A statutory demand is a formal written notice issued under the Corporations Act 2001 requiring a company to pay a debt of at least $4,000 within 21 days. Miss that…
A statutory demand is a formal written notice issued under the Corporations Act 2001 requiring a company to pay a debt of at least $4,000 within 21 days. Miss that deadline and the company is presumed insolvent - opening the door for creditors to apply to wind it up.
That short timeframe is what makes this document so powerful. Unlike ordinary debt recovery, a statutory demand puts the entire business at risk, not just its bank balance. Directors who ignore one, or assume they can sort it out later, often find themselves defending winding-up proceedings in the Federal Court within weeks.
For creditors, it's a fast, low-cost pressure tool that frequently gets debts paid without litigation. For debtor companies, it's a serious threat that demands immediate action - either pay, negotiate, or apply to set it aside within the 21-day window. There are no extensions. Understanding how it works is critical before you're on either side of one.
What Is what is a statutory demand?
A statutory demand is a formal written notice demanding payment of a debt, issued under the Insolvency Act 1986. It's one of the most powerful debt recovery tools available to creditors in England and Wales, and it carries serious consequences for the debtor if ignored.
Here's how it works. If someone owes you £750 or more (for individuals) or £750 or more from a company, you can serve a statutory demand requiring payment within 21 days. Miss that deadline, and the creditor gains the right to petition for bankruptcy against an individual or winding-up proceedings against a company.
The scope is deliberately broad. Statutory demands can be used for almost any undisputed debt: unpaid invoices, loan defaults, unpaid rent, judgment debts, and personal guarantees. The debt must be liquidated, meaning a fixed sum rather than damages still to be assessed. It also needs to be undisputed, because a genuine dispute will get the demand set aside and can leave you paying the debtor's costs.
Context matters here. A statutory demand isn't a court order and doesn't itself force payment. Its power comes from what happens next. Most debtors pay quickly once they receive one, because the threat of insolvency proceedings is real and immediate. Directors face disqualification risks. Individuals face bankruptcy and everything that comes with it.
Used correctly, a statutory demand recovers money fast without court proceedings. Used incorrectly, it backfires expensively. Getting the debt, the drafting, and the service right is non-negotiable.
Key Benefits of what is a statutory demand
A statutory demand is a formal written notice requiring a debtor to pay a debt within 21 days (for companies) or 21 days (for individuals, in most jurisdictions). Understanding what a statutory demand is - and using one strategically - can transform how you recover unpaid debts. Here's why it works.
Fast, low-cost debt recovery. Compared to litigation, issuing a statutory demand is cheap. There's no court filing at the outset, no drawn-out proceedings, and no need to prove your case before a judge. You send the demand, the clock starts ticking, and most debtors pay up quickly to avoid the consequences.
Creates serious legal pressure. Ignoring a statutory demand has real teeth. For companies, non-compliance creates a presumption of insolvency - opening the door to a winding-up application. For individuals, it can lead to bankruptcy proceedings. That threat alone motivates payment where polite reminders and invoices have failed.
Cuts through delay tactics. Debtors who've been stalling, dodging calls, or promising payment "next week" tend to act fast once a statutory demand lands. The 21-day window forces a decision: pay, dispute formally, or face insolvency action.
Filters genuine disputes from stalling. If the debt is legitimately contested, the debtor must apply to set the demand aside within the statutory period. That flushes out real disputes early, so you're not wasting money chasing debts that would collapse in court.
Strengthens your negotiating position. Even before the deadline expires, most debtors approach you to negotiate a payment plan or settlement. You're no longer the creditor asking nicely - you're the creditor holding leverage.
Preserves your commercial relationships selectively. Used against serial late payers or clearly insolvent debtors, it protects your cash flow without you having to escalate every dispute to full litigation.
Used correctly, it's one of the sharpest tools in commercial debt recovery.
How what is a statutory demand Works
A statutory demand is a formal written notice demanding payment of an undisputed debt, issued under the Corporations Act 2001 (for companies) or the Bankruptcy Act 1966 (for individuals). Get it right and you have a fast-track tool to recover money or wind up a debtor. Get it wrong and it gets set aside, with costs against you.
Here's how the process runs:
Step 1: Confirm the debt qualifies. For companies, the debt must be at least $4,000, due and payable, and not genuinely disputed. For individuals (bankruptcy notices), the threshold is $10,000.
Step 2: Prepare the demand. Use the prescribed form (Form 509H for companies). State the exact amount, describe the debt clearly, and sign it. If the debt isn't a judgment debt, attach a supporting affidavit verifying the amount is due and there's no genuine dispute.
Step 3: Serve the debtor. Serve it on the company's registered office or personally on the individual. Document service carefully - date and method matter for what comes next.
Step 4: The 21-day clock starts. The debtor has 21 days to either pay, reach a settlement, or apply to court to set the demand aside. This deadline is strict. Courts have no power to extend it.
Step 5: Debtor's response. They can pay up, negotiate, or file an application challenging the demand on grounds of genuine dispute, offsetting claim, or defect causing substantial injustice.
Step 6: Presumption of insolvency. If the debtor does nothing within 21 days, the company is presumed insolvent. You can now apply to wind it up. For individuals, non-compliance becomes an act of bankruptcy, letting you file a creditor's petition.
Used strategically, it pressures payment fast - often without needing to go further.
Common Questions About what is a statutory demand
What is a statutory demand, exactly?
It's a formal written demand for payment of a debt, issued under the Corporations Act 2001 (for companies) or the Bankruptcy Act 1966 (for individuals). If the debtor doesn't pay or apply to set it aside within 21 days, they're presumed insolvent. That opens the door to winding-up or bankruptcy proceedings.
How much does the debt need to be?
For companies, the minimum is $4,000. For individuals, it's $10,000. Anything less and you'll need to pursue the debt through other channels.
Do I need a lawyer to issue one?
No, but you'd be wise to use one. A defective statutory demand can be set aside, leaving you with legal costs and no result. Small errors in the affidavit or the amount claimed can sink the whole exercise.
What happens if the debtor ignores it?
After 21 days, you can apply to wind up the company or bankrupt the individual. This is where statutory demands become genuinely powerful. Most debtors pay well before it reaches that stage.
Can the debtor fight back?
Yes. They can apply to set aside the demand if there's a genuine dispute about the debt, an offsetting claim, or a defect in the demand itself. The 21-day window is strict, so they need to act fast.
How long does the whole process take?
From issuing the demand to winding-up proceedings, typically 6-8 weeks. Most debts get resolved within the initial 21-day period once the demand lands.
Conclusion
A statutory demand is a formal written request for payment of a debt of £750 or more, issued under the Insolvency Act 1986. Ignore one and you're 21 days away from a bankruptcy or winding-up petition landing on your desk.
The key takeaways are simple. It's not a court order, but it carries serious weight. You have 21 days to pay, reach a settlement, or apply to set it aside. Miss that window and the creditor can move straight to insolvency proceedings, which can freeze accounts, damage credit, and end businesses.
If you're the creditor, a statutory demand is one of the fastest, cheapest tools to recover undisputed debt. If you're on the receiving end, act now - not next week.
Speak to an insolvency solicitor today. Whether you need to issue a demand or challenge one, the clock is already running.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
