Statutory Demands – What Are They and What to Do When You Receive One?
When your company receives a statutory demand in Australia, it’s more than just a warning. It is a formal, time-sensitive legal notice that can result in your company being wound up if not addressed correctly and promptly. This article explains what a statutory demand is, why it matters, and what you should do when receiving one.
What is a Statutory Demand in Australia?
A statutory demand in Australia is a formal demand issued by a creditor under section 459E of the Corporations Act 2001 (Cth), requiring a company to pay a debt of at least $4,000 within 21 days (or settle it to the creditor’s satisfaction). It is not a court process, but it is a necessary first step before commencing winding-up proceedings.
To be valid, the statutory demand must:
Be in writing and follow the prescribed form (Form 509H)
Specify the debt owed
Be accompanied by a supporting affidavit (unless based on a judgment debt)
Be served at the company’s registered office
Why Are Statutory Demands So Serious?
If a company does not comply with a statutory demand in Australia within 21 days by paying, settling, or successfully setting it aside, it is presumed to be insolvent under the Corporations Act. This allows any creditor to apply to the court to have the company wound up. The consequences can be significant and irreversible.
What Are Your Options If You Receive One?
1. Pay the Debt in Full
If the debt is undisputed and your company has funds available, paying the amount in the statutory demand in Australia is the simplest option.
2. Negotiate With the Creditor
Negotiating payment terms or a settlement may be possible. However, this does not extend the 21-day deadline. If no agreement is formalised before the deadline, the creditor may proceed with winding-up action.
3. Apply to Set Aside the Demand
If you dispute the debt, you may apply to the relevant court to set aside the statutory demand in Australia under section 459G of the Corporations Act. This application must be filed and served on the creditor within 21 days of service.
Grounds to set aside a statutory demand include:
A genuine dispute about the existence or amount of the debt
An offsetting claim
A defect in the demand causing substantial injustice
Any other sufficient reason under section 459J
What Happens If You Do Nothing?
If no action is taken within 21 days, the creditor can rely on the statutory demand in Australia to establish a presumption of insolvency and file a winding-up application. Once that happens, your company may lose control over its assets, accounts, and operations.
Get Legal Advice Immediately
A statutory demand in Australia may appear straightforward, but it has serious legal consequences. The deadlines are strict, and the risk of inaction is high. Seeking legal advice early is essential.
At Rostron Carlyle Rojas Lawyers, we regularly advise directors, creditors, and insolvency practitioners on responding to statutory demands. We can assess the validity of the demand, determine if it can be set aside, and guide you on the best course of action.
Contact us today if you have received a statutory demand or require advice on insolvency matters.
The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.
