A Guide to Setting Aside Statutory Demands by Creditors

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Understanding the intricacies of statutory demands in Australia is crucial for any company navigating the complexities of debt and insolvency. Under section 459E of the Corporations Act 2001 (Cth), a statutory demand serves as a formal call for payment on debts owed by a company. This article aims to dissect the key elements and legal implications of statutory demands, exploring the nuances of setting them aside, identifying genuine disputes, and understanding offsetting claims. The implications of defective demands and the broader scope of ‘other reasons’ that could lead to a statutory demand being set aside are also discussed, offering a comprehensive overview of this critical aspect of corporate law in Australia.

Table of Contents

Understanding Statutory Demands from Creditors

A statutory demand relates to a formal demand for payment of a debt owed by a company, issued under section 459E of the Corporations Act 2001 (Cth). It is a critical document and should not be overlooked. Upon receiving a statutory demand, a company has the option to pay the debt within the allocated time or seek to set it aside in court.

Key elements of a statutory demand include:

  • The amount of the debt must be over $2,000.
  • The demand should clearly specify the due and payable debt. It cannot be issued for debts that are prospective, contingent, or unliquidated.
  • It must stipulate that the debt is to be paid within 21 days after the demand is made.
  • The demand should be in writing.
  • It must follow the format prescribed in the Corporations Act.
  • An affidavit detailing the debt and providing evidence must accompany the demand, unless it’s a judgment debt.

Failure to respond to a statutory demand within the specified period allows the creditor to apply to the court for the company’s winding up on insolvency grounds. Additionally, the company can apply to the court to set aside the statutory demand, but this must be done within 21 days of receiving the demand.

Setting Aside a Statutory Demand under the Corporations Act

If you receive a statutory demand for payment and believe the debt is genuinely disputed or you have an offsetting claim, you can apply to set aside the statutory demand. A court may set aside a statutory demand if there is a legitimate reason for the same.

Common reasons for setting aside a statutory demand include:

  • The debt mentioned in the statutory demand is genuinely disputed.
  • You possess an offsetting claim that reduces the debt in the statutory demand to below the statutory minimum.
  • There is a defect in the statutory demand.

Your application to set aside the statutory demand must be filed within 21 days of service of the demand. Prompt action is crucial, as ignoring a statutory demand can lead to serious consequences, including the potential dissolution of your company.

Genuine Dispute

Section 459H(1)(a) of the Corporations Act concerns the setting aside of a statutory demand by the court if there’s a genuine dispute about the existence or amount of the debt to which the demand is related. A statutory demand, as per the Act, should not be used as a tool for debt collection in cases of disputed amounts.

The concept of a “genuine dispute” is not explicitly defined in the Corporations Act but has been extensively interpreted by courts. Key judicial insights include:

  • Plausible Contention: The dispute must present a plausible contention that needs investigation.
  • Bona Fide and Real: The dispute should be bona fide, genuine, and truly exist in fact.
  • Beyond Mere Assertion: It requires more than mere assertion or bluster; there should be some substantive claim.
  • Substance and Cogency: The dispute should have enough substance and cogency to warrant further investigation.
  • Objective Existence and Factual Particularity: It should have an objective existence and be based on specific factual details.
  • Good Faith: The claim must be made in good faith.

On the other hand, a genuine dispute should not be spurious, hypothetical, illusory, vexatious, frivolous, or devoid of substantive content.

Importantly, an ongoing appeal against a judgment debt does not typically constitute a genuine dispute for the purpose of setting aside a statutory demand, as exemplified in Wilden Pty Ltd v Greenco Pty Ltd and Scope Data Systems v BDO Nelson Parkhill (1995) 13 ACLC 1039.

To prove a genuine dispute, sufficient evidence must be provided in the affidavit supporting the application. For instance, in cases of disputed building work quality, a construction expert’s report should be annexed to the affidavit.

If faced with a statutory demand and a genuine dispute exists, it’s advised to request the issuing party to withdraw the demand. Failure to withdraw could lead to an application to set aside the demand, potentially involving costs.

Confusion due to a poorly drafted deed can result in a ‘Genuine Dispute’

In the matter of Jana Pty Ltd [2022] NSWSC 112, Jana Pty Ltd (Jana) and Allspec Constructions and Project Management (ACPM) entered into a deed, with Jana as the ‘Landowner’ and ACPM as the ‘Subcontractor’. The deed contained clauses regarding a ‘Guarantee Debt’ of $481,865.51 and provided for the ‘Head Contractor’ and ‘Guarantors’ not to dispute this debt. The deed also mentioned property charges as security for the debt. However, the deed’s definitions and terms were poorly drafted and ambiguous.

The Supreme Court of New South Wales made several observations regarding the genuineness of the dispute, focusing on the construction and interpretation of the deed involved. The key observations were:

  • Existence of a Genuine Dispute: The Court identified that there was a genuine dispute between Jana and ACPM concerning the existence of the debt. This determination was based on the language and terms of the deed, which the Court found to be unclear and poorly drafted.
  • Bona Fide Legal Issues: The Court acknowledged that the application raised bona fide legal issues related to the proper interpretation of the deed. These issues were not spurious, hypothetical, or illusory, but rather genuine and existing in fact.
  • Ambiguity in the Deed: The Court noted that the deed’s drafting was “very poorly drafted” and contained ambiguities. This contributed to the genuine dispute regarding the debt’s existence and whether it was due and payable when the demand was issued.
  • Not Expressing Views on Merits: While recognising the genuine dispute, the Court was careful not to express any opinion on which party’s arguments might ultimately succeed. The role of the Court in this context was not to resolve the dispute’s merits but merely to determine whether a genuine dispute existed.

The decision underscored the importance of clear and unambiguous drafting in contracts and deeds, especially in relation to guarantees. Ambiguities can lead to disputes over the nature and extent of the obligations, as seen in this case. The focus was on the existence of a real and bona fide dispute, rather than the resolution of the dispute itself.

Offsetting Claim

According to Section 459H(5) of the Corporations Act, an offsetting claim is defined as a genuine claim a company holds against the respondent, which can be in the form of a counterclaim, set-off, or cross-demand. Importantly, this claim doesn’t have to arise from the same transaction as the debt related to the statutory demand. The genuineness of an offsetting claim is pivotal. It must be authentic, bona fide, and factually existent. Courts have stressed that such claims should not be spurious, hypothetical, illusory, or misconceived. They should demonstrate a real possibility of success, raise a serious question to be tried, and be put forward in good faith.

The nature of the claim can encompass a counterclaim, set-off, or cross-demand, with “cross-demand” interpreted broadly to include any quantifiable monetary claim for damages, irrespective of its connection to the transaction in question. It’s essential that the offsetting claim exists at the time of the hearing for the application to set aside the statutory demand. This timing is more crucial than the date of service of the statutory demand or the filing of the application.

For a claim to offset the amount in the statutory demand effectively, it must be capable of being quantified in monetary terms. The offsetting claim must be directed against the entity who issued the statutory demand. Moreover, it needs to be in the same capacity as that in the statutory demand. If the quantified amount of the offsetting claim is less than the statutory minimum, the court is compelled to set aside the demand. Conversely, if it exceeds the minimum, the court may opt to vary the demand.

Delays and work defects may be considered as ‘Offsetting Claims’ 

In the matter of Malvern Developments (Vic) Pty Ltd [2021] NSWSC 888, the New South Wales Supreme Court examined an application to set aside a creditor’s statutory demand under Section 459H(1)(b) of the Corporations Act. Malvern Developments argued to set aside a demand from Devakon, citing an offsetting claim based on alleged delays and work defects in a construction project. Separate proceedings under the Building and Construction Industry Security of Payment Act 1999 (SOPA) further reinforced this claim. The court acknowledged the SOPA Claim, leading Devakon to concede Malvern’s offsetting claim, resulting in the demand being set aside and costs awarded to Malvern. the New South Wales Supreme Court made specific observations regarding offsetting claims in the context of a statutory demand. These observations include:

  • Existence of an Offsetting Claim: The Court acknowledged that Malvern Developments had an offsetting claim against Devakon. This claim was based on alleged delays and work defects in a construction project, which was contractually bound to incur liquidated damages amounting to $5,575 per day for not achieving practical completion by the due date.
  • Quantification of the Offsetting Claim: The Court noted that the offsetting claim, particularly in relation to liquidated damages, was substantial. In separate proceedings under the Building and Construction Industry Security of Payment Act 2002 (VIC), Malvern sought liquidated damages of around $3.8 million, far exceeding the value of the statutory demand from Devakon.
  • Assessment at the Hearing Date: The Court’s consideration of the offsetting claim was based on its status at the date of the hearing, not at the time of issuing the statutory demand. This aligns with the legal requirement that the offsetting claim must exist at the time of the hearing.
  • Genuineness of the Claim: The Court was convinced of the genuineness of Malvern’s offsetting claim. This was evident from the separate SOPA proceedings initiated by Malvern, which demonstrated a substantial and quantifiable claim against Devakon.

Defect in the Demand

The Corporations Act defines a “defect” in relation to a statutory demand as including irregularities, misstatements of amounts or totals, misdescriptions of a debt or other matter, and misdescriptions of a person or entity. A defect may occur in a variety of circumstances, summarised below. 

  • Misstatement of Debt, Amount, or Total: A defect can occur if the amount of a debt or its description is inaccurate, hindering the company director’s ability to assess whether there is a genuine dispute about the debt. It’s noted that if a demand is vague or ambiguous to the extent that it fails to sufficiently inform a director about the debt’s nature, this constitutes a defect.
  • Substantial Injustice Due to Misdescription: The law requires a statutory demand to precisely identify the debt. Failing to do so denies the company the ability to consider grounds for challenge under the relevant sections of the Corporations Act. This can lead to substantial injustice, necessitating setting aside the demand.
  • Particularisation of Multiple Debts: When a demand encompasses several debts, each must be sufficiently detailed separately, enabling the debtor company to recognise each debt. Simply adding a total amount without breaking down its components may not suffice.
  • Handling Obvious Mistakes: Minor errors, such as a wrong year in the date of an agreement, may not cause substantial injustice if the context clarifies the demand’s intention.
  • Requirement of Debt Being Due and Payable: The debt involved in a statutory demand must be due and payable. Including demands for payment of sums not due within the compliance period can lead to substantial injustice.
  • Correct Number of Creditors: In cases of joint debts, all involved creditors must be correctly identified and must sign the demand. Any oversight in this regard can lead to the demand being set aside.
  • Dismissal of Applications for Minor Defects: Minor defects in a statutory demand may not lead to its dismissal unless they cause substantial injustice. This includes omissions like notes, warnings, addresses for service in interstate demands, or signatures on the demand.

An incorrect date and the wrong address for service on the demand may not render it defective

The case of Black Tie Holdings Pty Ltd [2022] NSWSC 781 dealt with the upholding of a statutory demand by the NSW Supreme Court despite identified defects. Black Tie Holdings Pty Ltd (based in New South Wales) and Z4life Pty Ltd (based in Victoria) were involved in a dispute over a digital platform for cryptocurrency coins or tokens. Z4life claimed a ‘loan’ balance from Black Tie, while Black Tie viewed the relationship as a consultancy agreement, calling the ‘loan’ a ‘holding account’.

Black Tie was served with a statutory demand for the alleged loan. The demand contained an incorrect date and a Queensland solicitor’s address for service. Black Tie emailed its challenge to Z4life’s solicitor but failed to attach a SEPA notice. This was deemed a critical omission, limiting Black Tie’s ability to use certain grounds for setting aside the demand under the Corporations Act. Black Tie sought either a declaration that the demand was null and void or an order setting aside the demand for ‘other reasons’. These were based on arguments about the demand’s defects and lack of proper verification.

The New South Wales Supreme Court made specific observations about the nature of a defective statutory demand and the implications of such defects. These observations include:

  • Rarity of Declaring a Demand as ‘Nullity’: The Court noted that it’s extremely rare for statutory demands to be so defective as to be considered a ‘nullity’. This implies that minor errors or defects in a statutory demand do not automatically invalidate it.
  • Pragmatic Approach to Debt Assessment: Despite the somewhat unusual balance sheet entries presented in the case, the Court adopted a practical approach in determining whether a loan balance was due and payable. The Court’s focus was on the substance of the evidence presented, rather than strictly on formalities.
  • Importance of Correct Service Address: The statutory demand in question incorrectly listed a Queensland solicitor’s address for service. The Court pointed out that while this error was notable, it did not render the demand a nullity. This observation underlines the necessity for accuracy in statutory demands but also indicates some level of tolerance for non-fundamental mistakes.
  • Estoppel and Unconscionability Not Found: Black Tie’s argument that Z4life was unconscientiously capitalising on the error in the demand (by providing a Queensland address for service) was not upheld by the Court. The Court did not find any estoppel or unconscionability that would invalidate the demand on these grounds.
  • Significance of SEPA Compliance: The Court highlighted the significance of complying with the Service and Execution of Process Act 1992 (SEPA) requirements, particularly in the context of interstate service of documents. Black Tie’s failure to attach a SEPA notice to its challenge was deemed a critical procedural omission.
  • Substantial Injustice and Misleading Nature of Demand: The Court was not persuaded by Black Tie’s arguments that the demand was so fatally defective or caused such substantial injustice or was misleading as to amount to a ‘nullity’.

The Court upheld the statutory demand issued by Z4life Pty Ltd against Black Tie Holdings Pty Ltd. Despite the identified defects in the demand, such as an incorrect date and the wrong address for service, these were not considered sufficiently substantial to render the demand a nullity or cause significant injustice.

Other Reasons for Submitting an Application to Set Aside Statutory Demand

Section 459J(1)(b) of the Corporations Act allows a court to set aside a statutory demand if there is “some other reason” apart from the grounds covered by sections 459J(1)(a) or 459H. The term is broad, but its interpretation hinges on the intention of the legislation’s drafters. The Harmer Report and subsequent amendments intended to address issues like improper or invalid service, mistakes, or misstatements in the demand that significantly prejudice any party.

Courts require a “sound or positive ground” or “good reason” to set aside a demand for “some other reason.” This reason should not merely be about fairness or avoiding substantial injustice but must maintain the integrity of the statutory demand process and align with the legislative intention.

Potential Reasons for Setting Aside a Demand

Instances where errors or omissions in the supporting affidavit have been considered as “some other reason” include:

  • Critical issues with Affidavits: This can include the following:
    • Incorrect signing of the affidavit.
    • Failure to swear or affirm all elements required by section 459E(3) and the relevant rules.
    • Affidavits made by individuals lacking direct knowledge of the relevant facts.
    • Affidavits dated prior to the statutory demand.
    • Omissions in affirming that the debt is due and payable, or that there is no genuine dispute about the debt.
    • Defects in an affidavit supporting an application to set aside the statutory demand.
  • Demand issues for an improper purpose:  A statutory demand might also be set aside if it was issued for an improper purpose, such as unconscionable conduct, abuse of process, or if it gave rise to substantial injustice. Serving a demand on a clearly solvent company or using the demand as a means of debt collection can be considered improper. Proof of solvency might support an inference that the demand was served for an improper purpose.
  • Stay of execution on a judgement debt: If there is a stay of execution on a judgment debt, it can constitute “some other reason” for setting aside the demand. This is based on the principle that initiating winding-up proceedings against a judgment debtor who is prevented from executing the judgment due to a stay would be oppressive and inconsistent with the legislative intent.

Lack of date and witness signature on affidavit may amount to ‘Other Reasons’

In the case of Fastlink Calling Pty Limited v Macquarie Telecom Pty Limited, the factual context is centered around a dispute arising from a statutory demand served by Macquarie Telecom Pty Limited (the defendant) on Fastlink Calling Pty Limited (the plaintiff). Following this, Fastlink Calling sought to challenge and set aside the statutory demand through a legal application under section 459G of the Corporations Act 2001 (Cth). A pivotal issue in this case was the status of a document filed by Fastlink Calling alongside its application, purportedly as an affidavit. The document’s validity as an affidavit was questionable because it lacked crucial elements such as a date and the signature of the witness. Ana Jebril, identified as the director and deponent, had signed the document, but it did not meet all the formal requirements of a legally recognised affidavit.

The court’s evaluation focused on whether this document fulfilled the criteria of an affidavit, as the application’s success to set aside the statutory demand critically depended on the proper filing and service of a supporting affidavit as mandated by section 459G(3) of the Corporations Act.

The court concluded that the document was not an affidavit since it lacked a date and the witness’s signature. This finding was critical as it implied that the condition in section 459G(3)(a) (requiring a supporting affidavit to be filed with the court) was not met. Given the conclusion that the document was not an affidavit, the issue of whether it was served on the defendant became irrelevant. Since the plaintiff failed to meet the requirements of section 459G(3), the court lacked jurisdiction to order for the demand to be set aside. Consequently, the application was dismissed with costs.

Withdrawal of Demand

If there are valid reasons, a debtor company can request the withdrawal of statutory demands. The company may inform the creditor about these reasons, such as the presence of a genuine dispute, and request the demand’s withdrawal. Withdrawal can be done either verbally or in writing, but it is important for the debtor company to keep a written record of this withdrawal for future reference.

Despite the request, creditors may choose not to comply with the withdrawal of a statutory demand. If the debtor company successfully convinces the court that the demand should be set aside, the creditor might be required to pay the costs involved in setting it aside.


Navigating statutory demands is essential for business stability in Australia. This article underscores the importance of understanding statutory demands, including their key components, grounds for setting them aside, and the ramifications of non-compliance unless the demand is set aside. For businesses facing statutory demand challenges or needing guidance on corporate insolvency law, our law firm offers expert assistance. We specialise in Corporations Act complexities, providing tailored advice to ensure your business remains legally secure. Contact us for professional support in managing statutory demand intricacies and safeguarding your company’s legal standing.


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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

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