A statutory demand has landed: a 21-day plan for company directors

The envelope looks official because it is. Inside is a document with the words “statutory demand”, a dollar figure, and a deadline of 21 days. Directors who open one often feel the floor tilt, and some then freeze, which is the worst response.

The demand is serious, but it is also a tool with rules, and the rules give you more room than the letterhead suggests. This guide sets out the 21 days day by day, the choices you have, and the traps that turn a solvable problem into a winding-up.

What is a statutory demand?

It is a formal written demand by a creditor, under the Corporations Act, that a company pay a debt within 21 days. The creditor serves it on the company, usually at its registered office. It must be in the prescribed form, state the amount, and, unless the debt is based on a court judgment, be supported by an affidavit.

The current minimum debt is $4,000. It was raised from $2,000 for demands served on or after 1 July 2021. A demand below the minimum is defective.

What gives it teeth is not the demand itself but what the law does if you ignore it. After the 21 days, the company is presumed insolvent. That presumption is what a creditor leans on to ask a court to wind the company up. Our glossary entry on statutory demand has the short definition, and the situations page on receiving a statutory demand looks at it from the finance side.

What should you do in the first 48 hours?

Don’t ring the creditor in anger and don’t put the letter in a drawer. Do these things first:

1. Note the date of service. The 21 days run from when the demand was served on the company, not the date on the letter. Check how and when it arrived.
2. Read it for defects. Is it the right form? Does it name the right company? Is the amount at least the minimum? Is there an affidavit where one is needed?
3. Work out whether the debt is real. Is it correct, in whole or part? Is there a dispute, a delivery problem, a credit note or a claim the company has against the creditor?
4. Call a lawyer or insolvency adviser today. Not because you must, but because the set-aside window is narrow and mistakes in the court papers are costly. A free financial counsellor can help you decide whom to see. Our guide to free financial counselling for small business lists the services.
5. Check your other creditors. A demand from one party can set off a chain reaction, so know what is owed to the ATO, the bank and key suppliers.

If you are a director, also separate what the company owes from what you personally have guaranteed. The two can look the same in a bad week.

What are your options in the 21 days?

You have four. They are not mutually exclusive.

Option	What it involves	When it fits
Pay it	Pay the full amount	The debt is real and you can afford it
Agree a deal	Pay part, pay in instalments, or give security, with the creditor’s agreement	The debt is real but the cash isn’t there yet
Apply to set it aside	File an application and affidavit with the court and serve the creditor, all within 21 days	The debt is disputed, offset or the demand is defective
Do nothing	The presumption of insolvency applies	Almost never

Pay. The cleanest answer if you can. Keep proof of payment. If a demand is for part of a larger sum, understand that paying one slice doesn’t stop the creditor serving another.

Agree a deal. Creditors serve demands to be paid, not to wind companies up, which is expensive and slow for them too. A written offer of instalments, ideally with a first payment up front, often settles it. The agreement should be in writing, and the creditor should confirm that the demand is withdrawn. Our guide on asking a lender for hardship help uses the same approach: a specific amount, a date, and documents that back the promise.

Set it aside. This is a court application. Recognised grounds include a genuine dispute about the existence or amount of the debt, an offsetting claim, and a defect in the demand that causes substantial injustice. Both the application and its supporting affidavit must be filed and served within the 21 days. A dispute needs to be real and arguable; it does not need to be certain to win. A vague complaint that “the invoice is wrong” is not enough, but “the goods were never delivered, and here are the emails” might be.

Do nothing. The presumption of insolvency bites, and creditors can ask a court to wind the company up. Other parties who find out, including lenders, may act too.

What happens if the 21 days pass?

The company is presumed insolvent, and the presumption can support a winding-up application by the creditor, generally within three months. That is the point where options narrow quickly. Even if the application is defended, a pending winding-up is damaging; banks can freeze facilities and suppliers can demand cash on delivery.

You are not out of options, though. A company that is genuinely insolvent can still consider a formal route. Small business restructuring is available for companies with total liabilities of $1 million or less, and ASIC notes that an unsecured creditor generally can’t continue enforcing claims once restructuring begins without consent or the court’s permission. Larger or more complex companies may look at voluntary administration. Both need action quickly, so don’t wait for the winding-up application to arrive.

What if the demand is from the ATO or a lender?

The ATO and banks use their own enforcement ladders, and a statutory demand is one step among many. If the ATO has pursued you, see our guides on dealing with an ATO debt and talking to the ATO about a debt; a payment plan can often take the pressure off. If a lender serves the demand, it is usually after a default and an earlier letter of demand. Read what happens if your business loan defaults to see where you sit in that sequence.

When the creditor is a supplier or a customer who is owed a final invoice, the human route is often the fastest. Ring, acknowledge the debt, and ask what it would take to withdraw the demand. If the other side is a business you want to keep trading with, a short conversation costs less than a court filing.

How does a demand look to lenders?

Lenders check for court actions, winding-up applications and unpaid defaults. An unresolved demand is a warning, because it says another creditor believes the company is not paying. A resolved one is a much smaller matter. If the debt was paid, settled or set aside, keep the paperwork and be ready to explain what happened in a sentence or two. Our guide on explaining a bad year to a lender gives a structure for that conversation.

If the demand has already cost you a bank facility, you aren’t alone. The page on being declined by the bank shows the options that remain. Funding to settle the debt can be worth considering when it is a one-off and the business is otherwise sound (ask us whether it could work), but borrowing a lot in a hurry can make things worse; see how to stop a debt spiral before you do.

What mistakes make it worse?

• Treating it as junk mail and missing the 21 days.
• Filing the court application on day 21 but serving the creditor on day 23.
• Disputing a debt you know is real, then losing the application and paying costs on top.
• Paying one creditor in full in a panic and leaving the company unable to pay wages or tax.
• Handing over a personal guarantee, or a charge over the family home, to buy a few weeks.
• Waiting to speak to someone until after the deadline.

Could funding settle the demand and keep the business trading?

If the debt is genuine and the business is sound, paying it from a well-priced loan can be cheaper than a winding-up fight. If it isn’t, we will say so. Either way, a short chat costs nothing and takes about a minute to start: your credit file isn’t touched just because you enquired.

We don’t send your details out to a long list of lenders, so there is no flurry of calls. A real person reads your situation and phones you. Please mention the demand, its date and the amount, and complete the form as accurately as you can, so the first option we discuss is one that fits the 21 days you have left.

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