Statutory Demands Explained
A statutory demand is a powerful tool against a company that owes you an undisputed debt — but it is not a debt-collection letter, and misusing it carries real risk.
What you'll learn
- Distinguish a statutory demand from an ordinary letter of demand
- Understand when a statutory demand may be appropriate
- Recognise the consequences of a demand not being met
- Appreciate the risks of using one for a disputed debt
7 min read
What it is
A statutory demand is a formal demand made under corporations law against a company for a debt that is due and payable. If the company neither pays nor successfully applies to set the demand aside within the statutory period, it can be presumed insolvent — which opens the door to a winding-up application. That presumption is what gives the demand its weight.
Because of this power, a statutory demand is a serious step, not a routine reminder. It is generally used by creditors against companies for clear, undisputed debts above the prescribed minimum amount, and it is often prepared with legal assistance.
When it fits — and when it does not
A statutory demand suits a debt that is genuinely owed and not the subject of a real dispute. It is the wrong tool where the debtor has a legitimate cross-claim or where the amount or liability is genuinely in question. Using a statutory demand to pressure payment of a disputed debt can backfire: the company may apply to set it aside and seek costs against you.
It also applies only to companies. For individuals and sole traders, a bankruptcy notice — covered in a separate lesson — is the comparable instrument.
Strict requirements
Statutory demands are technical. They must meet form, content, and service requirements, and the time limits for responding and for applying to set aside are short and strictly enforced. A defect in the demand, or a missed step, can render it ineffective or expose you to an adverse costs order. This is an area where precision matters and small errors have outsized consequences.
A note on advice
This is general information only and not legal advice. Statutory demands and winding-up proceedings are governed by detailed rules and tight deadlines that change over time and turn on the facts. If you are considering a statutory demand — or you have received one — get advice promptly. For undisputed commercial debts that do not warrant this step, a recovery referral may be more proportionate; you can refer a debt to Merion.
Key takeaways
- A statutory demand applies to companies and can lead to a presumption of insolvency.
- It is only appropriate for clear, undisputed debts above the minimum amount.
- Using one for a disputed debt can result in costs against you.
- The rules and deadlines are strict — get advice before acting.
Frequently asked questions
Can I serve a statutory demand on a sole trader?
No. Statutory demands apply to companies. For individuals, the comparable instrument is a bankruptcy notice. This is general information, not legal advice.
What happens if the company ignores it?
If the company does not pay or set the demand aside within the statutory period, it may be presumed insolvent, which can support a winding-up application.
What if the debt is disputed?
A statutory demand is generally inappropriate for a genuinely disputed debt, and pursuing one can expose you to costs. Seek advice.
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