Statutory Demands in Australia: Your Options in the 21 Day Window
Business Rescue Finance
Statutory demands · The 21 day clock · Lawful responses
A statutory demand is one of the sharpest tools a creditor has against a company, and the clock it starts is short and strict. This guide is written for the director or business owner whose company has received a demand. It explains what a demand means, the three lawful ways to respond inside the 21 days, where you stand personally, and the property backed funding options for the case where paying or settling it needs cash the company does not have on hand. General information only.
Quick Answer
A statutory demand gives a company 21 days from service to act. The first move is to preserve every page and the envelope, have the service date checked, and decide which lane you are in: the debt is owed, the debt is disputed, or the company may be unable to pay its debts generally. Inside the window the lawful responses are to pay, secure or compound the debt to the creditor's reasonable satisfaction, or apply to set the demand aside. Start with what to do in the first 24 hours, then choose the response that fits.
| Your question | Short answer |
|---|---|
| What is a statutory demand? | A creditor's formal written demand, under the Corporations Act, that a company pay or deal with a debt within a set period. Ignore it and the company is presumed insolvent. |
| What is the minimum debt? | At least the statutory minimum, currently $4,000, a figure set by regulation that can change (Federal Court Information Sheet 1). |
| How long to respond? | 21 days from service of the demand. The courts apply this strictly and cannot extend it (Federal Court Information Sheet 1). |
| What should you do first? | Keep the demand, affidavit and envelope together; record when each was received; have the service date checked; and decide whether the debt is owed, disputed, or part of a broader solvency problem. |
| What are the lawful responses? | Pay in full; secure or compound the debt to the creditor's reasonable satisfaction; or apply to the court to set the demand aside. |
| Can you negotiate instead? | Yes, if the creditor accepts an arrangement that secures or compounds the debt within the 21 days (s459E). |
| What if the company ignores it? | It is presumed insolvent, and the creditor has three months to apply to wind it up (Federal Court Information Sheet 1). |
| Can you borrow to pay it? | Sometimes, where the company has real equity in property and a credible exit. General information, not advice. |
What is a statutory demand?
A statutory demand is a creditor's formal written demand, made under the Corporations Act 2001, that requires a company to deal with a debt within a strict statutory period. It is not a court order, and it is not the same as an ordinary letter of demand. Its power lies entirely in what happens if the company does nothing: once the period passes without compliance, the company is presumed insolvent, which opens the door to a winding up application. Common creditors that use one include suppliers, lenders and the Australian Taxation Office.
For a creditor to serve one, the debt has to clear a few thresholds. The demand must relate to a debt, or debts, that are due and payable and total at least the statutory minimum, currently $4,000, a figure set by regulation that can change. It must be in the prescribed form, Form 509H, be signed by or for the creditor, and, unless the debt is a judgment debt, be accompanied by an affidavit verifying that the debt is due and payable (Federal Court, Corporations Information Sheet 1, read July 2026). Those are not empty formalities. A demand that gets them wrong can sometimes be challenged, which is one reason the first move on receiving one is to read it closely rather than panic. The rest of this guide walks through the clock, the three lawful responses, and where finance does and does not belong.
When does the 21 day clock start, and can it be extended?
The 21 days runs from service of the demand, not from the date printed on the letter. That single fact decides more outcomes than any other. Service is usually effected by leaving or posting the demand to the company's registered office, so the clock can be running before the document reaches the person who needs to act on it. From the day the demand is served, the company has 21 days either to comply with it or to apply to the court to have it set aside.
The hard edge is that the period cannot be stretched. A set-aside application has to be both filed with the court and served on the creditor inside the 21 days, and the courts have applied this strictly, with no extensions of time and no dispensation available (Federal Court, Corporations Information Sheet 1, read July 2026). Time runs from effective service, and the postal rules mean a demand posted to the registered office is presumed served in the ordinary course of post, so waiting for certainty about the exact service date is itself a risk. This 21 days is a legislated fact, not a lender's estimate or a broker's timeline, and it does not bend, which is why every option below is framed against it. If any part of the debt is genuinely in dispute, the response is to move toward setting the demand aside immediately, not to let the days run.
What should you do in the first 24 hours after receiving a statutory demand?
In the first 24 hours, protect the deadline and the evidence before you try to solve the debt. A director under pressure often jumps straight to calling the creditor or looking for money, but the better order is to preserve what was served, confirm when the 21 days began, and decide whether this is a debt dispute, a cash-timing problem, or a broader solvency problem. Those three lanes lead to different professionals and different answers.
| First move | Why it matters | What to have ready |
|---|---|---|
| Preserve the whole service pack | The demand, any verifying affidavit and the way the documents arrived can all matter. Do not separate the pages or throw away the envelope. | Scans or photos of every page, the envelope, any covering email, and the date and time the documents were found |
| Have the service date checked | The 21 days runs from service, not from when the demand reached the right director. Do not calculate the final day from memory or assume the printed date is the start. | The company's current registered-office details, mail-handling history, and the original documents for a lawyer to review |
| Choose the right lane | If the debt is disputed, the route is legal. If it is owed but cash is temporarily tied up, payment, an arrangement or finance may be relevant. If the company cannot pay debts generally, solvency advice comes first. | Contracts, invoices, statements, correspondence, current bank position, overdue creditors and any claim the company has against the creditor |
| Put the right people on one thread | The director, co-director, accountant and lawyer should work from the same deadline and facts. A broker belongs in the thread only where funding is genuinely one of the viable responses. | Names, direct contact details, authority to speak, the exact amount claimed, and the next decision that must be made |
| Pause panic decisions | Do not transfer assets, sign unfamiliar security documents or make promises simply to make the pressure disappear. Urgency is real, but irreversible steps taken without advice can create a second problem. | A list of existing mortgages, caveats, guarantees, tax liabilities and any property proposed as security |
The routing is simple. A genuinely disputed debt goes to a lawyer immediately. A debt that is owed but can be met with time, an accepted arrangement or a properly structured payout needs the creditor, accountant and, where funding is viable, a broker moving together. A company that cannot pay its debts generally should speak to a registered liquidator or restructuring practitioner and use the free help routes below before taking on new debt. This is triage, not a substitute for legal advice.
What can you still do at each point in the 21 days?
What you can still do depends on how much of the 21 days is left. The options narrow as the clock runs, so the earlier you act, the more of them stay open, and the cheaper and calmer each one is. As a rough guide, not a legal sub-rule, the window falls into three phases, and knowing which one you are in tells you what is realistic and what the priority now is.
| Where you are | What is still realistic | Your move now |
|---|---|---|
| Early, roughly the first week | Every option is open: pay, arrange to secure or compound the debt, or prepare a set-aside if the debt is disputed. Finance still has room to be arranged properly, with time for valuations and consents. | Get advice today and decide which of the three responses fits. If finance is the answer, start it now while the timeline is comfortable. |
| Middle, roughly the second week | Paying, a creditor-accepted arrangement, and a set-aside application are all still possible, but every one of them now has to move at pace. | Stop gathering and start acting. Brief a lawyer if there is a dispute; if funding a payout, get the file and the first mortgagee's consent moving the same day. |
| Late, the final days | This is triage. A set-aside must still be filed and served inside the 21 days, and any payout has to reach the creditor in cleared funds before the deadline. | Call for help immediately. There is no time left to shop around; the priority is protecting the deadline, not optimising the deal. |
None of this changes the hard rule that the 21 days runs from service and cannot be extended, covered above. It simply reflects that the same options cost more effort, and carry more risk of missing the deadline, the later they are left. Whichever phase you are in, the first call is the same: get advice, and if the answer is finance, move on it now rather than at the end.
What are the three ways to respond to a statutory demand?
Inside the 21 days a company has three lawful responses, and only three: pay the debt, secure or compound it to the creditor's reasonable satisfaction, or apply to the court to set the demand aside. Doing nothing is not a fourth option; it is the path to a presumption of insolvency. The table sets the three against each other, because choosing between them early is what protects the company's position.
| Response | What it involves | Deadline discipline | Who to engage first |
|---|---|---|---|
| Pay the debt in full | Pay the amount demanded so the debt is satisfied and the demand falls away | Cleared funds inside the 21 day statutory period from service | Your accountant and the creditor, to confirm the payout figure |
| Secure or compound it | Reach an arrangement the creditor accepts, instalments, security or part payment, that secures or compounds the debt to its reasonable satisfaction (s459E) | The arrangement must be in place within the 21 days; the clock does not pause while you negotiate | The creditor, in writing, and your adviser; funding a payout may need a broker |
| Apply to set it aside | File and serve an originating process with a supporting affidavit, on a genuine dispute, offsetting claim or defect | Filed and served within the 21 days; the courts do not extend it | A lawyer, immediately, because this is legal work |
The middle route is the one many directors do not know they have. The Act lets a company answer a demand not only by paying, but by securing or compounding the debt to the creditor's reasonable satisfaction within the statutory period; the demand itself must set out that path (s459E(2)(c), Corporations Act 2001). In plain terms, a payment arrangement, part payment supported by security, or another deal the creditor genuinely accepts can satisfy a demand, provided it is in place inside the 21 days. Whether a given arrangement truly compounds the debt is a legal question, so get advice before relying on it. Where the arrangement needs cash the company does not have on hand, that is where funding a payout can fit, and it is covered further down.
What should happen after you pay, agree a plan or set the demand aside?
After the immediate response, close the loop in writing and deal with what the response did not solve. Paying, agreeing a plan and setting a demand aside have different legal effects. A director should not assume that a bank transfer, a phone call or a court order has automatically ended every part of the underlying dispute.
| What happened | Get this confirmed | What may still remain |
|---|---|---|
| The debt was paid in full | Written confirmation that the funds were received, the debt and agreed costs are satisfied, and the creditor will not rely on the demand. If a winding-up application has already been filed, get legal advice on the steps and costs needed to end it. | The cashflow problem that caused the arrears, other overdue creditors, guarantees and any separate defaults |
| The creditor accepted an arrangement | Signed terms stating what is paid, when it is paid, what security is given, whether the creditor accepts the arrangement as securing or compounding the debt to its reasonable satisfaction, and what happens if a payment is missed. | The debt itself continues under the agreed terms, and a default can reopen enforcement risk |
| The demand was set aside | The sealed court orders, the costs outcome and the next timetable for any underlying dispute. | Setting aside the demand does not necessarily decide that no debt is owed. The creditor may still pursue the alleged debt through ordinary proceedings. |
| The 21 days expired | Urgent advice on whether a winding-up application has been filed, what the creditor requires, and what evidence of solvency or formal restructuring option is available. | The presumption of insolvency has arisen. A late payment or settlement may help, but it should not be assumed to erase a filed proceeding, court costs or the need to deal with solvency evidence. |
Once the trigger is contained, the next customer problem is usually prevention. Ask the accountant to update the short-term cashflow forecast, identify the next tax, payroll, supplier and secured-debt pressure points, and test whether the business can meet debts as they fall due. If a short-term facility was used, put every milestone for the exit strategy in the diary before settlement rather than waiting for maturity. Resolving the demand is the immediate win; removing the reason it happened is the durable one.
How do you set aside a statutory demand?
If the company genuinely disputes the debt, the answer is legal, not financial. The Corporations Act lets a court set a demand aside on defined grounds: a genuine dispute about whether the debt is owed or how much it is (s459H(1)(a)), an offsetting claim the company has against the creditor (s459H(1)(b)), a defect in the demand that would cause substantial injustice unless it is set aside (s459J(1)(a)), or some other reason (s459J(1)(b)) (Federal Court, Corporations Information Sheet 1, read July 2026).
The procedure is unforgiving on timing. An originating process supported by an affidavit that sets out the grounds has to be filed and served within the same 21 days, and only once that application is on foot does the compliance period extend, to seven days after the application is finally determined or otherwise disposed of, unless the court orders otherwise (s459F, Corporations Act 2001). This is genuinely complex litigation, and the affidavit has to raise the dispute properly or the application can fail. The first-order response to a demand you believe is wrong is not to draft anything yourself; it is to get legal advice immediately, inside the window. This guide sets out the mechanics so the options are clear, but the set-aside route is a lawyer's job, not a broker's.
What happens if a company ignores a statutory demand?
Ignore a statutory demand and the law draws its own conclusion: the company is presumed insolvent. That presumption is the entire point of the instrument. Once the 21 days pass without compliance, the creditor can rely on the failure to comply as proof that the company cannot pay its debts, and it has three months from the date of non-compliance to apply to the court to wind the company up (Federal Court, Corporations Information Sheet 1, read July 2026).
From there a liquidator can be appointed, the winding up becomes a matter of public record, and directors face their own exposure, including potential personal liability for debts the company incurred while it was insolvent. The presumption is rebuttable, but rebutting it means proving solvency with evidence, which is far harder and more costly than dealing with the demand inside the original window. Even after the window has closed there are still moves, paying or settling the debt, defending or seeking to adjourn a winding up application, or pursuing a formal restructuring, but they are harder, more public and squarely a matter for a lawyer and, where insolvency is real, a registered liquidator or restructuring practitioner. The plain-English starting point on all of this is ASIC's guidance for directors, covered in the section on the paths that are not finance.
Does a statutory demand make you personally liable?
A statutory demand is served on the company, and the debt is the company's debt, so receiving one does not automatically make a director personally liable. But several things around it can, which is why this is the question that keeps directors awake, and it is worth knowing exactly where you stand before you decide how to respond.
The main routes to personal exposure are these. If the company keeps incurring debts while it is insolvent, a director can be personally liable for those debts, which is why the general duties in financial difficulty come into sharp focus once a demand has been ignored and insolvency is presumed (ASIC INFO 42, as at 20 June 2025). Many small business facilities are also backed by a personal guarantee or by a director's own property, so a company default can reach the director through the guarantee regardless of the company's status; it is worth checking what you have personally guaranteed before you decide anything. And where the debt is a company tax debt, another personal route can be a director penalty notice, which can make a director personally liable for certain unpaid company tax, covered in the ATO section below.
This is also where a company problem can become a household one. Where a director is personally exposed, through a guarantee, a director penalty notice, or property already put up as security, the question of raising funds can shift from the company to the director and the family home. That is a different conversation with different stakes. A loan to a director personally can fall inside or outside the National Credit Act depending on who borrows, the purpose and the structure; using the family home does not by itself decide the classification. It is a separate, higher-stakes decision to weigh with your partner and appropriately qualified advisers, not alone. Where property is the security either way, our second mortgage page sets out how equity can be used, and the honest starting point is to understand the personal position first.
None of this is a reason to panic, and none of it is automatic. It is a reason to find out precisely where you stand, personally as well as for the company, before you respond. The demand itself does not make the director liable, but guarantees, director penalty rules, existing security and debts incurred while insolvent can create separate exposure. That is one more reason to identify the company's position and the director's position early rather than treating them as the same question.
What happens when the ATO issues a statutory demand?
When the creditor is the Australian Taxation Office, the same Corporations Act framework applies, but the ATO runs it to its own script. The ATO can and does issue statutory demands to companies that have not paid, and its guidance states plainly that a demand requires the company to pay the entire debt or enter into a payment plan with the ATO within 21 days; if the company does not comply, the ATO may use the non-payment as evidence of insolvency and apply to the Federal Court to wind the company up (ATO, Legal action we may take, as at 5 January 2026).
One trap is worth naming. An objection to a tax assessment and a statutory demand are separate processes. Under s459F of the Corporations Act, the compliance period is extended by a timely s459G set-aside application; an ATO objection should not be assumed to pause the statutory-demand clock. A company disputing an assessment therefore needs legal advice on the demand itself inside the 21 days, rather than relying on the objection process to protect the deadline. The deeper mechanics of an ATO debt sit in their own places: how a tax debt reads to lenders in our ATO tax debt guide, the fast-moving garnishee response map, and the cost of carrying tax debt versus funding it in our piece on working capital finance against an ATO debt.
Can you borrow against property to pay a statutory demand?
Where the company genuinely owes the debt and simply needs cash to pay it, or to fund an arrangement inside the window, finance enters the picture, and this is the part almost no page on statutory demands covers. A company that holds equity in property can raise funds against it, through a second mortgage or a caveat secured facility from a private lender, to pay the debt or to fund a secure or compound arrangement the creditor accepts. It is not a product built for statutory demands; it is ordinary property backed business lending, used against a deadline.
Before anything else, a 30-second gut check on whether finance is even the right tool for you. It fits only if every point on the left is true. If any point on the right is true, finance is the wrong tool right now, and the free help further down comes first, not a loan.
Finance may fit if all of this is true
- Real, evidenced equity behind the first mortgage, not just equity on paper
- A first mortgagee whose consent path is known early
- Clean title, with no competing caveats already sitting on it
- A genuine business purpose that is actually true
- A credible, dated exit: a refinance, a contracted sale or a receivable
- The debt is genuinely owed, not disputed, and you can still pay your other debts
Finance is the wrong tool if any of this is true
- The window is nearly spent and no advice has been taken yet
- Equity exists on paper but not after the first mortgage and costs
- The debt is genuinely disputed, which is a legal answer, not a loan
- Second-ranking security with no first mortgagee consent in sight
- Co-owned property without every owner's informed consent
- Borrowing would leave the company unable to pay its other debts
If the left column holds, this is worth a call today, because the earlier a fundable file starts, the more of the window is left for valuations and consents. If the right column is where you are, finance is not your answer, and the honest next step is the free help set out under who to call. A registered second mortgage sits behind the existing first loan, so it usually needs the first mortgagee's consent, a deed of consent, and a caveat secured facility can depend on the timing of that consent as much as on the equity itself. Above all, the exit has to be real: a refinance, a sale or a receivable that repays the facility on a known date, because this funding is short term by design. Loans to companies are generally outside the National Credit Act. Where a natural person borrows, the purpose and structure matter, and any business-purpose declaration should be signed only if it is true (ASIC INFO 101, as at 20 October 2020). The evidence lenders want to see is set out in our note on the second mortgage evidence pack, and the deeper mechanics live in the second mortgage guide and the private lending guide.
From our broking files, indicative and general
What we see on demand-driven files, kept deliberately to direction rather than numbers, because a distress-adjacent loan is exactly where an invented figure does damage.
- What tends to fund cleanly: real equity that survives the first mortgage and costs; a first mortgagee whose consent path is known early; clean title; a business purpose that is genuinely true; a dated, credible exit; and a director who brings the demand to the table on day one rather than in the final days.
- What tends to stall or get declined: leaving advice until the window is almost gone; equity that only exists before the senior debt is counted; a debt that is really disputed, which belongs with a lawyer; and borrowing that would leave the company unable to pay its other debts as they fall due, which is a solvency conversation, not a lending one.
General information only, from broking experience, and not financial, legal or tax advice. This is not a rate, a cost, an approval or an outcome you will get; every file depends on your circumstances, your security, your exit and lender policy at the time. Speak to a qualified broker, a lawyer and your accountant.
There is a line to hold here. Borrowing to pay one creditor while the company is otherwise unable to pay its debts as they fall due can deepen the hole rather than fill it. Finance answers a timing problem for a solvent business with real equity and a genuine exit; it is not a fix for insolvency, and where the real issue is solvency, the conversation about advice and who to call comes first.
How fast is the finance, and what does it cost?
Property backed funding that moves at the speed of a statutory demand is priced for speed and risk, not like a bank term loan, and it is fairer to understand the shape of the cost than to chase a headline number. This guide does not publish rates or timeframes as promises, because a real figure turns entirely on the security, the loan to value and the exit. What can be described honestly is what the cost is made of, and what makes a file move quickly or slowly.
| Factor | What it covers | What drives it |
|---|---|---|
| Interest basis | How interest is charged on a short facility, usually monthly rather than annually | The term, the security and the lender's view of risk |
| Establishment | The fee to set the facility up | Facility size and how complex the deal is |
| Valuation and legal | The lender's valuation and legal work, plus your own legal costs | Property type, number of securities, and urgency |
| Discharge | The cost and time to release the security when the facility is repaid | The outgoing lender and the state of the title |
| Speed to funds | How quickly money can reach the creditor inside the window | Clean title, evidenced equity, the consent path chosen, and how fast you return documents |
The single biggest driver of speed is not the lender; it is the file. Clean title, equity that is genuinely there once the first mortgage and costs are counted, a consent path that is known early, and documents returned quickly do more for the timeline than anything else. The single biggest driver of cost is risk: the weaker the security or the exit, the more the facility has to price for it. Weighed against an open-ended problem, a short, defined and well understood cost can be the sensible trade, but only where the exit is real. For a fuller read on what lets these files fund fast, see our note on what private lenders need to fund fast, and the mechanics of a caveat loan and its exit strategy if the terms are new.
What protection do you have, and who can help?
Commercial borrowers carry the lowest level of legal protection, and knowing that before you sign is the point of this section. The law provides the lowest level of protection to commercial loans, including loans to small businesses; lenders that provide only commercial loans are not required to hold a credit licence or to be members of the external dispute scheme, although the ASIC Act still prohibits unconscionable conduct, misleading or deceptive conduct and unfair terms in standard-form small business contracts (ASIC INFO 207, as at 19 April 2024).
Where to get help first
If the company is under real pressure, some of the most useful help is free, and it comes before any lender.
- Small Business Debt Helpline, 1800 413 828: free, independent and confidential financial counselling for small business owners, run by Financial Counselling Australia (sbdh.org.au).
- Get legal advice inside the 21 days, especially if any part of the debt is genuinely disputed, because the set-aside route is strictly time limited.
- Talk to a registered liquidator or restructuring practitioner if the company cannot pay its debts as they fall due; that conversation should come before taking on any new borrowing.
- Moneysmart lists free financial counselling and urgent money help you can use as well.
One more check protects you specifically. Directors under pressure are a target for advisers who promise to make the problem disappear, sometimes by moving assets out of the company, which can be illegal phoenix activity that leaves the director worse off, so ASIC's guidance is to be wary of them and to get a second opinion from an independent, appropriately qualified specialist (ASIC INFO 42, as at 20 June 2025). A legitimate broker or lawyer will tell you plainly when finance is the wrong answer and point you to the free help above; anyone who only ever sells you a product, or suggests hiding assets, is the wrong person to be talking to.
On the formal side, the external dispute resolution scheme, AFCA, can consider a complaint from a small business, defined in its rules as a business with fewer than 100 employees, but only against firms that are AFCA members, so membership is worth checking before you sign (ASIC INFO 207, as at 19 April 2024). ASIC has also made the private credit sector a supervisory focus for 2026, reviewing how these funds are run, which is context for doing your own checks rather than a reason for alarm (ASIC, private credit surveillance, 2025). Before taking any facility you can check a lender on ASIC's registers, confirm any AFCA membership, and look the entity up on ABN Lookup. And the check that matters most is on the company itself: if it cannot realistically pay its debts as they fall due, new borrowing is usually the wrong tool, and the free and formal help above should come first.
What if the company cannot pay the debt at all?
Not every answer to a statutory demand runs through paying it, and for a company in genuine difficulty the better path may be a formal one. ASIC's guidance for directors is to get professional accounting or legal advice as early as possible, because early action increases the chance the company survives, and it sets out the options: restructuring, refinancing or equity funding to recapitalise the company, the safe harbour protection for directors who pursue a course of action reasonably likely to lead to a better outcome, small business restructuring, voluntary administration, and liquidation (ASIC INFO 42, as at 20 June 2025).
Small business restructuring is the option built for smaller companies, letting an eligible company agree a plan with its creditors while the directors stay in control. Eligibility is capped, including a requirement that the company's total liabilities do not exceed $1 million on the day the restructuring practitioner is appointed, along with other conditions (ASIC, small business restructuring, as at 18 June 2025). Voluntary administration is the broader path, where an external administrator takes over to work out whether the company can be saved, and a deed of company arrangement can follow. Receivership is different again, and usually creditor driven. One caution ASIC is blunt about: be wary of advisers who suggest moving assets to sidestep debts, which can be illegal phoenix activity, and get a second opinion from an independent, appropriately qualified specialist (ASIC INFO 42, as at 20 June 2025). Where enforcement against secured property is the live risk, our guide on a mortgagee in possession refinance maps that ground, and the wider set of business finance options sits on the business owners finance hub.
A statutory demand starts a short, strict clock, and the company has three lawful answers inside it: pay the debt, secure or compound it to the creditor's reasonable satisfaction, or apply to set the demand aside. Ignore it and the company is presumed insolvent, and where the debt is ignored, personal exposure can start to open up for directors. Where the debt is genuinely owed and the company has real equity and a credible exit, property backed finance can fund a payout or an arrangement in time; where the real problem is solvency, advice and formal options come first. The files that resolve well share one shape: advice taken early, the response chosen inside the window, and a dated exit for anything borrowed.
Key takeaway: get advice inside the window, choose your response early, and never borrow your way past a solvency problem.Frequently Asked Questions
It is a creditor's formal written demand, made under the Corporations Act 2001, that a company deal with a debt within a set statutory period. It is not a court order, but ignoring it has serious consequences. Once the period passes without the company paying, securing or compounding the debt, or applying to set the demand aside, the company is presumed insolvent. The three lawful responses inside the window are what to focus on.
The debt, or debts, must be due and payable and total at least the statutory minimum, which is currently $4,000, a figure set by regulation that can change (Federal Court, Corporations Information Sheet 1, read July 2026). Some law firm pages still show an older, lower figure, so it is worth confirming the current amount. The demand also has to be in the prescribed form, Form 509H, and, unless the debt is a judgment debt, be verified by an affidavit.
21 days from when the demand is served, not from the date on the letter (Federal Court, Corporations Information Sheet 1, read July 2026). Service is usually to the company's registered office, so the clock can be running before the demand reaches the right person. Inside those 21 days the company must comply, by paying, securing or compounding the debt, or file and serve an application to set the demand aside.
No. The courts apply the period strictly, with no extensions and no dispensation (Federal Court, Corporations Information Sheet 1, read July 2026). The only way more time arises is if the company files and serves a set-aside application within the 21 days. Once that application is on foot, the compliance period runs to seven days after the application is finally determined or otherwise disposed of, unless the court orders otherwise (s459F, Corporations Act 2001).
A letter of demand is an ordinary request for payment with no fixed legal consequence if it is ignored. A statutory demand is a specific Corporations Act instrument that, if it is not answered within 21 days, creates a presumption that the company is insolvent. The letter is a step in a dispute; the statutory demand is a step toward winding up, which is why it should never be left in the tray.
The company is presumed insolvent, and the creditor then has three months from the date of non-compliance to apply to the court to wind it up (Federal Court, Corporations Information Sheet 1, read July 2026). A liquidator can be appointed and the winding up becomes public. The presumption can be rebutted, but only by proving solvency with evidence, which is far harder than dealing with the demand inside the original window. Directors should get advice early, and where a company tax debt is involved a director penalty notice can make it personal.
Yes, if the creditor accepts it in time. The Act lets a company answer a demand by securing or compounding the debt to the creditor's reasonable satisfaction within the 21 days, not only by paying it in full (s459E, Corporations Act 2001). Where the ATO is the creditor, its own position is that a company must pay the entire debt or enter into a payment plan within 21 days (ATO, as at 5 January 2026). Whether an arrangement truly satisfies a demand is a legal question, so get advice before relying on it.
Sometimes, and only in the right circumstances. A company with real equity in property can raise a second mortgage or a caveat secured facility to pay the debt or fund an arrangement inside the 21 days. Loans to companies are generally outside the National Credit Act; where a director borrows personally, the purpose and structure matter (ASIC INFO 101, as at 20 October 2020). Funding works only where the debt is genuinely owed, the equity survives the first mortgage and costs, and there is a dated exit, a refinance, sale or receivable, that repays the short-term facility. It is not a fix for insolvency; if the company cannot pay its debts generally, free help and advice come first.
Not automatically. A statutory demand is served on the company, and the debt is the company's, so receiving one does not by itself make a director personally liable. But personal exposure can arise around it: through a personal guarantee, through insolvent trading if the company keeps incurring debts while insolvent, or, where the debt is company tax, through a director penalty notice (ASIC INFO 42, as at 20 June 2025). The safe move is to find out exactly what you have guaranteed and where you stand personally before deciding how to respond, and to get advice inside the window.
Once a creditor has applied to wind the company up, the company can still respond, but the ground has shifted and it is squarely a legal matter. Options can include paying or settling the debt, disputing the application, or seeking an adjournment to pursue a formal restructuring, and the presumption of insolvency can only be met with proper evidence of solvency. This is well past the point for self-help; a company facing a winding up application should get advice from a lawyer and, where insolvency is real, a registered liquidator or restructuring practitioner without delay. Acting inside the original 21 day window is far easier than trying to stop a winding up after it.
It can, and honesty about it helps. A live demand signals distress, so mainstream lenders tend to step back, while specialist non-bank and private lenders will look at a file where there is real equity, a genuine business purpose and a clear exit that repays the loan. What lenders want to see is engagement and evidence, not a hidden problem discovered late. Disclosing the demand early, with the security and the exit set out, reads far better than a demand found mid-deal.
The demand itself does not appoint a liquidator or automatically stop the company trading. But directors must assess whether the company can pay its debts as they fall due and should not keep incurring new debts while insolvent. If the demand exposes a broader cashflow or solvency problem, get legal and insolvency advice immediately rather than treating continued trading as business as usual.
A creditor may still accept payment or a settlement after the 21 days, but the company has already failed to comply and the presumption of insolvency has arisen. The creditor may have filed, or may still be able to file, a winding-up application within the relevant period. If an application has been filed, payment alone should not be assumed to end the proceeding or the claim for costs, so get urgent legal advice.
Not necessarily. Setting aside the statutory demand removes that demand and its insolvency consequences, but it does not automatically decide the underlying debt in the company's favour. The creditor may still pursue the alleged debt through ordinary court proceedings, and the court may make a separate order about the costs of the set-aside application.
Free help exists before any lender. The Small Business Debt Helpline on 1800 413 828 offers free, confidential financial counselling for small business owners (Financial Counselling Australia). Get legal advice inside the 21 days if any part of the debt is disputed, and if the company genuinely cannot pay its debts as they fall due, speak to a registered liquidator or restructuring practitioner before taking on new debt. Moneysmart also lists free financial counselling and urgent money help.
What sources support this guide?
This guide is built on primary sources: the Federal Court's plain-English guide to statutory demands, the Corporations Act itself, the ATO's own guidance where it is the creditor, and ASIC's guidance on directors' options and on how commercial lending is regulated. Each was read again for this build, and every figure is shown with its source and date beside it. The table shows what supports which claim, and how current it is.
| Source | What it supports | As at |
|---|---|---|
| Federal Court, Corporations Information Sheet 1 | The statutory minimum and Form 509H, the strict 21 day period, the set-aside grounds, and the presumption of insolvency with the three month wind-up window | Read Jul 2026 |
| Corporations Act 2001 (s459C to s459P) | The framework, including securing or compounding the debt to the creditor's reasonable satisfaction (s459E) and the compliance extension (s459F) | Current |
| ATO, Legal action we may take | The ATO issuing statutory demands and requiring payment in full or a payment plan within 21 days | 5 Jan 2026 |
| ASIC INFO 101 | Loans to companies sitting outside the National Credit Act, and the predominant purpose test where a natural person borrows | 20 Oct 2020 |
| ASIC INFO 207 | The lowest level of protection for commercial borrowers, and the AFCA small business definition | 19 Apr 2024 |
| ASIC INFO 42 and small business restructuring | Directors' options and duties, personal exposure and safe harbour, and the $1 million liabilities cap for small business restructuring | Jun 2025 |
| Small Business Debt Helpline | Free financial counselling for small business owners, on 1800 413 828 | Current |
Regulatory positions are summarised, not reproduced in full, and none of this is legal, tax or financial advice. Figures such as the statutory minimum and the small business restructuring threshold are set by regulation and can change, so the current Federal Court, ASIC and ATO pages are the place to confirm them before you act.
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