A customer or former business partner owes your company money. The invoices are overdue, your follow-up emails have gone unanswered, and you have run out of patience — and perhaps out of goodwill. When the debtor is a company (not an individual), one of the most powerful tools available to you is a creditor's statutory demand. Served correctly, it creates a legal presumption that the debtor company is insolvent if the debt remains unpaid — and that presumption can be used to apply to a court to wind the company up.
What you will end up with at the end of this process, if it goes to plan, is either payment in full (the most common outcome — the demand concentrates minds) or a winding-up application you can file in court. A statutory demand does not, however, automatically recover the money. It is a pressure mechanism that leads to insolvency proceedings, not a direct enforcement tool like a judgment debt. Courts have also made clear that statutory demands must not be used simply as a debt-collection lever where the underlying debt is genuinely disputed.
Prerequisites
Before you serve a statutory demand, confirm each of the following:
- The debtor is a company, not an individual. Statutory demands under the Corporations Act 2001 (Cth) apply only to companies. Sole traders and individuals are subject to the separate bankruptcy framework.
- The debt is at least $4,000. Since 1 July 2021, the prescribed statutory minimum is $4,000 (raised from $2,000 by the Corporations Amendment (Statutory Minimum) Regulations 2021). A demand for less will be set aside.
- The debt is due and payable. The amount must be presently owing — not contingent, not subject to an unfulfilled condition, and not the subject of a genuine dispute. If there is a real question about whether the money is owed, a statutory demand is the wrong instrument and issuing one exposes you to a set-aside application and a costs order.
- Negotiations have been exhausted. Courts frown on demands used as opening moves. Document your attempts to resolve the debt before serving.
- You have the debtor company's correct registered name and registered office address. ASIC's company register is the authoritative source. Serving a demand on the wrong entity or at the wrong address is a common and costly error.
- You have decided whether a court judgment exists. If you have already obtained a judgment, no affidavit is required. If you have not, you will need a supporting affidavit.
The statutory demand process, step by step
Prepare Form 509H
The demand must be in the prescribed form — Form 509H, set out in Schedule 2 of the Corporations Regulations 2001 (Cth). It must:
- be in writing and signed by or on behalf of the creditor;
- correctly identify the debtor company by its full registered name and ACN;
- state the amount of the debt and that it is due and payable;
- specify a place in Australia where the debt can be paid; and
- require compliance within the statutory period (21 days after service).
The form is not long, but every field matters. A defect that would cause substantial injustice if the demand is not set aside is statutory grounds for a court to set the whole demand aside — regardless of whether the underlying debt is genuine.
Prepare (and swear) an affidavit if no judgment exists
Under s 459E of the Corporations Act 2001 (Cth), if the debt is not a judgment debt, the demand must be accompanied by an affidavit verifying:
- that the debt is due and payable by the company; and
- the amount stated in the demand.
The affidavit must be sworn or affirmed — not simply signed — and it must not pre-date the demand itself. The deponent should have direct personal knowledge of the debt. Second-hand or assumed knowledge is a defect that can sink the demand on an application to set aside.
Serve the demand on the company
Service must be effected on the company at its registered office, in accordance with s 109X of the Corporations Act 2001. Personal service on the registered office (leaving the documents with a person apparently in charge) or service by post are both available. Keep clear evidence of the date and method of service — the 21-day clock starts running from the date of service, and disputes about when time began can arise later.
Do not serve by email unless you have obtained the company's express consent to electronic service. Courts treat the service date as the trigger for the strict 21-day period, so any ambiguity here is your risk to carry.
Wait for the company's response
Once served, the company has 21 days to:
- Pay the debt in full (or reach an agreed settlement); or
- Apply to the court to set the demand aside under s 459G of the Corporations Act 2001 (Cth).
That 21-day period is strict and inflexible. Courts will not grant extensions, even with the creditor's consent. If the company files a set-aside application, the compliance deadline is automatically extended until the application is finally determined. During this period, you cannot rely on the presumption of insolvency.
Grounds on which a company can apply to set aside the demand include:
- a genuine dispute about the existence or amount of the debt;
- an offsetting claim by the company;
- a defect in the demand that would cause substantial injustice; or
- some other reason why the demand should be set aside.
If the company succeeds, the demand falls away entirely.
Rely on the presumption of insolvency and apply to wind up
If the 21 days expire and the company has neither paid nor applied to set aside the demand, it is taken to have failed to comply. Under s 459C of the Corporations Act 2001 (Cth), a company is presumed to be insolvent if, in the three months ending on the day a winding-up application is made, it failed to comply with a statutory demand.
That presumption entitles you to apply to the Federal Court or the relevant state Supreme Court under s 459P for an order winding up the company. The application must be made within three months of the date the company is taken to have failed to comply with the demand (i.e. 21 days after service). If you miss that window, you lose the benefit of the presumption.
The solvency test relevant to those proceedings is found in s 95A of the Corporations Act 2001 (Cth): a company is solvent if, and only if, it is able to pay all its debts as and when they become due and payable.
Common points where the process breaks down
- Serving a demand where the debt is disputed. If the company can show a genuine dispute or an offsetting claim, the court will set the demand aside and will usually award costs against you. Always confirm the debt is uncontested before issuing.
- Defects in Form 509H. Errors in the company's registered name, ACN, or the amount stated can amount to a defect causing substantial injustice, triggering a successful set-aside application. Have a lawyer review the form before it leaves your hands.
- Affidavit pre-dating the demand. The affidavit must be prepared after the demand is finalised. Swearing the affidavit first and then completing the form is a common sequencing error that creates a defect on the face of the documents.
- Missing the three-month window to apply for winding up. The deadline to file a winding-up application after the 21-day compliance period expires is easy to overlook. Diarise it on the day you serve the demand.
How Artificer Legal can assist with statutory demands
Serving a statutory demand without legal advice is possible in straightforward matters, but the margin for error is narrow. A single technical defect can cost you the demand and a costs order, even where the underlying debt is entirely valid.
An Artificer Legal practitioner can assist by:
- reviewing the debt and the supporting documents to confirm a statutory demand is the appropriate mechanism (rather than a letter of demand followed by court proceedings);
- drafting Form 509H with precision, using your company's and the debtor's correct corporate details drawn from the ASIC register;
- preparing and swearing the supporting affidavit in the correct sequence, ensuring it verifies the debt from personal knowledge;
- advising on service and recording service in a way that is defensible if the company contests the date;
- responding to any set-aside application, including briefing counsel if the matter proceeds to a hearing; and
- filing the winding-up application if the demand is not complied with, and representing you through those proceedings.
We can also advise whether circumstances call for a different approach — for example, where there is a risk the debtor may transfer assets, or where the debt arises from a contract with unusual dispute-resolution provisions.
The single factor most likely to determine whether this works
The decision to serve a statutory demand on a debtor whose liability is clear and uncontested produces a different result from the same decision made against a debtor who will immediately identify a genuine dispute. If the underlying obligation is solid and the amount is above $4,000, the demand typically achieves its purpose — payment — without ever reaching a court. If there is any real question about the debt, the demand becomes the vehicle for the debtor to shift the litigation to a set-aside application and recover costs. Getting that assessment right, before you serve, is more important than any step in the formal process.
A statutory demand under s 459E of the Corporations Act 2001 (Cth) is a powerful but technical instrument. The key points: the debt must be at least $4,000, due and payable, and genuinely undisputed; Form 509H must be completed correctly and accompanied by a sworn affidavit (if no judgment exists); the debtor company has exactly 21 days to comply or apply to set aside; and if it does neither, you have three months to file a winding-up application relying on the presumption of insolvency under s 459C.