Quick answer
A statutory demand is a formal notice under the Corporations Act requiring a company to pay a debt of at least $4,000 within 21 days of service, or apply to court to set it aside. If the company does nothing, it's presumed insolvent and the creditor can apply to wind it up. Where the debt is genuine and payable, a private secured loan can fund payment within days.
Key points
- 21 days from service to pay or apply to set the demand aside
- Courts strictly apply the 21-day limit for set-aside applications
- Missing the deadline creates a presumption of insolvency
- If you dispute the debt, get legal advice first, not a loan
- Minimum debt
- $4,000
- Time to respond
- 21 days from service
- Law
- Corporations Act 2001, s 459E–459G
- Loan size
- $20,000 to $5,000,000
A statutory demand is one of the most serious letters a company can receive. It isn’t a reminder or a threat to sue. It’s the first formal step towards winding the company up, with a hard 21-day deadline. Here’s what it means and where a private loan can help.
This is general information, not legal advice. If you receive a demand, speak to a lawyer straight away.
How a statutory demand works
Under the Corporations Act, a creditor owed at least $4,000 that is due and payable can serve a demand on the company. Where the debt isn’t a court judgment, it must come with a supporting affidavit.
From service, the company has 21 days to either:
- pay the debt (or reach an agreement the creditor accepts), or
- apply to court to set the demand aside, and serve that application on the creditor within the same 21 days
If neither happens, the company is presumed to be insolvent and the creditor can apply to have it wound up.
Pay or dispute?
| Situation | Usual first step |
|---|---|
| The debt is genuinely owed and payable | Arrange payment or a funded settlement before day 21 |
| You genuinely dispute the debt | See a lawyer about a set-aside application now |
| You have an offsetting claim against the creditor | See a lawyer about a set-aside application now |
| The demand looks defective | See a lawyer, as defects can be grounds to set it aside |
A loan only makes sense in the first row. Borrowing to pay a debt you don’t owe is rarely wise.
How a private loan fits
When the debt is real and the company has, or its directors have, property with equity, a private secured loan can raise the money in days. A typical approach:
- Get the exact payout figure from the creditor or its lawyer, including any costs claimed
- Enquire with the property details, the amount and the date of service
- A lender issues terms, values the property and prepares documents
- At settlement, funds go directly to the creditor’s lawyer’s trust account
- Written confirmation that the demand is satisfied and withdrawn
On strong security, this can happen well inside the 21 days, but don’t leave it to the final week.
Use the funded offer to negotiate
Creditors usually want money, not a liquidation. Once a loan is approved, you can make a firm offer: payment in full, or a negotiated amount, by a set date. That certainty often settles matters quickly. Your lawyer can handle the conversation.
Look at the bigger picture
A statutory demand often signals wider cash flow pressure. If other creditors, the ATO or employees are also owed, paying one demand may not be enough. An insolvency adviser can help you see whether a refinance, a restructure or a small business restructuring process (see our director penalty notice page) is the better path. A private loan works best when it’s part of a plan.
A worked example: day 16 of 21
A Nambour landscaping company was served a statutory demand by an equipment hire firm for $64,000. The director had disputed part of the bill for months but had never put the dispute in writing. By the time she sought help, 16 of the 21 days had passed, and her lawyer advised that an application to set the demand aside was unlikely to succeed on the evidence available.
She owned a rental townhouse in Maroochydore with solid equity. A private lender agreed to a caveat loan of $85,000 on day 17, covering the demand plus a small buffer for legal costs. Funds were available on day 19. Her lawyer used the cleared funds to negotiate a discount on the disputed portion in exchange for immediate payment, and the hire firm withdrew the demand in writing.
The caveat was replaced by a second mortgage a month later, giving her twelve months to repay from contracted work. The company kept trading, and she now puts every billing dispute in writing the week it arises.
Mistakes we see with statutory demands
- ignoring the demand because the debt is disputed, without filing a court application in time
- assuming the creditor will agree to an extension, when the 21 days are set by law
- paying part of the debt and assuming the demand lapses
- waiting until the final days to look for funding, leaving no time for a valuation
- not telling the company’s accountant, who may know of other creditors circling
Act inside the 21 days
Tell us the amount, the date the demand was served, the property available and how the loan would be repaid. We’ll come back quickly with whether funding can be in place in time. There’s no credit check when you first enquire, and we won’t scatter your details across a list of lenders.
Please include the service date and payout figure exactly, so we can work backwards from your deadline. Start your enquiry, or see how we handle refinancing business debt, then get in touch.
Frequently asked questions
What happens if we ignore a statutory demand?
After 21 days the company is presumed insolvent, and the creditor can apply to court to have it wound up. A liquidator could then take control of the company. Ignoring the demand is the worst option.
Should we pay or dispute the demand?
If there's a genuine dispute about the debt or an offsetting claim, speak to a lawyer immediately about applying to set the demand aside, as that must be filed and served within the 21 days. If the debt is genuinely owed, paying it, possibly with a loan, ends the threat.
Can a private lender fund payment of a statutory demand?
Yes, where there's property with enough equity and a believable repayment plan. Funds are usually paid directly to the creditor or their lawyer at settlement, with confirmation that the demand is withdrawn.
Can the creditor negotiate?
Often. Many creditors would rather be paid than spend money on a winding up. A firm, funded offer, for example payment in full by a certain date backed by an approved loan, can lead to a quick resolution.