Australia: Statutory demands – how to make them and how to resist them

In brief – Statutory demands under section 459E of the Corporations Act

Creditors can make a statutory demand for payment of a debt under section 459E of the Corporations Act as long as the debt is due and payable. Companies which are served with a statutory demand have 21 days to apply to the Court to have it set aside.

Failure to comply with statutory demand common cause of presumption of insolvency

Under section 459C of the Corporations Act, a company is presumed to be insolvent if in the three months after the day on which a winding up application is made, one of these events occurs:

  • the company fails to comply with a statutory demand
  • a judgment remains unsatisfied
  • a receiver and/or manager or controller is appointed to the company, either privately or by the Court

Most commonly the presumption of insolvency arises from the failure to comply with a statutory demand.

While some parties attempt to use statutory demands as a means of collecting debts, the Courts have been quite clear that this is an improper purpose.

Most common reason for company liquidation is insolvency

Just as an individual can be bankrupted, so a corporation can be wound up and brought to a commercial end. Whereas an individual continues to live and breathe through and after bankruptcy and their debt position is largely wiped clean, a company is ultimately brought to a commercial conclusion by a wind-up application.

The most common basis for placing a company into liquidation is insolvency.

The test of whether or not a company is insolvent under section 95A of the Corporations Act is whether or not the company is able to pay its debts as and when they become due and payable.

Legislative changes only serve to increase statutory demand litigation

In an attempt to deal with the abundance of litigation in this area, the legislature introduced significant amendments in the mid-1990s to make the requirements for the statutory demand less presumptive to be effective.

In Scolaro's Concrete Constructions Pty Limited v Schiavello Commercial Interiors (Vic) Pty Limited, the Full Federal Court said about those amendments that:

Unless the debtor demonstrates that there is a genuine dispute about the claim, the inevitable result would be a prima facie conclusion of insolvency if the amount were not paid. The public interest is served by these provisions because they tend to bring about a situation in which insolvent companies are either discouraged or prevented from continuing to trade.

However, the amendments have not reduced the amount of litigation for statutory demands. In fact, there seems to be more litigation. The result is at odds with the intention of the legislature.

Characteristics of a valid statutory demand

Demands can only be sent by creditors who have a debt which is due and payable (section 459E(1)(a)). The debt cannot be contingent or prospective. A creditor must be able to put a dollar value on it. The debt or debts claimed in the statutory demand must total at least the statutory minimum (section 459E(1)), which is presently $2,000.00 ( section 9).

The demand must be in the prescribed form ( form 509H). It must:

  • be in writing
  • be signed by or on behalf of the creditor
  • correctly state the debtor's company name and its registered office
  • specify a place in Australia where the debt can be paid

It has been held that it is permissible to specify that payment be made to the creditor's solicitors.

If the creditor is a company, the statutory demand should, for best practice purposes, be given under the common seal.

Because a creditor can gain the benefit of a presumption of insolvency if the statutory demand is not complied with, the creditor should ensure that any demand is expressed in clear, correct and unambiguous terms. (See Topfelt Pty Limited v State Bank of New South Wales Limited [1993] FCA 589; (1993) 12 ACSR 381 (1993) 120 ALR 155 (1993) 47 FCR 226, 7 December 1993.)

Amount and nature of the debt being claimed

Under section 459E(2), a statutory demand must specify the debt claimed. If relating to more than one debt, it must specify the total debts claimed and at least indicate the nature of the debt relied upon, for example, goods supplied and delivered.

Failure to specify the nature of the debt is a defect in the statutory demand, but it may not cause substantial injustice requiring a Court to hold the demand to be invalid. (See Jarena Pty Limited v Sholl Nicholas Pty Limited [1996] FCA 1264.)

The statutory demand requires the company to pay the debt or secure or compound the amount owed within 21 days of the date of the demand "to the creditor's satisfaction". Those words require an objective test. It is for the Court to decide whether a creditor acted reasonably if he or she rejected a debtor's proposal. (See Commonwealth Bank of Australia v Parform Pty Limited [1995] FCA 1445.)

Statutory demand must comply substantially with the form

The purpose of the reforms implemented in the mid-1990s was to make statutory demands much more flexible than they had previously been.

Surprisingly perhaps, a recent decision of the Courts in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 (11 August 2014) has seen the Courts adopt a more prescriptive attitude towards statutory demands. Technical compliance is not at the heart of "substantial compliance". For example, if the name of the creditor is incorrect, the Court will still consider whether the demand correctly identifies the party who claims to be entitled to payment. Allowance will be made for minor errors. (See Delaine Pty Limited v Quarto Publishing Pty Limited [1990] 8 ACLC 1026.)

It should be noted that the litmus test for a valid statutory demand remains one of "substantial compliance". The issue for the Court will be whether or not the party who has received the statutory demand has in some way been misled by the demand. Certainly, it is hoped that notwithstanding the authority in Kisimul Holdings, the Courts will continue to make allowance for minor errors.

If important words are omitted from the demand or the affidavit then the Court will see the demand as defective. (See Beralt Pty Limited v Joe Battaglia Plastering Pty Limited [1999] QSC 202.)

Unliquidated damages, multiple creditors and multiple proceedings

A statutory demand may not include a claim for unliquidated damages.

A multiple number of creditors are not allowed to serve a single demand on one company. A debtor is entitled to know what is owed to whom and how the debt may be discharged.

A creditor is not entitled to serve a demand at the same time as proceeding against the debtor company's directors in relation to the same alleged debt. That is an abuse of process and a reason for setting aside a demand under section 459J(1)(b). (See Perlake Pty Limited v Finance & Mortgage Corp (NSW) Pty Limited [1997] 15 ACLC 76.)

Judgment or affidavit required to make a statutory demand

If a judgment has not been obtained, there must be an affidavit accompanying the demand. The affidavit must verify that the debt is due and payable, and that it complies with the rules laid down for statutory demands as specified in section 459E(3). If the demand does not rely on a judgment and it is not accompanied by an affidavit, the demand will be set aside. (See Victor Tunevitsch Pty Limited v Farrow Mortgage Services Pty Limited [1994] 14 ACSR 565.)

How a statutory demand is served

A statutory demand can be served by leaving it at the registered office, sending it by post to that office or delivering a copy of the demand personally to a director of the company who resides in Australia.

Where a creditor becomes aware that the company no longer occupies the registered address and the creditor is aware of the new address, then he or she should bring the demand to the notice of the company at that new address. (See Deputy Commissioner of Taxation v Abberwood Pty Limited [1990] 8 ACLC 528.)

If the creditor is aware that the company no longer occupies the registered address but does not know where the company has moved, then it is prudent to serve the statutory demand on the company's director.

Serving a statutory demand interstate

A statutory demand may be served interstate. (See Section 15, Service and Execution of Process Act 1992 (Cth) ("SEP Act").) Service must be conducted in accordance with the SEP Act, which requires an address for the registered office of the company which the statutory demand is being served upon. ( See section 9(1), SEP Act.)

Additionally, interstate service must contain copies of Form 1 (as per Reg 4 of the Service and Execution of Process Regulations 1993 (Cth); Re 8D Pty Ltd [2013] NSWSC 1297, Black J at [6]) attached to the statutory demand. (See section 16, SEP Act.) Failure to do so will render service ineffective. (See Re Industrial Installation and Access Systems Pty Ltd [2011] NSWSC 1032, Barrett J at [9] and Energy Conservation Systems Pty Ltd v Downer EDI Engineering Electrical Pty Ltd [2008] NSWSC 1139.

The statutory demand must also specify an address for payment that is in the same jurisdiction in which it is served.

Three month time limit to presumption of insolvency

Section 459C(2) of the Corporations Act provides that the presumption of insolvency lasts for three months after the demand is served and before the application to wind up is lodged. If an application to wind up is not lodged within that time, the demand cannot be relied upon.

A company is taken to have failed to comply with a demand at the end of 21 days after the date of service. The time for compliance may be longer if the company seeks to set aside the demand. The Court may extend the time for compliance where the hearing of an application pursuant to that section is sought. If the Court does not extend the time for compliance, under section 459F(2)(a)(ii) compliance ends seven days after the application is finally determined.

Resisting a statutory demand

If a company wishes to have a statutory demand set aside, under section 459G(3) it must apply to the Court within 21 days of service of the demand and it must serve the application and the supporting affidavit on the person who made the demand within that 21 day period as well. Strictly speaking, both documents should be served at the registered office and not the address in the demand. (See Vicbar Pty Limited v Development Constructions (Newcastle) Pty Limited [1995] 13 ACLC 1220.)

An application can only relate to one demand, so if a company has received three demands, it must make three applications to the Court to have the demands set aside. (See Calquid Pty Limited v A & D R Illes Pty Limited [2000] NSWSC 558.)

The supporting affidavit should state the grounds for making the application, rather than simply asserting that the debt is not due. If the affidavit is insufficient, it cannot be supplemented by a further affidavit served outside the 21 day period. (See Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] 70 FCR 452.)

Reasons for setting aside a statutory demand

A demand will only be set aside if:

  • the amount in fact owed is less than the statutory minimum ( section 459H)
  • there is a defect in the demand that would cause substantial injustice if the demand is not set aside (section 459J)
  • there is some other reason why the demand should be set aside (section 459J)

A demand which has a defect can only be set aside where it causes substantial injustice. It will not be set aside if it was a demand within the terms of the Act and the defect is only a minor irregularity or misstatement. (See Beta Trading Co Pty Limited v Specialised Laminators [1997] 15 ACLC 270.)

A defect in the amount claimed in the demand is not, of itself, sufficient to set the demand aside, although the size of the defect may go towards the issue of injustice. (See Besser Industries (NT) Pty Limited v Steelcon Constructions Pty Limited [1995] 13 ACLC 544.)

Section 459J(1)(b) allows for the setting aside of the demand on the "some other reason" basis. The fact that a company is solvent is not "some other reason" for the purposes of this section. (See Chippendale Printing Co Pty Limited v Deputy Commissioner of Taxation [1995] FCA 1426.)

A demand containing grossly inflated amounts might be considered to be "some other reason". (See First State Computing Pty Limited v Kyling [1995] 13 ACLC 939.)

Statutory demands set aside if indebtedness genuinely disputed

A demand will be set aside where there is a genuine dispute regarding the debt claimed.

In Goldspar Australia Pty Limited v KWA Design Group Pty Limited [1998] NSWSC 502, Austin J of the Supreme Court of NSW said that a genuine dispute required that the dispute be bona fide and truly exist in fact and that the grounds for alleging a dispute are to be real and not spurious, hypothetical, illusory or misconceived.

Pitfalls in statutory demands for both debtors and creditors

From a debtor's point of view, the problem with the statutory demand is that once the time for compliance with the demand has expired, there is absolutely no opportunity to contest the demand unless there is a valid application filed and served to set the demand aside. (See David Grant & Co Pty Limited v Westpac Banking Corporation [1995] HCA 43.)

In those circumstances, if the demand is pressed, the only way of dealing with the demand is to pay the disputed debt (assuming there are resources available), reserve the company's rights and sue for the money back.

A creditor using a demand as a quick means of a debt recovery can likewise run into difficulty. Where there is no judgment already obtained, all a debtor has to show to set aside a demand is that there is some genuine dispute.

The Court is not interested in the merits of that dispute. All it needs to determine before it sets aside a demand, as it regularly does, is that there is a serious question to be tried. Thus a creditor on a contested statutory demand can often incur a costs order.

Consider your position and avoid insolvent trading

There is one further point that ought to be mentioned. If a demand is received by a company and the company is in financial difficulty, then it may be a trigger for that company's directors to consider again their position as directors of the company.

Directors of companies that are trading entities, where those companies are insolvent, leave themselves open to insolvent trading claims. Consequently, if a company is unable to pay its debts as they fall due and receives a statutory demand, it is probably time to reconsider your exit strategy from the company, or how the company's business might be otherwise saved.

There are a number of ways of doing that, including voluntary administration or a creditor's voluntary liquidation. The main thing to remember is whether the debts can be paid as and when they become due and payable.

Peter Harkin
Restructuring and insolvency
CBP Lawyers

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.