Statutory demands (s459E): when, how, and common pitfalls

A statutory demand is one of the most powerful debt recovery tools available to creditors in Australia. Under section 459E of the Corporations Act 2001, creditors can serve a formal demand on a company requiring payment within 21 days. If the company doesn’t pay, negotiate, or successfully apply to set aside the demand, it’s presumed insolvent—opening the door to winding up proceedings. This guide covers when and how to issue a statutory demand, how to respond if you’ve received one, and the common mistakes that trip up both creditors and debtors.

What is a statutory demand?

A statutory demand is a formal written notice served on a company under section 459E of the Corporations Act 2001 (Cth). It requires the company to pay a debt (or debts) that’s due and payable, or face serious consequences.

Unlike a standard letter of demand, a statutory demand triggers strict legal deadlines and creates a presumption of insolvency if the company doesn’t respond properly. It’s not just a request for payment—it’s a formal insolvency mechanism that can lead directly to the company being wound up.

The demand must be in the prescribed form (Form 509H) and, unless the debt is a court judgment, must be accompanied by an affidavit verifying that the debt is due and payable.

When can a creditor issue a statutory demand?

A creditor can serve a statutory demand when:

• The debtor is a company (not an individual)
• The debt is at least $4,000 (the current statutory minimum)
• The debt is due and payable (not contingent or prospective)
• There’s no genuine dispute about whether the debt exists or its amount

Important: A statutory demand is not a debt collection shortcut. If there’s a legitimate dispute about the debt, using this process can backfire—the demand may be set aside, and you could be ordered to pay the company’s legal costs.

The 21-day deadline: why it matters

Once a statutory demand is served, the company has 21 days to respond. This deadline is absolute—courts have no power to extend it, even in exceptional circumstances.

Within this 21-day window, the company must either pay the debt, reach an agreement with the creditor, or file an application to set aside the demand and serve it on the creditor. Simply filing isn’t enough—service must also occur within the 21 days.

Three options when you receive a statutory demand

If your company has been served with a statutory demand, you have three main options:

1. Pay the debt

The simplest option—if you owe the money and can pay it. This removes the demand immediately and ends any insolvency risk from this particular creditor.

2. Negotiate with the creditor

You may be able to reach an agreement—perhaps a payment plan or settlement for a reduced amount. If you reach agreement, get the creditor to withdraw the demand in writing. A formal deed of settlement is ideal, as it protects both parties.

3. Apply to set aside the demand

If you have grounds to challenge the demand, you can apply to the court under section 459G. You’ll need to file and serve the application plus a supporting affidavit within 21 days.

Grounds for setting aside a statutory demand

The Corporations Act provides several grounds on which a court can set aside a statutory demand:

Common pitfalls for creditors

If you’re issuing a statutory demand, these are the mistakes most likely to see it set aside:

• Using it for a disputed debt: If there’s a genuine dispute about whether the debt exists or its amount, the demand will be set aside. Use normal debt recovery proceedings instead.
• Wrong company name or ACN: The demand must correctly identify the debtor company as registered with ASIC. Misspellings or using trading names instead of legal names can be fatal.
• Overstating the amount: Including amounts that aren’t yet due, or inflating the debt with disputed charges, opens the door to a genuine dispute argument.
• Defective affidavit: The supporting affidavit must comply with court rules and shouldn’t pre-date the demand. A defective affidavit can sink the whole process.
• Service errors: The demand must be served at the company’s registered office (as listed with ASIC) or personally on a director. Serving at the wrong address can invalidate the demand.
• Using the wrong form: The demand must use Form 509H exactly as prescribed. Modifying the form or using an outdated version can cause problems.

Common pitfalls for debtors

If you’ve received a statutory demand, don’t make these mistakes:

• Missing the 21-day deadline: This is the single biggest mistake. Once the 21 days pass, your options narrow dramatically and you’ll be presumed insolvent.
• Filing but not serving: You must both file with the court AND serve on the creditor within 21 days. Filing on day 21 and serving on day 22 is too late.
• Weak supporting affidavit: Under the Graywinter principle, your affidavit must set out the facts showing a genuine dispute—not just bare assertions or denials. You can’t fix a deficient affidavit with later evidence.
• Ignoring the demand: Hoping it will go away is not a strategy. Ignoring a statutory demand is one of the fastest ways to end up in liquidation.
• Raising new grounds too late: Any grounds for setting aside must be raised in your initial affidavit. You generally can’t introduce new arguments in later documents.

What happens if you don’t comply

If a company fails to comply with a statutory demand (and doesn’t successfully set it aside), serious consequences follow:

• Presumption of insolvency: The company is presumed to be insolvent for 6 months under section 459C(2)(a). This presumption can be used in any winding up application.
• Winding up application: The creditor can apply to wind up the company within 3 months of the failure to comply. With the presumption of insolvency, they don’t need to prove the company can’t pay its debts—that’s assumed.
• Limited defences: Under section 459S, if you didn’t apply to set aside the demand, you generally can’t oppose the winding up application on grounds you could have raised—unless those grounds are about actual solvency.
• Other creditors can join: Once a winding up application is filed, it’s advertised on ASIC’s insolvency notices website. Other creditors can appear as “supporting creditors,” increasing pressure on the company.

Key takeaways

• ✔ A statutory demand is a formal insolvency mechanism, not just a debt collection letter
• ✔ The minimum debt threshold is $4,000 and the debt must be due and payable
• ✔ The 21-day deadline to respond is absolute—courts can’t extend it
• ✔ To set aside a demand, you must file AND serve within 21 days
• ✔ Genuine dispute and offsetting claims are the most common grounds for setting aside
• ✔ Creditors: don’t use statutory demands for genuinely disputed debts
• ✔ Debtors: act immediately and get legal advice—the clock is ticking

When to get legal help

Given the strict deadlines and technical requirements, both creditors issuing demands and companies receiving them should get legal advice early. A single mistake—wrong company name, weak affidavit, missed deadline—can be costly.