Most worries about an invalid will are about the wrong thing

Two quite different questions get asked in the same words. One is whether the will is valid, which is about how it was made and whether anything has since revoked it. The other is whether someone left out of it can do something about that, which is a family provision claim and has nothing to do with validity at all. A will can be perfectly valid and still be challenged successfully by a person the testator did not provide for.

This article is about the first question only. It sets out what actually makes a will invalid in New South Wales and the Australian Capital Territory, and what quietly revokes one that was valid when it was signed.

The two jurisdictions look similar and are not. On one point that comes up constantly, a gift to a witness, they produce opposite results on identical facts.

Execution: what the two Acts actually require

The formal requirements are short, and almost every homemade will that fails, fails on one of them.

Two of those differences matter in practice.

Whether the witnesses have to sign in front of each other. New South Wales says expressly that they do not. The ACT provision requires each witness to subscribe in the presence of the testator and of the other witness or witnesses. A will signed by two witnesses who came in one after the other satisfies section 6 in New South Wales and is a problem under section 9 in the ACT.

Where the signature goes. Section 6(2) in New South Wales says the signature must be made with the intention of executing the will and that it is not essential for it to be at the foot. The ACT provision says "at the foot or end", but section 10(1) softens it: the position of the signature does not invalidate the will if it is apparent on the face of the will that the testator intended to give effect by that signature to the writing signed as their will.

One thing that does not matter in either jurisdiction is whether the witnesses knew what they were signing. Section 7 in New South Wales says so expressly, and section 14 in the ACT provides that a will is not voided by the incompetence of a witness.

A document that fails the formalities can still be a will

Both jurisdictions have a dispensing power, and it is wider than most people expect. It is the reason a note, a draft, an unsent letter or a document on a phone can end up admitted to probate.

Section 8 of the Succession Act 2006 (NSW) applies to a document, or part of a document, that purports to state the testamentary intentions of a deceased person and has not been executed in accordance with the Act. That document forms the will, or an alteration to it, or a full or partial revocation of it, if the Court is satisfied that the person intended it to. Section 11A of the Wills Act 1968 (ACT) is to the same effect.

What the Court may look at is the significant part. Under section 8(3) it may have regard, in addition to the document itself, to any evidence relating to the manner in which the document was executed and to any evidence of the testamentary intentions of the deceased, including evidence of statements made by them. Section 8(4) makes clear that this does not limit what else may be considered. The ACT provision carries the same two heads.

A gift to a witness: the two jurisdictions go opposite ways

This is the single most useful thing to know if you act, or advise, across the border.

In New South Wales, section 10 provides that where a beneficial disposition is given by will to a person who attests the execution of the will, the disposition is void to the extent that it concerns that interested witness or anyone claiming under them. The gift fails; the will does not.

Section 10(3) saves the gift in three situations:

• at least two of the people who attested are not interested witnesses; or
• everyone who would benefit directly from the avoidance consents in writing to the distribution under the will, and has capacity to consent; or
• the Court is satisfied the testator knew and approved of the disposition and that it was given freely and voluntarily.

Section 10(4) confines what counts as a beneficial disposition: it does not include a charge or direction to pay a debt, or reasonable remuneration to an executor, administrator or legal practitioner acting in the administration.

In the ACT, section 15 of the Wills Act 1968 says the opposite in one sentence. No will or testamentary provision is void by reason only that the will was attested by a person, or the domestic partner of a person, who has or may acquire an interest under it. Sections 18 and 19 add that a creditor and an executor are each admitted as a witness.

None of which is a reason to have a beneficiary witness a will anywhere. It is a reason to check which side of the border the will was signed on before advising that a gift has failed.

Age, and the exceptions nobody remembers

A will made by a minor is not valid, and both Acts then carve out the same handful of cases. Section 5(1) of the Succession Act says a will made by a minor is not valid. Section 8(1) of the Wills Act 1968 says the same of a child.

The exceptions in New South Wales, in section 5(2), are a will made in contemplation of marriage, which is of no effect if the contemplated marriage does not take place; a minor who is married; and a minor who has been married revoking a will made while married or in contemplation of that marriage. Section 5(3) preserves a court-authorised will under section 16.

The ACT is the same in structure and wider in its trigger, because section 8 extends to a civil union as well as a marriage: a child who is or has been married or in a civil union may make or revoke a will, and a will made in contemplation of a marriage or civil union becomes valid on solemnisation or entry.

Capacity, which neither Act defines

Testamentary capacity is the ground most wills are actually challenged on, and it is not in either statute. Neither the Succession Act 2006 (NSW) nor the Wills Act 1968 (ACT) sets out a test. Both legislate around the concept: each has provisions allowing the Supreme Court to authorise a will for a person who lacks testamentary capacity, which presuppose the concept without defining it.

Capacity is governed by the general law, and the test is not set out in this article. That is deliberate: it comes from case law, the authorities on it were not read for this piece, and a half-remembered statement of a four-limb test is exactly the kind of thing that should not be published. If capacity is in issue, it is a question for advice on the medical and factual evidence rather than something to be resolved from an article.

What is worth saying is when it becomes an issue. Capacity is assessed at the time the will was made, not later. A diagnosis does not decide it and neither does age. What decides it is contemporaneous evidence, which is why a will prepared while capacity is deteriorating should be made with a file note, a medical opinion taken at the time, and a record of the instructions. Those are cheap to create then and impossible to create afterwards.

What revokes a will without anyone intending it

Two life events revoke a will or part of it by operation of law, and this catches more valid wills than any defect in execution.

Marriage

In New South Wales, section 12(1) provides that a will is revoked by the marriage of the testator. Section 12(2) preserves a disposition to the person the testator is married to at death, an appointment of that person as executor, trustee, advisory trustee or guardian, and a will exercising certain powers of appointment. Section 12(3) is the important escape: a will made in contemplation of a particular marriage is not revoked by that marriage, whether or not the contemplation is expressed in the will.

In the ACT, section 20(1) extends the trigger to a civil union or civil partnership as well as marriage, and narrows the escape: the will survives only where it was expressed to have been made in contemplation of that marriage, civil union or civil partnership. A New South Wales will that relies on unexpressed contemplation would not be saved by the ACT provision.

Divorce or termination

Section 13(1) of the Succession Act provides that divorce or annulment revokes a beneficial disposition to the former spouse, an appointment of them as executor, trustee, advisory trustee or guardian, and a grant of a power of appointment exercisable by or in favour of them. Section 13(2) makes that subject to a contrary intention appearing in the will, and section 13(3) preserves their appointment as trustee of property left on trust for beneficiaries including their children, and a power of appointment exercisable exclusively in favour of the children of both.

Section 20A of the Wills Act 1968 does the equivalent in the ACT on the termination of a marriage, civil union or civil partnership.

How a will is deliberately revoked

The list is closed, and it is shorter in the ACT.

Section 11(1) of the Succession Act 2006 (NSW) provides that the whole or part of a will may be revoked only: by an order under section 16 or 18; by the operation of section 12 or 13; by a later will; by writing declaring an intention to revoke, executed in the manner a will must be executed; by the testator, or someone in their presence and at their direction, burning, tearing or otherwise destroying the will with the intention of revoking it; or by writing on or dealing with the will in such a way that the Court is satisfied from the state of the will that the testator intended to revoke it.

Section 11(2) closes off the argument people most often try: no will may be revoked by any presumption of an intention on the ground of an alteration in circumstances. A change in the family, in the assets or in the relationship revokes nothing.

Section 21 of the Wills Act 1968 (ACT) is to similar effect but has no equivalent of the sixth New South Wales limb. In the ACT, revocation is by a subsequent valid will, a document executed like a will showing an intention to revoke, or destruction with that intention. There is no "state of the will" route.

The will the Court makes

Where a person has lost capacity, a will can still be made for them, but only by the Supreme Court and only on a strict test.

In New South Wales, section 18(1) allows the Court, on application by any person, to authorise a will to be made or altered in specific terms it approves, or revoked, on behalf of a person who lacks testamentary capacity. Leave is required under section 19, and section 18(3) requires the person to be alive when the order is made. Section 18(4) extends it to a minor who lacks capacity.

In the ACT, section 16A does the equivalent, and section 16E sets out what the Court must be satisfied of before granting leave: that there is reason to believe the person is, or is reasonably likely to be, incapable of making a will; that the proposed will is, or is reasonably likely to be, one that would have been made by the person if they had capacity; that it is or may be appropriate; that the applicant is an appropriate person; and that adequate steps have been taken to allow representation of everyone with a legitimate interest, including anyone with reason to expect a gift.

The second of those is the substance of the exercise. The Court is not deciding what would be fair. It is reconstructing what this person would have done.

Where this article stops

The position stated is as at 27 August 2026, read on that date from the Succession Act 2006 (NSW) in force consolidation and from republication 22 of the Wills Act 1968 (ACT), effective 23 February 2026.

There is more than one route, and they run on different clocks

The first mistake in a defect claim is assuming there is one cause of action and one time limit. In New South Wales there are at least three routes to a remedy against the people who built a defective building, and each has its own requirements, its own defendants and its own deadline. In the ACT the structure is similar but the questions are not the same, and an answer carried across from one jurisdiction to the other is often wrong.

The third of those is the one that changed the landscape, and it is dealt with below at some length because it is both the widest route and the least understood.

The statutory warranties in New South Wales

Section 18B of the Home Building Act 1989 (NSW) implies six warranties into every contract to do residential building work. They are implied by force of the section, so they do not depend on the contract saying anything, and they bind the holder of a contractor licence or a person who was required to hold one.

Section 18B(2) is the part that surprises people. The warranties are not limited to a contract with the owner of the land. They are also implied in the contract between a principal contractor who has contracted to do residential building work and a subcontractor engaged to do that work or part of it. The warranties run down the chain, which is why a head contractor facing a defect claim has a route against the trade that did the work.

The New South Wales clock: six years and two years, from completion

Section 18E is short and it decides most claims. Proceedings for breach of a statutory warranty must be commenced before the end of the warranty period, and the warranty period is:

• six years for a breach that results in a major defect in residential building work; and
• two years in any other case.

Both run from completion of the work to which the warranty relates. Where the work was not completed, section 18E(1)(d) fixes the start as the date the contract was terminated, or if it was not terminated, the date work ceased, or if work never started, the date of the contract.

There is one extension and it is easy to miss. Under section 18E(1)(e), where the breach becomes apparent within the last six months of the warranty period, proceedings may be commenced within a further six months after the period ends. A breach becomes apparent when a person entitled to the benefit of the warranty first becomes aware, or ought reasonably to have become aware, of it.

Section 18E(1A) provides a separate extension for strata work. Where a building bond has been lodged under Part 11 of the Strata Schemes Management Act 2015 (NSW), the two-year period is extended until 90 days after the end of the period for the final inspection report on the work.

The ACT splits the same period on a different question

The ACT also has six years and two years, and it divides them on a different test, so the same defect can fall in a different bucket on either side of the border.

Section 88 of the Building Act 2004 (ACT) implies warranties by force of the section into every contract for the sale of a residential building and every contract to carry out residential building work to which the builder is a party: that the work has been or will be carried out in accordance with the Act; in a proper and skilful way and in accordance with the approved plans; using good and proper materials; with reasonable promptness where no completion date is stated; and fit for a purpose or result made known so as to show reliance.

Two features of the ACT provision are worth noting. Section 88(3) provides that each of the owner's successors in title succeeds to the rights, so a purchaser inherits the warranty. And section 88(2A), inserted with the Property Developers Act 2024 (ACT), adds a warranty by the property developer where the developer arranged the work, additional to and not limiting the builder's warranty. That gives an owner a second solvent defendant in the case where it matters most, which is where the builder has gone.

Section 88(4) says the warranties end at the end of the period prescribed by regulation. The Act does not state the period. Section 38 of the Building (General) Regulation 2008 (ACT) does:

The ACT regulation defines a structural element as a load-bearing component of the building, internal or external, that is essential to the stability of the building or part of it, or a component including weatherproofing forming part of the external walls or roof. A non-structural element is anything else.

That definition does real work. A failure of external weatherproofing is a structural element in the ACT by definition, and therefore on the six-year clock, whatever view anyone takes of how serious it is. In New South Wales the same failure has to be argued as a major defect to get the six years.

The New South Wales statutory duty of care, and why it is the wider route

Part 4 of the Design and Building Practitioners Act 2020 (NSW) created a duty that is not confined to residential work and does not depend on any contract. Section 37(1) provides that a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects in or related to the building for which the work is done and arising from the construction work.

Four features make it the route to consider first in New South Wales.

Two further provisions close the obvious escapes. Section 39 provides that the duty cannot be delegated. Section 40 provides that Part 4 applies despite any contract to the contrary made after its commencement, and that no contract can annul, vary or exclude a provision of it: there is no contracting out.

Section 41 confirms the relationship with everything else. Part 4 is in addition to the duties, statutory warranties and other obligations under the Home Building Act, other Acts and the common law, and does not limit them. It is a route alongside the warranties, not a replacement for them.

For owners corporations there is a specific provision. Section 38 provides that an owners corporation is taken to suffer economic loss where it bears the cost of rectifying defects, including damage caused by defects, and that the loss includes the reasonable costs of providing alternative accommodation where necessary. It applies whether or not the owners corporation owned the land when the work was done.

Ten years, and then nothing

Both jurisdictions stop everything at ten years, and the longstop does not care when the defect was discovered.

In New South Wales, section 6.20 of the Environmental Planning and Assessment Act 1979 provides that a civil action for loss or damage arising out of or in connection with defective building work or defective subdivision work cannot be brought more than ten years after the date of completion. Completion is the date an occupation certificate is issued authorising occupation, or where no certificate is required, a compliance certificate; failing that, the date of a required final inspection by a certifier; failing that, the date the building was first occupied or used.

In the ACT, section 142 of the Building Act 2004 provides that a building action may not be brought more than ten years after the day a certifier gave the certificate of completion; or where there is none, the day of the last inspection in the course or on completion of the work; or where there is neither, the day the building was first occupied or used. Section 142(3) preserves any shorter limitation period under another territory law, so the ten years is a ceiling and not an entitlement.

The practical point is that the ten-year longstop and the warranty periods are different things doing different jobs. The warranty period can expire long before the longstop, and expiry of the warranty period ends that route whether or not ten years have passed.

In the ACT, each defendant pays only its share

Section 141 of the Building Act 2004 (ACT) applies proportionate liability to a building action. A defendant found liable is liable only for the amount of damages the court considers just having regard to the extent of that defendant's responsibility for the loss, and that liability is limited to the amount for which judgment is given against it even if another Act or rule of law provides otherwise. A defendant held liable for a proportionate part does not contribute to the damages apportioned to anyone else, and does not indemnify them.

The consequence for a plaintiff is that suing the most solvent defendant and leaving it to sort out contribution does not work. If responsibility is shared between a builder, a certifier and a designer, and two of them are gone, the one that remains pays its share and no more. So the identification of every potentially responsible party, and their solvency, is part of the assessment at the start of the matter rather than a detail for later.

What to do when a defect appears

The sequence matters more than the speed.

1. Fix the date of completion. Every clock in this article runs from it, and it is a documented date: the occupation certificate, the certificate of completion, the final inspection, or first occupation. Find it before doing anything else, because it tells you how much time you have and therefore how much deliberation you can afford.
2. Get the defect inspected and recorded. By someone whose report could be used later. Photographs with dates, and an opinion on cause rather than only on appearance, since the cause is what determines who is responsible.
3. Identify everyone who might be liable, not just the builder. In New South Wales the duty of care reaches designers, product suppliers, project managers and anyone with substantive control. In the ACT proportionate liability makes this decisive rather than merely useful.
4. Consider rectification by the original builder. It is frequently the cheapest outcome for an owner, and under a contract's own defects regime it may be a step that has to be offered.
5. Then choose the forum. Tribunal, court, or the contract's own dispute procedure. They differ on cost, speed and whether legal costs are recoverable, and the choice should follow the value of the claim rather than the seriousness of the defect.

Where this article stops

The position stated is as at 27 August 2026, read on that date from the official registers.

Four duties, and they are shorter than you expect

The general duties of a director sit in four consecutive sections of the Corporations Act 2001 (Cth), and between them they run to about a page. Most of the difficulty is not in reading them. It is that they are written as standards rather than rules, so knowing them does not by itself tell you whether a particular decision was compliant.

Two things in that table are worth stopping on, because they are the parts people get wrong.

Sections 182 and 183 reach employees, not just directors. They are not confined to the board. A senior employee who uses their position or the company's information for personal advantage is in breach of the same provisions as a director would be.

Section 183 keeps running after you leave. The note to the subsection says so expressly: the duty continues after the person stops being an officer or employee. A departing executive who takes what they learned into a competing venture is not outside the Act because they resigned.

Sections 181, 182 and 183 also catch anyone involved in a contravention, so an adviser or a fellow director who participates is exposed on the same footing.

Section 180 is measured against your actual office, not a general standard

The care and diligence standard is objective, but it is calibrated to your company and your role. Section 180(1) asks what degree of care and diligence a reasonable person would exercise if that person were a director or officer of a corporation in the corporation's circumstances, and occupied the office held by, and had the same responsibilities within the corporation as, the director in question.

That construction does two things at once. It stops a director arguing that they personally did not know any better, because the standard is what a reasonable person would have done. And it stops the standard being uniform, because the reasonable person is placed in your company and given your job. A finance director is measured against the responsibilities of a finance director. A director of a company in distress is measured in the circumstances of a company in distress.

The practical consequence is that dividing responsibilities on a board raises the standard for the person who takes each one, rather than lowering it for everyone.

The business judgment rule, and the four things it asks

Section 180(2) protects a decision that turned out badly, provided the process behind it was sound. A director who makes a business judgment is taken to have met section 180(1), and their equivalent duties at common law and in equity, in respect of that judgment, if four conditions are all satisfied.

The fourth condition is deliberately generous, and the Act says how generous. The director's belief is a rational one unless it is one that no reasonable person in their position would hold. That is a long way below asking whether the belief was correct, or even reasonable. The rule is not protecting good decisions; it is protecting decisions honestly and properly made.

A "business judgment" is defined broadly in section 180(3) as any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. A deliberate decision not to act is covered. A failure to turn one's mind to the question at all is not a judgment and has nothing to protect.

When a breach becomes a criminal offence

The line is recklessness or dishonesty. Sections 181 to 183 are civil provisions. Section 184 makes the same conduct an offence where the director or officer is reckless or dishonest and fails to act in good faith in the best interests of the corporation or for a proper purpose, and does the equivalent for improper use of position and improper use of information.

So the same act can sit on either side of the line depending on the director's state of mind. A poorly judged related party transaction entered into openly is a different matter from the same transaction concealed. In practice, what moves a matter from one to the other is very often what was disclosed and what was recorded, not what was done.

Conflicts: the notice obligation is on you, and it is strict

A director with a material personal interest in a matter relating to the company's affairs must tell the other directors. That is section 191(1), and section 191(1A) applies strict liability to the circumstance of having the interest. The obligation is not triggered by anyone asking.

Section 191(2) carves out a number of situations, including an interest that arises because the director is a member of the company and holds it in common with the other members, and an interest in the director's own remuneration as a director. Those exceptions are narrower than they sound, and a director who is also a shareholder should not assume a transaction with their own related entity falls inside them.

The single-director proprietary company is the common practical case. Where there are no other directors to notify, the notice obligation does little work, but the general duties in sections 181 and 182 continue to apply in full and are where a conflicted transaction is actually tested.

Insolvent trading is where the company's problem becomes yours

This is the exposure that reaches a director's own money, and it is the reason directors of companies under pressure need advice earlier than they usually get it. Section 588G applies where three things coincide: 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 that debt; and at that time there are reasonable grounds for suspecting insolvency.

Note what the test is not. It is not whether the director knew the company was insolvent, and it is not whether the company later failed. It is whether there were reasonable grounds for suspicion at the moment the debt was incurred. Section 588G(1A) contains a table fixing when a debt is incurred for a range of company actions, including paying a dividend, so the timing is not always intuitive.

We have set out how this looks from the creditor's side, and what a liquidator can recover, in a companion article: when a customer stops paying, and the order of remedies in Australia.

Safe harbour, and the evidential burden it puts on you

Section 588GA takes the insolvent trading liability away, but only for a director who was actually doing something about it. The protection applies where, at a particular time 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 the company's business.

It runs from that point until the earliest of four things:

• the end of a reasonable period, if the director fails to take any such course of action;
• when the director ceases to take any such course of action;
• when the course of action ceases to be reasonably likely to lead to a better outcome; or
• the appointment of an administrator or a liquidator.

The note to the subsection records that the person bears an evidential burden. That single sentence is the practical heart of safe harbour. A director relying on it has to be able to show what course of action was being developed, when it started, and why it was reasonably likely to lead to a better outcome, in a proceeding brought after the company has failed and after memories have moved on.

The compliance calendar: what actually falls due

The recurring obligations are fewer than most directors think, and two of them are strict liability offences. For an ordinary proprietary company the list is short.

The review date is normally the anniversary of the company's registration, under section 345A. The solvency resolution obligation in section 347A is a strict liability offence, and it does not apply only where the company lodged a financial report with ASIC under Chapter 2M in the twelve months before the review date. For most private companies no such report is lodged, so the resolution is required every year and is routinely missed.

Whether the company is "large" is decided by section 45A(2). A proprietary company is small for a financial year if it satisfies at least two of three tests:

Each of those figures is consolidated across the company and the entities it controls, which catches groups that would pass on the parent alone. Each is also subject to a different amount being prescribed by regulation, so the thresholds should be checked rather than remembered.

The resident director requirement, and why it comes up constantly

A proprietary company must have at least one director, and that director must ordinarily reside in Australia. Section 201A(1) says so in two sentences, and for a foreign group setting up an Australian subsidiary it is usually the first real obstacle, because it cannot be satisfied by appointing someone who visits.

The Act does not define "ordinarily resides" for this purpose, and the question is one of fact. What it plainly does not accommodate is a board composed entirely of directors based overseas, which is the ordinary starting assumption of a German or Singaporean parent structuring its Australian entity.

The practical answers are a genuine local appointment, a nominee arrangement with a properly documented deed setting out indemnities and the limits of the role, or deferring incorporation until the local hire is made. Each has consequences for who carries the duties set out above, and those duties attach to the office rather than to the level of involvement. A resident director appointed for compliance purposes owes the whole of sections 180 to 184 and section 588G, which is a point worth making to a parent company before the appointment rather than after.

Where this article stops

The position stated is as at 27 August 2026, read from the Corporations Act 2001 (Cth) on that date.

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.

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.

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):

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.

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.

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.

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.

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.