In short
Search the debtor before spending anything, enforce any security you already hold, then send a letter of demand. A statutory demand comes next, but only where the debt is not genuinely disputed and is at least $4,000. It creates a presumption of insolvency rather than an obligation to pay, and the company has 21 days to file and serve an application to set it aside.
- A judgment against a company with no assets returns nothing, so the search comes first.
- A statutory demand is an insolvency tool, not a debt recovery tool.
- The 21 days in section 459G cannot be extended, and the application must be both filed and served inside them.
- A liquidator can claw back payments made in the six months before the relation-back day.
Start with what the debtor has, not with what you are owed
The amount of the invoice tells you what is at stake. It tells you nothing about what you will get. The first hour of work on an unpaid debt should go into the debtor, not the debt, because every remedy below costs money and each one is worth using only against a counterparty that can pay.
Four things are worth knowing before anything is sent:
- Is it still trading? A company search shows whether it is under external administration, whether it has been deregistered, and whether its directors have changed recently. A recent change of director on a company that has stopped paying is a signal.
- Has anyone registered against it? A search of the Personal Property Securities Register shows who has security over its assets, and therefore who is ahead of you.
- Is anyone else on the hook? A director's guarantee, a parent company guarantee or a co-obligor turns an empty company into a solvent target. This is in the paperwork you already have, or it is nowhere.
- Are you the only one chasing? Court listings and the notices published by ASIC show whether other creditors have already commenced. If a winding up application is on foot, your position changes completely and you should not be spending money on a demand of your own.
A judgment against a company with no assets is an expensive piece of paper. We would rather establish that in the first week than bill a client to discover it in the sixth month.
Search the debtorA company search, a PPSR search, and a look at whether anyone has guaranteed the debt. This decides whether any of the later steps is worth paying for, and it is the step most often skipped.
Figure 1. The order is the advice. Almost every expensive mistake in debt recovery is one of these steps taken before the one in front of it.
The letter of demand still resolves most debts
It is the cheapest step and it has the highest strike rate, which is why it comes first. A demand that sets out the contract, the invoices, the amounts and a date for payment does most of the work in most matters, because a great many non-payments are not disputes at all. They are cash-flow decisions about who gets paid this month, and a debtor deciding that order pays the creditor who looks most likely to escalate.
A demand also improves your position later. A court considering costs looks at how each side behaved before proceedings began, and a creditor who set the case out properly, attached the documents and gave a reasonable time to pay is in a materially better position than one who went straight to a claim form.
One thing a demand must not do
Do not tie payment to a threat of reporting the debtor to anyone. A statement that you will complain to a regulator, an industry body, the police or the tax office unless the invoice is paid is a serious problem: for a solicitor it breaches the conduct rules, and for anyone it converts a straightforward debt claim into an allegation that can be used against you. Say what you are owed and what you will do to recover it in a court. Nothing else.
Check the security you may already have
Before commencing anything, find out whether you can simply take the goods back. A supplier who sells on retention of title terms, and who has registered on the Personal Property Securities Register, may have a much faster route to value than any proceeding: the goods themselves.
The trap is that the clause alone is not enough. An unregistered interest can be worth nothing at exactly the moment it matters, which is when the customer goes into administration. We have written that half of the subject up separately, and it is the piece most commonly got wrong by suppliers exporting into Australia:
The PPSA trap: what German exporters must know about retention of title.
The general point holds beyond retention of title. Security, a guarantee, a right of set-off or a lien is worth checking before you spend money litigating, because each of them puts you ahead of the creditors who are about to be in the queue with you.
The statutory demand: what it is, and what it is for
A statutory demand is not a debt recovery tool. It is an insolvency tool that happens to recover debts. It does not order anyone to pay, and it produces no judgment. What it does is create a presumption of insolvency that lets you apply to wind the company up, and the prospect of that is what makes companies pay.
It is available only against a company. An individual debtor is a different regime under different legislation and nothing in this section applies to them.
Section 459E of the Corporations Act 2001 (Cth) sets the requirements. The demand may relate to a single debt or to several, each of which must be due and payable, and whose amount or total must be at least the statutory minimum. It must specify the debt and its amount, or the total; require payment, or security, or a composition to the creditor's reasonable satisfaction within the statutory period; be in writing and in the prescribed form; and be signed by or for the creditor. Unless every debt is a judgment debt, the demand must be accompanied by an affidavit verifying that the debt is due and payable.
The Act uses two defined terms and states neither figure. Both are set by the Corporations Regulations 2001 (Cth):
Table 1. The two numbers that matter, read from regulation 5.4.01AAA of the Corporations Regulations 2001 (Cth), compilation 213, in force from 11 August 2026.
| Defined term | Amount or period | Source |
|---|
| Statutory minimum | $4,000 | reg 5.4.01AAA(1)(b) |
|---|
| Statutory period | 21 days | reg 5.4.01AAA(2)(b) |
|---|
Both provisions carry an alternative figure, $20,000 and six months, for a company eligible for temporary restructuring relief. Those do not apply to any demand served on or after 1 August 2021, so for present purposes they are spent.
What non-compliance actually does
Failure to comply does not make the company liable to pay. It makes the company presumed insolvent. Section 459F(1) provides that where the period for compliance ends and the demand is still in effect and has not been complied with, the company is taken to fail to comply. Section 459C(2)(a) then requires the Court to presume that the company is insolvent if it failed to comply during or after the three months ending on the day the winding up application was made.
That presumption is the whole mechanism. Insolvency is otherwise a matter of proof, and proving it from outside a company is difficult and expensive. The statutory demand converts it into something the company has to disprove.
Section 459C(2) lists other triggers for the same presumption, and they are worth knowing because they may already have happened without your doing anything: execution on a judgment returned wholly or partly unsatisfied, or the appointment of a receiver over property subject to a circulating security interest.
The twenty-one days that cannot be extended
This is the single most consequential deadline in the area, and it catches competent people every year. A company served with a statutory demand that wants to challenge it must apply to set it aside, and section 459G(2) provides that the application "may only be made within" the statutory period after the demand is served.
Section 459G(3) then defines what making the application means, and it is two things, not one. Within that same period, an affidavit supporting the application must be filed with the Court, and a copy of the application and the affidavit must be served on the person who served the demand. Filing without serving is not an application under the section. Neither is serving without filing.
The High Court settled in 1995 that the period cannot be extended. In David Grant & Co Pty Ltd v Westpac Banking Corporation the company argued that the general power in section 1322(4)(d) of the Corporations Law, which allows a court to extend the period for doing any act, could be used to extend the 21 days. The Court rejected it unanimously.
[I]t is impossible to identify the function or utility of the word "only" in s 459G(2) if it does not mean what it says, which is that the application is to be made within 21 days of service of the demand, and not at some time thereafter ... to treat s 1322 as authorising the court to extend the period of 21 days specified in s 459G would deprive the word "only" of effect.
David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43 at [29] (Gummow J, with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed).
The Court's reasoning was that Part 5.4 is a scheme for resolving solvency quickly, that it contains its own express powers to extend time where Parliament intended them, and that a later and more specific provision attaching a limitation to a particular class of application is not overridden by an earlier general one.
Two practical consequences follow, one for each side. If you have received a statutory demand, the clock started on service and the only safe assumption is that nothing will save you if you miss it. Get advice in the first days, not the third week. If you have served one, the deadline is your advantage and it is worth calculating the date precisely rather than approximately.
There is one piece of relief in the other direction. Where an application is made in accordance with section 459G, the period for complying with the demand runs until seven days after that application is finally determined or otherwise disposed of, and the Court may extend it further. So a company that files and serves in time buys itself the whole of the proceeding.
When a statutory demand is the wrong tool
A statutory demand is for a debt that is not genuinely in dispute. Used against a disputed debt it usually fails, costs the creditor money, and can be characterised as an abuse of process.
Section 459H applies where the Court is satisfied that there is a genuine dispute about the existence or amount of the debt, or that the company has an offsetting claim. The Court then calculates a substantiated amount by subtracting the offsetting total from the admitted total, and the demand is varied or set aside accordingly. The threshold is deliberately low: the company does not have to prove its dispute, only to show that one genuinely exists.
Section 459J provides two further grounds. The Court may set a demand aside where a defect in it will cause substantial injustice unless it is set aside, or where there is some other reason why it should be. Section 459J(2) makes clear that a defect alone is not enough: the Court must not set a demand aside merely because of a defect.
Table 2. Choosing between a statutory demand and an ordinary claim. The question is not which is cheaper but whether the debt is genuinely contested.
| Where you are | The usual answer | Why |
|---|
| Debt admitted or unanswered, company trading | Statutory demand | Fast, cheap, and the pressure is real |
|---|
| Debt disputed on any arguable basis | Ordinary proceeding | Section 459H sets a low bar and the demand will very likely be set aside with costs |
|---|
| Debtor has a counterclaim | Ordinary proceeding | An offsetting claim reduces the substantiated amount whether or not it is proved |
|---|
| Debt under $4,000 | Ordinary proceeding | Below the statutory minimum, so no demand is available |
|---|
| Debtor is an individual | Different regime entirely | Part 5.4 applies to companies |
|---|
| Company has no assets | Reconsider all of it | Winding up an empty company returns nothing |
|---|
Winding up, and what it actually returns
The application to wind up is the point of the demand, and it is also the point at which most creditors stop wanting it. A liquidator is appointed, the company's assets are realised, and the proceeds are distributed. An unsecured trade creditor is at the back of that queue, behind the secured creditors, behind the costs of the liquidation itself, and behind employee entitlements.
So the honest position is this. Winding up is excellent leverage and it is a poor recovery mechanism. Most statutory demands are paid rather than litigated, and that is where the value sits. Where the company genuinely cannot pay, the application produces a liquidation in which you may recover very little, and you will have funded the exercise for the benefit of every other creditor.
That arithmetic is worth doing before the demand is served rather than after it is ignored, because a creditor who serves a demand and then does not want to follow through has spent money to reveal that it will not escalate.
The money you were paid can be taken back
Being paid is not always the end of the matter. Where the company is later wound up, a liquidator can recover payments the company made to a creditor in the period before the winding up, on the basis that they were an unfair preference.
Section 588FA provides that a transaction is an unfair preference where the company and the creditor are parties, and the transaction results in the creditor receiving more in respect of an unsecured debt than it would have received if the transaction were set aside and it proved for the debt in the winding up. Section 588FE(2) makes such a transaction voidable where it is an insolvent transaction entered into during the six months ending on the relation-back day, or after that day but on or before the day the winding up began.
There is an important qualification in section 588FA(3) for ongoing trading relationships. Where the transactions are, for commercial purposes, an integral part of a continuing business relationship such as a running account, and the level of net indebtedness rises and falls across a series of transactions, all of those transactions are treated as a single transaction. The question then is the net effect across the relationship, not the individual payments. For a supplier who kept trading, that is usually a considerably better position than a payment-by-payment analysis.
What this means for you
If a customer in difficulty offers to clear an old balance, the payment is not necessarily safe. Continuing to supply on ordinary terms while being paid is a materially different position from taking a lump sum to close out a debt and then stopping supply. Where a customer is visibly struggling, the decision to keep trading is a legal question as much as a commercial one, and it is cheaper to ask before accepting the money.
The director's exposure is a separate question, and it changes the negotiation
A director who lets a company incur debts while it is insolvent can be personally liable for them. Section 588G applies where a person is a director at the time the company incurs a debt, the company is insolvent at that time or becomes insolvent by incurring it, and there are reasonable grounds at that time for suspecting insolvency.
Section 588GA provides the safe harbour. The liability does not apply where, after the person starts to suspect the company may become or be insolvent, they start developing one or more courses of action reasonably likely to lead to a better outcome for the company, and the debt is incurred in connection with such a course of action or in the ordinary course of business. The protection ends at the earliest of the person ceasing to take that course of action, the course of action ceasing to be reasonably likely to lead to a better outcome, or the appointment of an administrator or liquidator. The note to the subsection records that the director bears the evidential burden.
A creditor does not enforce section 588G directly; a liquidator does. But it matters to a creditor for a practical reason. A director who understands that continuing to trade while insolvent is a personal exposure has a strong reason to deal with your debt rather than let it sit, and a strong reason to take advice early. It is one of the few points at which a company's problem becomes an individual's problem, and it changes how negotiations go.
Unpaid tax carries a further personal exposure for directors, on its own timetable and under different legislation. We have not set out that regime here and it should not be assumed to work the same way.
Where the debtor is overseas, or you are
Cross-border debts change the sequencing rather than the remedies. A foreign supplier owed money by an Australian company has the whole of the above available to it, and the statutory demand in particular is often a surprise to counterparties used to a jurisdiction with no equivalent. It does not require the creditor to be in Australia.
What changes is the groundwork. Service on an overseas party, the governing law and jurisdiction clauses in the contract, whether an Australian judgment will be recognised where the assets are, and whether registration on the Personal Property Securities Register was ever done are all questions that should be answered before a strategy is chosen rather than after.
Where the debt sits under a foreign law or the assets sit in a foreign country, we work with local counsel in that jurisdiction. That is a real limit and it is better stated at the start.
The order, and what each step is for
The sequence is the advice. Almost every mistake in debt recovery is a step taken out of order: a demand sent before anyone checked whether the debtor had assets, a statutory demand used on a disputed debt, a winding up application funded by a creditor who did not want a liquidation.
Table 3. The order of remedies, and what each is actually for.
| Step | What it is for | When to skip it |
|---|
| 1. Search the debtor | Deciding whether to spend anything at all | Never |
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| 2. Enforce security you hold | Getting value without a proceeding | Where nothing is registered and no guarantee exists |
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| 3. Letter of demand | Resolving it, and building the costs position | Where a limitation period is about to expire |
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| 4. Statutory demand | Creating the presumption of insolvency | Where the debt is genuinely disputed, or is under $4,000, or the debtor is an individual |
|---|
| 5. Ordinary proceeding | Getting a judgment on a contested debt | Where the debtor plainly cannot pay |
|---|
| 6. Winding up | Leverage, and occasionally recovery | Where you would not actually want the liquidation |
|---|
Steps two and three are cheap and are almost always worth taking. Steps four to six cost real money and each should be a decision made on what the search in step one turned up.
Where this article stops
- It deals with debts owed by companies. Debts owed by individuals are governed by different legislation and none of the statutory demand material applies to them.
- It does not cover the director penalty regime for unpaid tax, the eligibility requirements for small business restructuring, or the recovery of unfair preferences beyond section 588FA and section 588FE(2).
- Whether a particular dispute is a "genuine dispute" for section 459H is a question on the facts, and nothing here predicts it.
- Where tax, duty or the treatment of a write-off is in issue, that is a question for an accountant, and we work alongside one rather than answering it ourselves.