Statutory demands and the 21-day clock

A document that starts a countdown

A statutory demand is a creditor’s legal tool, created by the Corporations Act, that can be used against a company that owes it money. Unlike an ordinary overdue notice, it starts a 21-day countdown with serious consequences. If the company does not respond properly within that time, the law presumes it is insolvent, and the creditor can use that presumption to apply to court for the company to be wound up.

Many companies that receive statutory demands are not insolvent at all. They may be waiting on their own debtors, disputing an invoice or simply caught short. For them, the demand is a timing problem with a legal deadline attached.

When the 21 days start

The clock starts when the demand is served, which is often at the company’s registered office. If the registered office is an accountant’s address, the demand may sit there for days before the directors see it. Check the date of service carefully and assume time is shorter than you think. Keeping the company’s registered office and officeholder details current with ASIC helps.

The company’s options

Within the 21 days, a company can generally:

• Pay the debt in full.
• Secure or compound the debt to the creditor’s reasonable satisfaction, for example by agreeing payment terms in writing that the creditor accepts.
• Apply to court to set aside the demand, for example where there is a genuine dispute about the debt, an offsetting claim or a defect in the demand.

Doing nothing is not an option without consequences.

Disputed debts

Where the company has a real dispute about what is owed, the usual path is an application to set aside the demand, which generally must be filed and served within the 21 days. This is technical legal work. Engage a lawyer as soon as the demand arrives. Some directors choose to pay first, removing the presumption of insolvency, and argue about the amount afterwards; your lawyer can advise whether that suits your situation.

Paying within the deadline

Where the debt is owed, paying in full is the cleanest response. If the company does not have the cash, a property-secured loan can provide it. Because the deadline is fixed, speed matters: a caveat loan is often quickest, and simple scenarios can fund within a day or two of signing. Funds can go straight to the creditor or its solicitor. Our guide on how fast a secured loan can settle explains the timeline.

Tell us the demand amount and service date so funding can be planned backwards from the deadline.

What happens if the deadline passes

If the company fails to comply, it is presumed insolvent. The creditor can then apply to court to wind the company up, and other creditors may join. Resolving the matter at that stage is still sometimes possible, but it is more complex and expensive. See winding-up applications.

The directors’ perspective

A statutory demand is a good moment for directors to look honestly at solvency. The law expects directors not to let a company keep trading while it cannot pay its debts. If paying the demanded debt leaves the company able to pay its other debts as they fall due, borrowing to pay it can be entirely sensible. If not, advice from a registered insolvency practitioner should come first. ASIC publishes information for directors facing financial difficulty.

Illustrative example

Illustrative only. A fit-out company receives a statutory demand from a joinery supplier for an invoice it had disputed but now accepts is owed. Its own client is due to pay a larger amount in six weeks. With twelve days left, the director arranges a caveat loan over an investment property, and funds are paid to the supplier’s solicitor within the week. The supplier confirms in writing that the demand is satisfied. When the client pays, the company repays the loan.

Getting written confirmation

Once paid or settled, ask the creditor or its lawyer to confirm in writing that the demand has been satisfied and that no further action will be taken. File that confirmation safely. Where the creditor also lodged a security registration or began other recovery steps, request their removal as well.

Other creditors

A statutory demand from one creditor can signal pressure from others. Before you borrow, write down everyone who is owed money and overdue, the ATO included. Paying one demand only to receive another a month later helps no one. One secured facility can sometimes pay out several of them at once. See secured debt consolidation.

Preventing statutory demands

• keep creditors informed when payments will be late
• agree written payment plans with suppliers early
• chase your own debtors promptly
• forecast cash flow so problems are visible before they become demands
• keep the registered office and director details current with ASIC

Common mistakes

• ignoring the demand while negotiating informally
• miscounting the 21 days
• paying part of the debt without written agreement from the creditor
• leaving funding arrangements until the final days

How lenders view a company with a statutory demand

A lender asked to fund payment of a statutory demand will want to understand the whole position: the demanded debt, other creditors, the ATO balance and whether the company can trade on once the demand is paid. Security is often provided by a director’s home or investment property rather than by the company itself. Honest disclosure of the creditor position helps the lender decide quickly. If several demands or tax debts are outstanding, the lender may suggest clearing them together so the company is not back in the same position weeks later.

Using the 21 days well

Day one: confirm the service date and engage a lawyer. Days one to three: decide whether to pay, negotiate or apply to set aside. If paying, enquire about funding immediately. Days four to ten: complete funding documents and signing. Days ten to fourteen: pay and obtain written confirmation. That leaves a buffer before the deadline for anything that goes wrong.

Keeping records

File the demand, proof of service, payment confirmation and the creditor’s written acknowledgement together. If the matter is ever questioned, for example during a bank refinance, the records show it was resolved properly and on time, which reassures any lender reviewing the company later.

Meet the deadline with confidence

A statutory demand is serious, but it is one of the most solvable creditor problems when action is taken quickly. Send us the amount demanded, when it was served, who issued it and what property is available, and we will say what can be done before time runs out. A first enquiry involves no credit check, a single team handles your file, and the exact service date helps us plan the timeline precisely. Get help now.