A statutory demand has landed on your desk. The clock started the moment it was served, and the law gives you no flexibility on the deadline. What you do in the next 21 days determines whether your company faces a genuine winding up risk or resolves the matter cleanly.
Every day against a statutory demand deadline matters. Speak to a lawyer today.
What a Statutory Demand Actually Is
A statutory demand is a formal demand issued under section 459E of the Corporations Act 2001 (Cth), requiring a company to pay a debt of $4,000 or more within 21 days of service. It is not a letter of demand, and it is not negotiable correspondence. If the company does not pay, secure, or compound the debt, or successfully apply to set the demand aside within that 21-day window, section 459C(2) creates a statutory presumption that the company is insolvent. That presumption then supports a creditor’s application to wind the company up.
Your Three Options, and Why the Clock Is Absolute
Once served, a company facing a statutory demand has exactly three paths, and the 21-day period applies to all of them without exception.
- Pay the debt in full within 21 days, which ends the matter.
- Negotiate a payment arrangement with the creditor’s agreement, formally securing or compounding the debt to their reasonable satisfaction.
- Apply to the court under section 459G to set the demand aside, on the basis of a genuine dispute about the debt, an offsetting claim, or a defect in the demand causing substantial injustice.
The leading authority on the strictness of this deadline is David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, in which the High Court confirmed the 21-day period under section 459G is a strict jurisdictional time limit that the court has no power to extend, even by a single day, and even where the delay is minor or explicable. If your application to set aside is filed or served late, it will be dismissed regardless of the merits of your dispute.
Setting Aside the Demand: What You Actually Need
The most commonly used ground under section 459H(1)(a) is that there is a genuine dispute about the existence or amount of the debt. The threshold for establishing a genuine dispute is relatively low; you do not need to prove your defence will succeed, only that it is not spurious, hypothetical, illusory, or misconceived. But the procedure around it is unforgiving. Both the originating application and a supporting affidavit setting out the basis for the dispute must be filed with the court and served on the creditor within the 21 days. Filing alone is not enough.
- A genuine dispute about whether the debt exists or its amount, supported by contemporaneous documents, not just an assertion.
- An offsetting claim under section 459H(1)(b), where the company has a genuine counterclaim that reduces the net amount below the statutory minimum.
- A defect in the demand itself under section 459J, where the defect would cause substantial injustice if the demand were allowed to stand.
Why So Many Companies Get This Wrong
The most common failure is not a weak legal position. It is delay. Taking instructions, gathering contemporaneous evidence, drafting a proper affidavit, and arranging valid service on the creditor all take real time, and the 21 days includes every calendar day, not business days. A company that waits two weeks to seek advice often leaves its lawyers with only days to prepare and file material that should have had two or three weeks of preparation. Treat the day of service as day one, not the day you decide to act.
If the Demand Comes From the ATO
The Australian Taxation Office is one of the most active parties issuing statutory demands and winding-up applications in Australian courts. The same 21-day rule and the same set-aside grounds apply, but tax debt disputes often carry an additional layer: directors may also be facing, or about to face, a director penalty notice in connection with the same underlying debt. Where both are in play, the strategy needs to address both fronts together, not in isolation.
What to Do the Day You Are Served
- Note the exact date of service. This is day one, and there is no discretion to extend the 21 days from this date.
- Do not ignore the demand on the assumption it will go away. It will not, and a presumption of insolvency is a serious consequence with knock-on effects for credit, contracts, and director obligations.
- Gather every document relevant to the debt immediately: contracts, invoices, correspondence, and anything supporting a dispute or offset, since this evidence underpins both negotiation and any set-aside application.
- Get advice the same week, not the same month. The procedural requirements for a section 459G application are demanding, and rushed preparation in the final days increases the risk of a fatal procedural error.
The 21 days are running whether you act on them or not.
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Frequently Asked Questions
Q: Can I get an extension of time to respond to a statutory demand?
A: No. The High Court confirmed in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 that the 21-day period under section 459G of the Corporations Act 2001 (Cth) is a strict jurisdictional limit with no power to extend, regardless of the circumstances. If your application to set aside the demand is filed or served even one day late, it will be dismissed.
Q: What counts as a genuine dispute for setting aside a statutory demand?
A: Under section 459H(1)(a), you need to show a dispute that is real, not spurious, hypothetical, illusory, or misconceived. The threshold is relatively low compared to proving your defence outright, but you still need supporting evidence, typically contemporaneous documents such as contracts or correspondence, not just an assertion that you disagree with the debt.
Q: What happens if I do nothing for 21 days?
A: If the company does not pay, secure, or compound the debt, and does not successfully apply to set the demand aside within 21 days, section 459C(2) of the Corporations Act creates a presumption that the company is insolvent. The creditor can then rely on that presumption to apply to wind the company up.
Q: Is the minimum debt amount still $4,000?
A: Yes, $4,000 is the current statutory minimum for a creditor to issue a statutory demand under section 459E. This was increased from the earlier $2,000 threshold to ensure the mechanism is reserved for debts of meaningful size.
Q: The ATO issued the demand. Does the same 21-day rule apply?
A: Yes. The Australian Taxation Office is subject to the same statutory framework and the same strict 21-day deadline as any other creditor. Where a director penalty notice is also in play for the same underlying tax debt, the response strategy needs to address both issues together.
Q: What does it cost if my application to set aside fails, or if it succeeds?
A: If your section 459G application succeeds, the usual position is that the creditor pays your costs of the application. If it fails, you may be ordered to pay the creditor’s costs. We will give you an honest assessment of your prospects before recommending you proceed, given the costs exposure on both sides.
