Quick answer
A creditor's statutory demand requires a company to pay a debt, or reach an arrangement, within 21 days of service. If it is not complied with or set aside, the company is presumed insolvent, which can support a winding-up application. A property-secured loan can pay the demanded amount before the deadline, protecting the company while it resolves its cash flow.
Key points
- A statutory demand gives the company 21 days from service
- Non-compliance leads to a presumption of insolvency
- A creditor can then apply to wind up the company
- A secured loan can pay the debt within the deadline
- Get legal advice immediately, especially if the debt is disputed
A demand with a deadline
A statutory demand is not an ordinary invoice reminder. It is a formal step under the Corporations Act that starts a 21-day clock. If the company does not pay the debt, secure or compound it to the creditor’s satisfaction, or have the demand set aside by a court within that time, the law presumes the company is insolvent. A creditor can then use that presumption to apply to wind the company up.
For a solvent business that simply cannot pay one large debt on time, that outcome is wildly out of proportion. A secured loan can prevent it.
The choices within 21 days
| Option | When it fits |
|---|---|
| Pay the debt | The debt is owed and the company wants the matter closed |
| Negotiate a settlement | The creditor will accept payment terms or a reduced amount in writing |
| Apply to set aside | There is a genuine dispute or a defect in the demand; legal advice essential |
| Do nothing | Not recommended: the presumption of insolvency follows |
A secured loan supports the first two options, providing cash to pay in full or to make a lump-sum offer.
How a secured loan pays the demand
The loan is secured over property owned by the company, a director or a related party, as a caveat, second mortgage or first mortgage. No valuation is needed before approval, and on straightforward deals funds can arrive in as little as 24 hours once documents are signed. Payment can be made directly to the creditor or its solicitor, with written confirmation that the demand is satisfied.
Tell us the deadline and amount now and a specialist will move straight away.
Timing matters
The 21 days run from service of the demand, not from when someone opened the envelope. Demands can be served at the registered office, so check when it actually arrived. Give your lender the real deadline so the timeline is planned backwards from it, and allow time for signed documents and independent legal advice for any guarantor.
Disputed debts
If the company genuinely disputes the debt, speak to a lawyer immediately about setting the demand aside. Some companies pay a disputed amount to remove the insolvency risk and pursue the dispute separately; others apply to court. Your lawyer can advise which suits your circumstances. A secured loan can fund payment if that is the chosen path.
Other creditors and the wider picture
One statutory demand can be a sign that others will follow. Before borrowing, list every overdue creditor, including the ATO. A secured loan may be able to clear several debts at once, which is often better than solving one demand only to receive another. See secured debt consolidation.
An illustrative case
Illustrative only. A shopfitting company receives a statutory demand from a timber supplier after a large client delayed payment on a completed fit-out. The debt is genuine and the client’s payment is expected within two months. A caveat loan over the managing director’s investment unit pays the supplier in full with a week to spare. When the client pays, the company repays the loan and the caveat is withdrawn.
If a winding-up application has already been filed
If the deadline has passed and the creditor has applied to court, the situation is more urgent but not necessarily lost. See winding-up applications and get legal advice immediately.
Avoiding the next demand
After the demand is paid, speak with key suppliers about terms, review debtor collection and cash flow forecasting, and look at the warning signs of financial trouble published on business.gov.au. A business that keeps creditors informed rarely receives statutory demands without warning.
What the creditor needs to see
When paying a statutory demand, ask the creditor or its solicitor to confirm in writing that the debt has been paid and the demand is satisfied. Keep that confirmation with the company’s records. If the creditor has also registered a security interest or started other recovery steps, ask for those to be withdrawn too. Clear paperwork prevents the same debt causing problems later, for example when a bank reviews the company’s history during a refinance.
Directors’ duties in the background
A statutory demand is often a moment for directors to step back and look at solvency honestly. Directors have duties under the Corporations Act, including the duty to prevent insolvent trading. If paying this debt leaves the company able to meet its other debts as they fall due, a secured loan is a sensible solution. If not, get advice from a registered insolvency practitioner before borrowing.
Do not let the clock run out
A statutory demand is serious but manageable when funds are arranged within the deadline. Tell us the amount, the date of service, the creditor and the property you can offer, and a specialist will tell you exactly what is achievable. There is no credit check when you first enquire, your enquiry stays with one team, and the precise service date helps us plan backwards from the deadline. Get help with a statutory demand.
Frequently asked questions
What is a statutory demand?
A formal demand under the Corporations Act requiring a company to pay a debt of at least the statutory minimum within 21 days, or have the demand set aside by a court.
What happens if the demand is not paid?
The company is presumed insolvent, and the creditor can rely on that presumption to apply to court to have the company wound up.
Can I dispute a statutory demand?
Yes, but an application to set it aside generally has to be made within the 21 days. Get legal advice immediately.
Can a secured loan be arranged within 21 days?
Often, yes. On straightforward deals, funds can be available in as little as 24 hours once documents are signed. The earlier you start, the more comfortable the timing.
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