A statutory demand under section 459E of the Corporations Act 2001 (Cth) is a formal written demand served on a company requiring it to pay a debt within 21 days. If the company does not comply — and cannot persuade a court to set the demand aside — it is presumed insolvent, and a creditor can use that presumption to support a winding-up application.
The process is powerful because it shifts the burden: once a valid demand is served and the 21-day period expires without compliance, the creditor does not need to prove insolvency in court — the law presumes it. But that power comes with strict requirements, and the consequences of getting them wrong fall on the creditor.
Who can use a statutory demand?
Any creditor owed a debt by a company registered under the Corporations Act can issue a statutory demand, provided the debt meets the following requirements:
- The debt must be owed by the debtor to the creditor — not by a related entity or by a different debtor.
- The debt must be a liquidated sum — that is, a fixed, ascertainable amount, not an unliquidated claim or damages that have not yet been assessed.
- The debt must be at least $4,000 (the current threshold, subject to change by regulation).
- The debt must be due and payable — the payment date must have passed.
- There must be no genuine dispute about the existence or amount of the debt.
This last requirement is critical. A statutory demand issued in respect of a genuinely disputed debt can be set aside by the court if the debtor can show that there is a genuine dispute — and the debtor only needs to establish that a dispute exists, not that the dispute has merit. The bar is low, and a demand served on a disputed debt is a risk.
What the demand must contain
A statutory demand must comply with Form 509H under the Corporations Regulations 2001. The prescribed form must be used — a demand in a different format may not be valid. The demand must:
- Be in writing, addressed to the company.
- Identify the creditor.
- State the amount of the debt and the basis on which it is owed.
- Require the company to pay the amount within 21 days of service.
- Inform the company of its right to apply to set the demand aside.
- Be accompanied, in some circumstances, by an affidavit verifying the debt (required where the debt is not the subject of a judgment).
Errors in the prescribed form — including an incorrect debt amount — can be grounds for the demand being set aside. Where the error is a defect that causes substantial injustice to the debtor, the court will set the demand aside. Where it is a minor clerical error that does not cause injustice, the court may allow it. The risk of relying on the court's discretion to save a defective demand is rarely worth taking.
How to serve the demand
A statutory demand must be served on the company in accordance with the Corporations Act. The acceptable methods of service are:
- Leaving it at the company's registered office.
- Posting it to the company's registered office by prepaid ordinary mail.
- Leaving it at or posting it to an address approved or nominated by the company for service.
Email is not a prescribed method of service under the Corporations Act for statutory demands, though recent case law has accepted email service in some circumstances with additional steps. To avoid any doubt, service at or by mail to the registered office is the safest approach. The company's registered office address can be confirmed via an ASIC company search.
The date of service is important: the 21-day period starts from the day the demand is served (for personal service) or the day after posting (for mail). An accurate service record — who served it, how, and when — is important evidence if a winding-up application is later made.
The 21-day period
Once served, the company has 21 days to:
- Pay the full amount of the debt; or
- Secure the full amount of the debt to the creditor's reasonable satisfaction; or
- Apply to a court to set the demand aside.
The 21-day period is strictly enforced. A company that applies to set the demand aside even one day late will find the application dismissed for lateness. Equally, a company that pays after the 21 days have expired does not avoid the consequences — once the period has passed, the presumption of insolvency has been triggered, even if the debt is subsequently paid.
After the 21-day period
If the company has not complied with the demand and has not successfully applied to set it aside, the creditor has three months from the date the demand was served to make a winding-up application. This is not automatic — the creditor must decide whether a winding-up application is commercially warranted, having regard to the company's assets, the cost of the proceedings and the likely dividend to unsecured creditors.
In practice, many companies pay within the 21-day period or very shortly after it expires, once they appreciate the consequences of non-compliance. The statutory demand is often most valuable as leverage rather than as the first step in a winding-up proceeding.
This guide is general information only. It does not constitute legal or financial advice. Statutory demands involve complex legal requirements and consequences — obtain qualified legal advice before issuing a statutory demand.