Received a Statutory Demand? What Queensland Businesses Must Do in 21 Days

Published by Odyssey Legal | Business & Litigation Lawyers

A statutory demand is one of the most urgent legal documents a Queensland business can receive. It is a formal demand issued under the Corporations Act 2001 requiring your company to pay a debt within 21 days or face winding up proceedings. If you do nothing, your company is presumed to be insolvent, and the creditor can apply to the court to wind up your company. The 21-day deadline is absolute. You cannot extend it by negotiation or by ignoring the demand. If you have received a statutory demand, you must act immediately. You have three options: pay the debt in full, negotiate a settlement with the creditor, or apply to the court to set aside the demand.

What Is a Statutory Demand and How Does It Work?

A statutory demand is a legal notice served under section 459E of the Corporations Act 2001. It is used by creditors to recover debts of $4,000 or more from a company. The demand must be in the prescribed form, state the amount owed, and give the company 21 days to pay or apply to set aside the demand. If the company does neither, the creditor can apply to wind up the company on the grounds of insolvency.

The 21-day period starts from the date the demand is served on the company. Service is usually by registered post to the company's registered office, or by hand delivery to a director. Once served, the clock starts ticking. There are no extensions. If day 21 falls on a weekend or public holiday, the deadline moves to the next business day, but this is the only flexibility.

Statutory demands are different from ordinary letters of demand. An ordinary letter of demand is a warning. A statutory demand is a legal process with serious consequences. If you ignore it, the creditor does not need to prove the debt in court before applying to wind up your company. The failure to respond to the demand is itself evidence of insolvency.

Three Grounds to Set Aside a Statutory Demand in Queensland

You can apply to the Supreme Court of Queensland to set aside a statutory demand if you have valid grounds. The court has the power to set aside the demand under section 459H of the Corporations Act 2001. There are three main grounds: you have a genuine dispute about the debt, you have an offsetting claim against the creditor, or the demand contains a defect that causes substantial injustice.

A genuine dispute exists when there is a real question about whether the debt is owed. This could be because the goods or services were not delivered, the work was defective, the amount claimed is incorrect, or the contract was never validly formed. The dispute must be genuine, not merely a delaying tactic. You need evidence to support your position. Vague assertions that you do not owe the money are not enough.

An offsetting claim is a claim your company has against the creditor that reduces or cancels out the debt. For example, if the creditor owes your company $50,000 and is demanding $30,000, you have an offsetting claim of $50,000. The claim must be genuine and quantifiable. It cannot be speculative or contingent. The court will consider whether the offsetting claim is real and whether it exceeds or equals the amount of the statutory demand.

Defects in the demand include errors in the amount claimed, incorrect company name, or failure to comply with the prescribed form. Not every defect will result in the demand being set aside. The court will only set aside the demand if the defect causes substantial injustice and there is no other reason to allow the demand to stand. Minor errors, such as spelling mistakes, are usually not enough.

How to Apply to Set Aside a Statutory Demand

The application to set aside a statutory demand must be filed in the Supreme Court of Queensland within 21 days of service. This is the same 21-day deadline. If you miss the deadline, you cannot apply to set aside the demand. The court has no power to extend the time limit. This makes the 21-day period absolutely critical.

The application must be supported by an affidavit that sets out the grounds for setting aside the demand and the evidence supporting those grounds. The affidavit must be sworn by a director or officer of the company. It must address the specific grounds you are relying on: genuine dispute, offsetting claim, or defect. The affidavit must include all the facts and evidence. You cannot rely on evidence that is not in the affidavit.

Once the application is filed, the court will set a hearing date. The creditor will have the opportunity to oppose the application. The court will decide whether the grounds are made out. If the court is satisfied there is a genuine dispute or offsetting claim, it will set aside the demand. If the court is not satisfied, the demand stands, and the creditor can proceed with winding up proceedings.

Filing the application does not stop the creditor from serving another statutory demand for the same debt if the first demand is set aside. However, it does prevent the creditor from using the first demand as the basis for a winding up application.

What Happens If You Do Nothing: Winding Up Proceedings Explained

If you do not pay the debt and do not apply to set aside the demand within 21 days, your company is presumed to be insolvent. The creditor can then apply to the Supreme Court of Queensland or the Federal Court for an order to wind up your company. This is done by filing an application under section 459P of the Corporations Act 2001.

Once a winding up application is filed, the court will set a hearing date. At the hearing, the creditor does not need to prove the debt. The failure to comply with the statutory demand is evidence of insolvency. The court will make a winding up order unless you can prove the company is solvent or pay the debt before the hearing.

A winding up order has immediate and severe consequences. The company is placed into liquidation. A liquidator is appointed to take control of the company's assets, sell them, and distribute the proceeds to creditors. Directors lose control of the company. All bank accounts are frozen. Employees are terminated. The company ceases to trade.

Directors can also face personal liability if they allowed the company to trade while insolvent. This is known as insolvent trading. Under section 588G of the Corporations Act 2001, a director who allows the company to incur debts while insolvent can be held personally liable for those debts. This is why ignoring a statutory demand is so dangerous.

Can You Negotiate with the Creditor After Receiving a Statutory Demand?

You can try to negotiate with the creditor, but you cannot rely on negotiations to stop the 21-day deadline. The creditor has no obligation to withdraw the demand or extend the deadline. If you want to negotiate, you must do so immediately and get any agreement in writing.

If the creditor agrees to accept a payment plan or a reduced settlement, ask them to withdraw the statutory demand in writing. The withdrawal should be unconditional and should state that the creditor will not rely on the demand for any purpose. Without written confirmation, the demand remains in force, and the creditor can still apply to wind up the company if you do not comply.

If the creditor refuses to negotiate or withdraw the demand, you must decide whether to pay the debt in full or apply to set aside the demand. Do not assume the creditor will be reasonable. Many creditors issue statutory demands precisely because they want to force immediate payment or wind up the company. They are under no obligation to negotiate.

The Cost of Setting Aside a Statutory Demand in Queensland

The cost of applying to set aside a statutory demand depends on the complexity of the case and whether the creditor opposes the application. Legal costs typically range from $5,000 to $15,000, including court filing fees, affidavit preparation, and legal representation at the hearing. If the case is straightforward and the creditor does not oppose, costs may be at the lower end. If the case is complex or heavily contested, costs can exceed $15,000.

Court filing fees for the application are set by the Supreme Court of Queensland or the Federal Court and are payable when the application is filed. If you succeed in setting aside the demand, the court may order the creditor to pay your costs. If you lose, you may be ordered to pay the creditor's costs. This creates a risk if you do not have strong grounds to set aside the demand.

Despite the cost, applying to set aside a statutory demand is almost always cheaper than allowing the company to be wound up. Liquidation costs can run into tens of thousands of dollars, and directors may face personal liability for insolvent trading. The cost of the application should be weighed against the cost of winding up and the consequences of losing control of the company.

Director Liability: What Happens If the Company Is Wound Up

If your company is wound up following a statutory demand, directors may face personal liability under several provisions of the Corporations Act 2001. The most serious risk is liability for insolvent trading under section 588G. This provision makes directors personally liable for debts incurred by the company while it was insolvent if the director knew, or should have known, the company was insolvent at the time.

A company is insolvent when it cannot pay all its debts as and when they fall due. If a creditor has served a statutory demand and the company cannot pay the debt within 21 days, that is strong evidence the company is insolvent. If the company continues to trade and incur new debts after receiving the statutory demand, directors may be personally liable for those new debts.

Directors can also be liable under section 588FDA if they allow the company to trade while insolvent without taking steps to prevent creditor loss. This is known as the creditor-defeating disposition provisions. Directors can be liable for debts incurred during this period and can be disqualified from managing corporations.

The safe harbour defence under section 588GA provides some protection for directors who take steps to restructure the company and prevent further loss. However, the safe harbour only applies if the director starts developing a course of action that is reasonably likely to lead to a better outcome for the company than immediate liquidation. Simply ignoring the statutory demand and hoping the creditor will go away is not a safe harbour defence.

The Odyssey Legal Approach

At Odyssey Legal, our approach focuses on preserving business value wherever possible while protecting your legal rights and commercial interests.

We provide realistic early assessment of your position, strengths, and available remedies. We pursue commercial resolution through negotiation and mediation where it serves your interests, but we are equally prepared to take strong cases to court when necessary. Our focus is on achieving outcomes that protect your investment and allow you to move forward, whether that means restructuring governance, negotiating buyouts, or obtaining court orders for oppression or breach of duty.

Received a statutory demand? Contact Odyssey Legal for strategic advice on protecting your business interests.

Call: 07 5370 8759
Email: info@odysseylegal.com.au
Location: Sunshine Coast | Servicing all Queensland
Book Your Free Initial Consultation: We offer a free initial consultation to assess your situation and provide clear advice on the best path forward.

About Odyssey Legal

Odyssey Legal is an expert corporate dispute and debt recovery law firm, servicing all of Queensland. We focus on helping Queensland businesses and our clients commence or defend corporate disputes.

Frequently Asked Questions

What is the difference between a statutory demand and a letter of demand?

A letter of demand is an informal request for payment with no legal consequences if you ignore it. A statutory demand is a formal legal notice issued under the Corporations Act 2001. If you ignore a statutory demand, the creditor can apply to wind up your company without proving the debt in court. The failure to comply with a statutory demand is itself evidence of insolvency.

Can I get an extension on the 21-day deadline?

No. The 21-day deadline is set by the Corporations Act 2001 and cannot be extended. The court has no power to give you more time. If you miss the deadline, you cannot apply to set aside the demand. This is why you must act immediately when you receive a statutory demand. Do not wait to see if the creditor will negotiate or withdraw the demand.

What happens if the statutory demand is for a debt I genuinely dispute?

If you have a genuine dispute about the debt, you must apply to the Supreme Court of Queensland to set aside the demand within 21 days. You cannot simply ignore the demand because you disagree with it. The court will decide whether the dispute is genuine. If the court agrees, the demand will be set aside. If the court does not agree, the demand stands and the creditor can proceed with winding up proceedings.

Can a creditor issue a statutory demand for an unpaid invoice?

Yes, but only if the debt is $4,000 or more and there is no genuine dispute about the debt. The creditor does not need a court judgment to issue a statutory demand. They can issue a demand based on an unpaid invoice, provided the debt is due and payable. If you dispute the invoice, you must apply to set aside the demand within 21 days.

What should I do if I cannot afford to pay the statutory demand?

If you cannot pay the debt in full, you have two options. First, negotiate with the creditor immediately and ask them to withdraw the demand or accept a payment plan. Get any agreement in writing. Second, if you have grounds to set aside the demand, apply to the court within 21 days. Do not do nothing. Ignoring the demand will result in your company being presumed insolvent and the creditor applying to wind up the company.

Can a statutory demand be issued for a debt under $4,000?

No. The minimum amount for a statutory demand under the Corporations Act 2001 is $4,000. If the debt is less than $4,000, the creditor cannot use a statutory demand. However, they can still sue you in court for the debt or use other debt recovery methods such as a letter of demand or QCAT claim for debts under $25,000.

What is an affidavit and why do I need one to set aside a statutory demand?

An affidavit is a written statement of facts sworn under oath. When you apply to set aside a statutory demand, you must file an affidavit that sets out the grounds for setting aside the demand and the evidence supporting those grounds. The affidavit must be sworn by a director or officer of the company. All evidence must be included in the affidavit. You cannot rely on evidence that is not in the affidavit at the hearing.

Can I be personally liable if the company is wound up after a statutory demand?

Yes. Directors can be personally liable under section 588G of the Corporations Act 2001 for insolvent trading if they allowed the company to incur debts while insolvent. If the company could not pay the statutory demand, that is evidence the company was insolvent. If the company continued to trade and incur new debts after receiving the demand, directors may be personally liable for those debts. Directors can also be disqualified from managing corporations.

If your Queensland company has received a statutory demand, you must act within 21 days. Odyssey Legal advises company directors on statutory demands, winding up proceedings, and insolvency law. Contact us immediately to discuss your options.