When Should a Creditor Send a Statutory Demand?
A Statutory Demand is generally appropriate where:
The first distinction matters: an ordinary letter of demand asks a debtor to pay and warns of possible proceedings. A statutory demand under section 459E of the Corporations Act 2001 (Cth) is a formal insolvency procedure available against a company. It is not simply a letter with sterner stationery.
A statutory demand is generally appropriate where:
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the debtor is a registered company;
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at least $4,000 is due and payable;
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there is no genuine dispute about the debt and no genuine offsetting claim;
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the creditor is prepared to pursue winding-up proceedings if the demand is not satisfied; and
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there is a sensible commercial prospect of recovery.
Before serving one, verify the debtor’s exact ASIC name, ACN and registered office, the contractual basis and calculation of the debt, any correspondence disputing liability, and the creditor’s evidence of service. A demand must use the prescribed form. Unless the debt is a judgment debt, it must be accompanied by an affidavit verifying that the debt is due and payable.
The company has 21 days after service to pay, secure or compound for the debt to the creditor’s reasonable satisfaction, or to file and serve an application to set the demand aside. That deadline is strict, and informal correspondence does not stop the clock. A demand may be set aside because of a genuine dispute, an offsetting claim, a defect causing substantial injustice or some other reason. A creditor who uses the process in the face of a real dispute may incur adverse costs.
If the company does not comply, it is presumed insolvent for a limited period and the creditor may apply to wind it up. That consequence is why a statutory demand should not be used merely to pressure a solvent company into abandoning a genuine defence. The process tests solvency; it does not determine a contested debt.
An ordinary demand, negotiation or debt-recovery proceedings may be preferable where facts are disputed, the amount requires assessment, the debtor is an individual, or the creditor is not willing to seek liquidation. A judgment may provide a firmer platform before insolvency steps are considered.
Used carefully, a statutory demand is efficient and powerful. Used as a bluff, it can rapidly become an application to set aside—with the creditor paying for both the lesson and the other side’s lawyers.
Sources: Corporations Act 2001, Part 5.4; Federal Court — Winding up based on an unsatisfied statutory demand
Disclaimer: This article provides general information only and is not legal advice. It does not create a solicitor-client relationship.
