For creditors attempting to recoup debts in the intricate web of Australian company law, especially in the state of New South Wales (NSW), the statutory demand is an indispensable instrument. Creditors and debtors rely heavily on this legal document, which is largely unknown outside of the legal community. Formally made under section 459E of the Corporations Act 2001 (Cth), a statutory demand requires a firm to settle a debt within 21 days. This is the ‘statutory period.’ The statutory demand is more than just a letter or a simple request.
Non-compliance can result in serious repercussions, including the debtor’s possible insolvency and the start of winding up application procedures. In this post, we will explore the complexities, ramifications, and best practices of statutory demands. This includes how to issue and respond to them.
Delving Deeper into Statutory Demands
The essence of a valid statutory demand is its ability to instigate prompt action. This is basically through the imposition of a stringent deadline. Upon receiving a statutory demand, a company has a narrow window of 21 days to address the debt. This period is non-negotiable and emphasises the urgency of the matter. It urges companies to settle debts, negotiate terms, or mount a legal challenge due to substantial injustice.
The consequence of inaction or delay is severe. It could potentially lead to legal assumptions of insolvency and the initiation of winding-up proceedings.
Validity Requirements for Statutory Demands
For a statutory demand to hold water legally, it must adhere to several stringent criteria:
- Minimum Debt Threshold: The debt in question must surpass a legally defined statutory minimum threshold. This figure is periodically reviewed and adjusted. This is to ensure that statutory demands are reserved for significant debt amounts. This also reflects the seriousness with which the law treats such demands.
- Clear Specification of the Debt: The demand must detail the debt and its context with precision, granting the debtor or debtor company a comprehensive understanding of the claim against them. This includes the amount owed, the basis of the debt, and any other relevant details that underscore the legitimacy and specifics of the demand.
- Prescribed Form and Warnings: Statutory demands must be issued in a specific format, prescribed by law, which includes formal warnings about the consequences of failing to respond. This format serves to standardise the demands and ensures that all parties are fully aware of the stakes involved, particularly the threat of insolvency proceedings should the company fails to act.
It is crucial to ensure that the demand is served correctly and documented in an affidavit of service to avoid any legal consequences. The company’s registered office address can be found in the Australian Securities and Investments Commission (ASIC) company extract.
Consequences of Non-Compliance
The repercussions of disregarding a statutory demand are grave. Following the 21-day grace period, creditors have the right to petition for the company’s winding-up on grounds of insolvency. This step is a significant escalation, marking a transition from debt recovery efforts to the potential termination of the company’s operations. The legal presumption of insolvency that arises from ignoring a statutory demand is a formidable obstacle to overcome. It often culminates in costly proceedings.

Dispute Over the Seas: The Gendredge Vs. Programmed Total Marine Services
In a case before the Supreme Court of Western Australia, Gendredge Pty Ltd challenged a statutory demand that Programmed Total Marine Services Pty Ltd issued. The demand arose from alleged unpaid invoices for preparatory works on a vessel intended for a Chevron project. Gendredge contested the demand, leading to a legal examination under the Corporations Act 2001 (Cth), focusing on sections 459G and 459H.
The case hinged on whether there existed a genuine dispute regarding the debt, and if Gendredge held an offsetting claim against the statutory demand served.
Genuine Dispute and Court’s Analysis
Acting Master Gething scrutinised the contractual negotiations and alleged agreements between the parties. The court identified a genuine dispute over the existence of an agreement that obligated Gendredge to compensate Programmed Total Marine Services for the services rendered before formalising the principal contract. Despite the presentation of various documents and affidavits, the court found that except for specific agreed upon services by an individual named Mr Bawden, there was no clear contract detailing the obligation of Gendredge to cover the invoiced amounts.
This assessment leaned heavily on the principle that for a statutory demand to be upheld, the creditor must prove beyond plausible contention that a genuine debt exists which is not subject to dispute.
Implications of the Case
Ultimately, the court ruled to adjust the statutory demand to $2,250.43, significantly lower than the original demand, and extended the time for compliance. This decision underlined the necessity for clarity in contractual agreements. It also highlighted the importance of the statutory demand as a tool for debt recovery under Australian corporate law.
The case emphasises the judiciary’s role in scrutinising claimed debts, ensuring that parties do not use statutory demands frivolously or without substantiated claims. Protecting corporate entities from unjust demands is also important. The ruling also highlighted the significance of the ‘genuine dispute’ criterion, a critical factor in the legal landscape governing corporate transactions and disputes.
Strategic Responses to Statutory Demands
Upon receipt of a statutory demand, a company’s response must be immediate and strategic. The paths to consider include:
- Direct Payment: If the debt is clear-cut and the company possesses the means, settling the debt outright is the most straightforward solution, circumventing further legal entanglements.
- Negotiation: Proactive engagement with the creditor to negotiate terms. This could possibly lead to a payment plan and can prevent the escalation to court proceedings. This approach requires a willingness from both parties to find a middle ground.
- Legal Challenge: In cases where there is a dispute over the debt, the company has the right to apply to the court to set aside the statutory demand. The company must take that action within the stipulated 21-day period and necessitates compelling evidence to dispute the claim. Successfully challenging a statutory demand can avert the presumption of insolvency and the subsequent legal fallout.

Seek Legal Advice Immediately to Safeguard Your Business
Are you a business that wants to challenge creditors statutory demands in NSW? Do you know what a statutory demand specifies? JB Solicitors offers expertise and support. Our team is here to help if you need assistance with:
- issuing a demand,
- responding to a demand, or
- navigating the potential consequences of insolvency proceedings.
Engaging with our experienced solicitors can provide the clarity and direction needed to manage these challenging situations effectively. Contact us today to discuss how we can assist you with your statutory demand concerns.