Statutory Demands: Common Mistakes and How to Respond Strategically

Statutory demands sit at the sharper end of commercial disputes. They are simple in form but powerful in effect, and they often arrive at a moment when a business is already under pressure. For creditors, they are a fast and effective enforcement tool. For companies that receive them, they create immediate legal risk. The timeframe is strict, the consequences are serious, and missteps are difficult to unwind.

Despite their apparent simplicity, statutory demands are one of the most misunderstood mechanisms in commercial litigation. Many businesses treat them as routine debt‑collection notices. Others panic and take steps that make their position worse. The reality is that statutory demands require a measured, strategic response — and the first few days after receiving one often determine the outcome.

This article explores the mistakes that commonly lead to avoidable litigation, and the steps businesses can take to protect their position.

Why Statutory Demands Are So High‑Risk

A statutory demand is not just a request for payment. It is a formal assertion that a company owes a debt that is due and payable. If the company does not comply within 21 days — by paying the debt, securing it, or successfully applying to set the demand aside — it is presumed to be insolvent. That presumption can be used to support a winding‑up application.

This is why statutory demands are so potent. They shift the burden onto the company. They compress timeframes. They create immediate legal exposure. And they often escalate disputes that could otherwise have been resolved commercially.

For many businesses, the demand is the first time they realise a creditor is prepared to take formal action. For others, it is the culmination of months of tension. Either way, the demand forces the company to confront the issue quickly and strategically.

The Mistakes That Lead to Avoidable Litigation

The most common mistake is treating a statutory demand as a routine payment request. Businesses sometimes assume they can negotiate, ask for more time, or ignore the demand while they gather information. But the 21‑day deadline is strict. Courts have almost no discretion to extend it. Once the deadline passes, the company loses the right to challenge the demand, even if the debt is genuinely disputed.

Another mistake is responding emotionally. Some companies send aggressive correspondence, deny the debt without evidence, or threaten counterclaims. These responses may feel satisfying in the moment, but they do nothing to protect the company’s legal position. In some cases, they make things worse by creating admissions or inconsistencies that later become evidence.

A third mistake is focusing on the wrong issues. Companies sometimes argue about matters that are irrelevant to the legal test — such as the creditor’s motives, the history of the relationship, or the fairness of the demand. Statutory demands are technical. The grounds for setting them aside are narrow. Time spent on the wrong issues is time lost.

Finally, some businesses attempt to negotiate directly with the creditor without understanding the legal consequences. Negotiation is possible, but it must be done carefully. If the creditor believes the company is stalling, they may proceed to a winding‑up application. If the company makes concessions, those concessions may undermine a later challenge.

When a Statutory Demand Should Be Challenged

A statutory demand can be set aside if there is a genuine dispute about the debt, if the company has an offsetting claim, or if there is a defect in the demand that would cause substantial injustice. These grounds are narrow, but they are powerful when they apply.

A genuine dispute does not require the company to prove it will win. It requires a real, bona fide dispute supported by evidence. This might involve disagreements about performance, interpretation of a contract, the quality of goods or services, or the calculation of the amount claimed. The key is that the dispute must be genuine, not manufactured.

Offsetting claims arise when the company has a claim against the creditor that reduces or extinguishes the debt. These claims must be supported by evidence and must be capable of being quantified.

Defects in the demand are less common but can be significant. Errors in the amount, the description of the debt, or the supporting affidavit may justify setting the demand aside if they cause substantial injustice.

Understanding which ground applies — and whether it is strong enough to support an application — is critical. This assessment must be made quickly, because the 21‑day clock does not stop.

How to Respond Strategically

The most effective responses to statutory demands share a few characteristics. They are calm, evidence‑based and timely. They focus on the legal tests, not the emotions of the dispute. And they are guided by a clear strategy.

The first step is to assess the demand immediately. This means reviewing the debt, the underlying documents, the history of the relationship and any potential disputes. It also means identifying whether there is an offsetting claim or a defect in the demand.

The second step is to gather evidence. Courts expect companies to support their position with documents, not assertions. Emails, invoices, contracts, delivery records, performance reports and correspondence all become relevant.

The third step is to decide whether to negotiate, comply or challenge. Each option has consequences. Negotiation may resolve the issue, but only if the creditor is willing to engage. Compliance may be appropriate if the debt is undisputed. Challenging the demand requires a formal application supported by affidavit evidence.

The final step is to act within the deadline. Even a strong case will fail if the application is filed out of time. This is why early advice is essential. The window for action is narrow, and the consequences of inaction are severe.

Why Early Advice Makes the Difference

Statutory demands are unforgiving. They leave little room for error and even less room for delay. Early advice allows businesses to understand their position, avoid missteps and choose the right strategy. It also creates space for negotiation, which is often more effective when the creditor knows the company is taking the demand seriously.

In many cases, the dispute can be resolved without litigation. But this requires clarity, structure and a realistic assessment of the options. The companies that fare best are those that respond quickly, gather evidence early and approach the issue with a clear plan.

How We Can Assist

If you’ve received a statutory demand — or you’re considering issuing one — the next steps are critical. We act for companies, directors and creditors in statutory demand disputes, winding‑up applications, urgent injunctions and insolvency‑related litigation. We help clients assess their position, protect their interests and respond strategically within the strict timeframes.

If you need guidance on a statutory demand or want to understand your options, contact us directly. Early intervention often determines whether the issue is resolved or escalates into litigation.

Explore our related areas of practice:

• Commercial Litigation

• Shareholder & Director Disputes

• Misleading or Deceptive Conduct

• Urgent Applications & Injunctions

• Insolvency‑Related Disputes

Disclaimer

This publication provides general information only and may not reflect the most recent legal developments. It is not legal advice and should not be relied upon as such. You should obtain specific advice tailored to your circumstances before taking or refraining from any action.