Statutory Demands: 21 Days and counting, and now it’s time to act fast.

A creditor’s statutory demand is the most unforgiving document in Australian corporate law and a recovery action creditors use often. You have 21 days from service; no court can extend the period for any reason, and if you let it lapse, your company is presumed insolvent.

When the ATO issues one, it has decided negotiations have run their course. Understanding exactly what the 21 days requires is the difference between a solvable problem and a winding-up application.

The short version

• A statutory demand is issued under section 459E of the Corporations Act 2001. The debt must be due and payable and at least $4,000, the statutory minimum since 1 July 2021.
• You have 21 days from service to pay, secure or compound the debt — or to apply to court to have the demand set aside.
• The 21 days is absolute. Courts have no power to extend it, not by consent, not for holidays, not because you were negotiating.
• An application to set aside must be both filed and served within the 21 days. Filing alone is not enough.
• Fail to comply and your company is presumed insolvent for three months, which hands the ATO a winding up application it barely has to argue.

What a statutory demand is

A statutory demand is a formal written demand for payment of a debt, in a prescribed form, requiring the company to pay within 21 days. It is not a court order and it is not a lawsuit. It is a device for testing solvency: the law assumes a solvent company pays an undisputed debt of more than $4,000 within three weeks, and treats failure to do so as evidence it cannot.

That is why the consequence of ignoring one is so disproportionate to the document itself. The demand is a piece of paper. What it produces is a presumption that your company is insolvent — and that presumption is what a winding up application is built on.

What makes a demand valid

• The debt is due and payable, and is at least the statutory minimum of $4,000.
• It is in the prescribed form, specifies the debt and requires payment within 21 days.
• It is accompanied by an affidavit verifying the debt, unless the debt is a judgment debt.
• It is properly served on the company — usually at its registered office as recorded with ASIC.

That last point catches businesses out constantly. Service at the registered office is effective whether or not anyone there opens the mail. If your ASIC registered office is an old accountant or a former premises, the 21 days runs anyway.

The 21 days is not negotiable

• The period runs from service, not from when you read the document or when your adviser sees it.
• No court has power to extend it. This was settled by the High Court and has not softened since.
• An application to set aside must be filed AND served on the creditor within the 21 days. Doing one but not the other is fatal.
• Talking to the ATO does not stop the clock. Neither does a payment proposal the ATO has not accepted.
• If you are within a few days of the deadline, that is the emergency — not the debt.

Your four options inside the 21 days

Option	What it involves
Pay the debt	The cleanest answer. Payment must be made in full within the 21 days, not promised.
Secure or compound the debt	Reach an agreement with the ATO to secure the debt, or compound it, to the ATO’s reasonable satisfaction. This requires the ATO’s agreement — a proposal alone does not comply.
Apply to set the demand aside	A court application under section 459G, filed and served inside the 21 days, on one of the grounds below.
Deal with the company	Where the company is insolvent and the debt cannot be paid, voluntary administration or small business restructuring may be the correct response — but each takes preparation, so the decision cannot wait until day 20.

Grounds for setting a demand aside

• Genuine dispute about the debt. The threshold is deliberately low — the dispute must be real and not manufactured, but you do not have to prove you would win. With ATO debts this is harder than with trade creditors, because tax debts are generally recoverable notwithstanding a dispute about the assessment.
• An offsetting claim. A genuine, quantified claim against the creditor that reduces or extinguishes the debt.
• A defect in the demand causing substantial injustice. A defect alone is not enough; it must cause substantial injustice.
• Some other reason. A residual discretion, applied sparingly.

With an ATO statutory demand, the genuine dispute ground is narrower than many directors assume. A tax debt generally remains payable while an objection or appeal is on foot. Disagreeing with the assessment is not, by itself, a genuine dispute about the debt for these purposes. That is a question to test quickly with advice rather than to assume in your favour.

What happens if you do nothing

At the end of the 21 days, if the demand has not been complied with and no set-aside application was made, your company is presumed to be insolvent. That presumption lasts three months and applies in any winding up application filed in that period.

The practical effect is severe. In a winding up application, the ATO would ordinarily have to prove insolvency. The failed statutory demand means it does not — the burden shifts to you to prove the company is solvent, with evidence, usually including expert accounting evidence. And there is a further restriction: at the winding up hearing you are generally prevented from relying on a ground you could have raised on a set-aside application. The chance to argue about the debt has gone.

There is also a director dimension. A failed statutory demand is strong evidence that the company was insolvent at that date, which is relevant to insolvent trading claims against directors for debts incurred afterwards.

Where this sits in the ATO’s escalation

Stage	Your window	What it means
Garnishee notice	None — money moves first	The ATO takes funds directly from your bank, customers or wages. No court involved.
Statutory demand	21 days, absolute	A formal demand for payment. Non-compliance presumes your company insolvent.
Winding up application	2–6 weeks to the hearing	A court application to appoint a liquidator. Advertised publicly before the hearing.
Winding up order	None	A liquidator is appointed, your powers as director cease, and the business ends.

Frequently asked questions

Received a statutory demand? – Talk to Business Tax Debt Help Immediately

• If a statutory demand has been served, call the Business Tax Debt Help team the same day; even if it’s not from the ATO, we can still help. You have 21 days until your creditors take further action.
• Send us the demand, the affidavit served with it, your integrated client account statement and your lodgement position — we will tell you whether there is a set-aside case, and what the alternatives are.
• We also act where the deadline has already passed and a winding up application is the next step