on your situation, please book a consultation.
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