Ground for setting aside a Creditor’s Statutory Demand: Complete Checklist

Ground for setting aside a Creditor’s Statutory Demand: Complete Checklist

A statutory demand is a serious legal notice under the Corporations Act 2001 (Cth). If your company receives one, you have 21 days to respond, including applying to set it aside under section 459G if you dispute the claim. Not every demand should be paid straight away. In some cases, there are valid grounds to challenge it, but timing and evidence are critical.

Below is checklist of what matters.

What evidence do you need to succeed in a set-aside application?

Under section 459G of the Corporations Act 2001, a company must apply to the court and support that application with evidence, usually by way of affidavit.

The court will not accept a simple statement that the debt is “wrong”. You need clear, supporting evidence. This includes:

• Contracts or agreements showing different terms
• Emails or correspondence raising disputes
• Invoices, credits, or reconciliations
• Evidence of detective work, variations, or offsets

The key is whether there is a genuine dispute or an offsetting claim, not just a disagreement raised after the fact.

Who pays if you set aside the demand?

If the application is successful, the court may order the creditor to pay your legal costs. However, if the application fails, your company may be ordered to pay the creditor’s costs instead. This reflects the court’s approach under section 459N, where costs are awarded based on the outcome of the application.

Why most set aside applications fail?

Many applications fail due to:

• Insufficient or poorly prepared evidence
• Filing within time, but failing to properly serve the documents
• Relying on weak or unsupported disputes
• Misunderstanding what qualifies as a valid offsetting claim

Courts apply strict standards because a statutory demand, if not properly challenged, can lead directly to a presumption of insolvency under 459C.

What is the “file and serve” trap?

Under section 459G, it is not enough to simply file your application to the court within 21 days. You must also serve the application and supporting affidavit on the creditor within that same strict timeframe.

If either step is missed or done incorrectly, the application can fail automatically regardless of the merits. This is one of the most dangerous traps for the directors who wait too long for to take an action.

A common mistake is assuming it is enough to file a court application within 21 days. To challenge a statutory demand, the company must both file the application and serve it, along with the affidavit within the statutory period. Missing either step is fatal to the application. This is one of the most dangerous traps for directors who wait too long to take an action.

The Importance of Seeking Professional Advice

This article has aimed to provide general information about Grounds for setting aside a Creditor’s Statutory Demand, however, every company’s exact circumstances are different. We strongly encourage directors seeking to understand the legal grounds for setting aside a creditor’s statutory demand and the steps required to challenge it in court to give an insolvency professional like Dissolve to discuss your specific circumstances. Dissolve may even recommend cheaper (or free!) solutions than other insolvency firms.