21 days: one of the rare deadlines with no grace period | Source: Pexels

Of all the legal documents a company can receive, a statutory demand is the one that least tolerates delay. It looks like just another letter asking for money, but it is wired directly into the winding-up process, and its deadline is one of the rare ones in Australian law with no grace period at all. Many companies come undone over this document not because they are actually insolvent, but because they did not understand what it was, or understood too late.

A statutory demand is a formal demand for payment served on a company by a creditor under s 459E of the Corporations Act 2001 (Cth). It has strict formal requirements: the debt must be due and payable and total at least the statutory minimum of $4,000; the document must be in Form 509H; and unless the debt is a judgment debt, it must be accompanied by an affidavit verifying the debt.

Its power lies not in the demand itself but in the consequence. If the company neither pays nor applies to set the demand aside within the period, the law presumes the company is insolvent (s 459C(2)(a)). Armed with that presumption, the creditor can apply to have the company wound up (s 459P). At that point, what is on the table is no longer the debt. It is the survival of the company.

One detail is routinely overlooked: under s 109X, service at the company's registered office is effective service. If your registered address is still your former accountant's office and nobody checks the mail, time runs anyway. By the time you actually see the document, half the 21 days may already be gone.

From the date of service, the company has 21 days: either pay or reach a settlement with the creditor, or apply to the court under s 459G to set the demand aside. This deadline is fundamentally different from ordinary litigation time limits.

And s 459G requires two things to be completed within the 21 days: filing the set-aside application and supporting affidavit with the court, and serving both on the creditor. Filing without serving does not comply. The supporting affidavit must also raise, within the period, the grounds you rely on; courts will generally not allow new grounds to be added after the deadline. In other words, within those 21 days you must complete the entire sequence of gathering evidence, settling strategy, drafting the affidavit, filing and serving. The time actually available for decision-making is far shorter than 21 days.

First, pay or settle. If the debt is genuinely owed and the amount is right, the cheapest solution is often simply to pay, or to reach a written instalment or compromise arrangement with the creditor within the 21 days. Do not gamble the whole company on an undisputed debt.

Second, ask the creditor to withdraw. If the demand has an obvious problem (the debt is disputed, the amount is wrong, the form is defective), send a solicitor's letter immediately, identifying the problem and requiring withdrawal. A creditor who knows the debt is genuinely disputed and presses on anyway may later be ordered to pay indemnity costs in the set-aside proceedings. That letter is the evidence you are preparing for that day.

Third, apply under s 459G to set the demand aside. If the creditor will not withdraw and time is running, file within the 21 days. The grounds are covered in the next section.

Fourth, do nothing (the worst choice). After the deadline, the company is presumed insolvent and the creditor can apply for winding up. If you then try to fight at the winding-up hearing, s 459S will stop you: grounds that could have been raised in a set-aside application (such as that the debt is disputed) cannot be raised without the court's leave, and that leave is hard to obtain. Silence is not delay. It is waiver.

Four options; the direction should be chosen in the first week | Source: Pexels

Ground one: a genuine dispute about the debt (s 459H). This is the most commonly used ground, and the threshold is lower than many people assume.

Goods not matching the order, services left incomplete, a disagreement over how the contract should be read, a difference in how the amount was calculated: any of these can amount to a genuine dispute. The key is contemporaneous evidence (emails, messages, delivery and acceptance records), not an after-the-fact assertion that "we never accepted this debt".

Ground two: an offsetting claim (s 459H(1)(b)). If you have your own claim against the creditor (for example, losses caused by their breach), and the net debt after setting off falls below $4,000, the demand can be set aside.

Ground three: a defect causing substantial injustice (s 459J(1)(a)). A wrong amount, an unclear description of the debt, a missing or seriously deficient affidavit. Note that not every minor error qualifies: the defect must rise to the level of causing substantial injustice.

Ground four: some other reason (s 459J(1)(b)). This includes a creditor using the demand for an improper purpose, the classic example being pressing a genuinely disputed debt with the threat of winding up as a negotiating tactic. That is an abuse of process.

First, go and check on ASIC today whether anyone actually receives mail at your registered office. It is the cheapest, highest-value action in this article.

Second, the day a demand arrives, record the date of service, keep the envelope and every trace of how it was delivered, count forward 21 days and mark the final date on the calendar.

Third, do not manage it with a "let's wait and see" mindset. Preparing a set-aside application takes far more work than most people expect. The path should be chosen in the first week.

Fourth, if the debt is disputed, start collecting every piece of dispute evidence into one file now. Set-aside applications are largely won or lost on how much contemporaneous evidence the affidavit can put forward.

Fifth, and in reverse, if you are the creditor: a statutory demand is only for undisputed debts. Use it to squeeze a genuinely disputed account and the demand will be set aside, and you may end up paying the other side's legal costs in full.

Sun Lawyers · Sydney Office

If your company has been served with a statutory demand, or you are a creditor considering issuing one, contact Sun Lawyers early. We work in both English and Mandarin and can assess whether the debt is genuinely disputed, the prospects and cost of a set-aside application, and the most commercially sensible path within the deadline.

Phone: 02 9267 4988　｜　Email: enquiry@sunlaws.com

Sydney Office: Suite 703 & 704, 265 Castlereagh Street, Sydney NSW 2000

Website: sunlaws.com.au

This article is general legal information only and is not legal advice.
Please contact us for advice specific to your situation.