Statutory Demand First 48 Hours Checklist NSW
Key Takeaways
Served with a statutory demand in NSW? In the first 48 hours, the job is to keep open the option of applying to set the demand aside under s 459G — the pay-or-fight decision comes later. Fix the date of service, gather the contract, ledger and correspondence, and instruct a lawyer before the 21 days are spent.
The clock runs from service, not from when anyone reads the demand. Under s 459G of the Corporations Act 2001 (Cth), the application to set it aside and the supporting affidavit must be filed and served within 21 days, and the court has no power to extend that time.
Diary day 21 first, then work backwards. If the company fails to comply (s 459F), a creditor that applies to wind it up within three months has the benefit of a presumption of insolvency under s 459C(2)(a): the court will treat the company as insolvent unless it proves otherwise.
Do not pay any part of the demand before you have advice. A payment, or a written acknowledgement of the balance, can be treated as an admission of the debt and undermine your own set-aside application.
A genuine dispute needs documents, and they must be in the affidavit. The grounds you rely on generally have to appear in the affidavit filed within the 21 days, which is why the evidence work starts now.
Introduction
The demand arrived at the registered office — perhaps your accountant’s — and someone noticed it days later. The 21 days may already be running short. What the directors do in the next 48 hours largely determines whether a properly evidenced set-aside application can be filed and served before day 21, and almost all of that work is administrative. It matters to every NSW construction business trading on credit, because a construction ledger, with its variations, back-charges and withheld sums, is exactly the kind of account that produces genuine disputes.
This guide gives a director who has just been served an ordered sequence; it does not assess whether the debt is owed. It applies to companies. A sole trader or partnership is pursued by a bankruptcy notice under the Bankruptcy Act 1966 (Cth), which has its own rules and timeframes. If a director has personally guaranteed the debt, the creditor can pursue the guarantee separately — see our guide to personal guarantees in construction.
The 48-hour sequence, step by step
Everything in the first 48 hours serves a single purpose: keeping a s 459G application available. The checklist below is the short version; the steps that follow explain each item.
The 48-hour checklist
Day 0 — the day the demand arrives
Record when and how the demand arrived (handed over, posted, or left at the registered office) and who received it.
Pull a current ASIC company extract and confirm the registered office address.
Fix the date of service. If it is uncertain, treat the earliest possible date as day 0.
Diary day 21 in every relevant calendar, with reminders at day 7 and day 14.
Tell every director, and instruct staff and the bookkeeper not to pay, acknowledge or discuss the debt with the creditor.
Day 1 — evidence
The contract, including every variation and the progress payment claim the demand relies on.
The ledger showing what was paid, what was withheld and why — from your bookkeeper or accountant if they hold it.
All correspondence on the disputed sum, including payment claims and payment schedules under the Security of Payment Act.
Defect reports, site diaries and delay records supporting any withheld sum or cross-claim.
A chronology prepared by the person with direct knowledge, ready to be sworn.
Day 2 — position
Classify the debt: admitted, genuinely disputed (wholly or in part), or not yet capable of being evidenced.
Check the demand itself for defects (s 459J), noted separately from the merits.
Check whether the demand is founded on an adjudication determination or a judgment.
Instruct a lawyer, with the documents above, before the end of day 2.
Day 0 — fix the date of service and start the clock
Service on a company is governed by s 109X, which permits service by leaving the demand at, or posting it to, the registered office, or by personal delivery to a director who lives in Australia. The 21 days run from the date of service, which can be earlier than the day anyone opened the envelope.
Pull the current ASIC extract now. If the demand went to a former registered office, that is something your lawyer will need to prove by affidavit.
Example. A subcontracting company uses its accountant’s office as its registered office. The demand is posted on a Thursday, sits in the accountant’s in-tray, and reaches the director the following Wednesday. Service is likely to be treated as effective from when the letter would ordinarily have been delivered, not from the Wednesday, so several days of the 21 days may already be gone before anyone reads it. If your registered office is your accountant’s or bookkeeper’s address, ask them today how mail is handled and when this envelope arrived.
Day 1 — capture the evidence before it changes
Gather the documents created at the time in one place: the contract including every variation and the progress payment claim it answers; the ledger showing what was paid and what was withheld, and why; all correspondence on the disputed sum; and a chronology signed by the person with direct knowledge. In most businesses this is a brief for whoever runs contract administration, so hand them the list. If an external bookkeeper or accountant holds the ledger, request it in writing today.
The creditor’s description of the debt rarely tells the whole story of the account. Where the ledger shows a cross-claim, a sum withheld for defects, or an uncertified variation claim, that is potential evidence of a genuine dispute or offsetting claim under s 459H, covered next.
Genuine dispute: what it takes to set aside a statutory demand
Under s 459H a court may set aside a statutory demand where there is a genuine dispute about the existence or amount of the debt, or where the company has an offsetting claim. The operative word is genuine: the company needs a plausible contention supported by evidence. A bare denial will not do, and neither will an argument assembled after service to buy time.
For a construction business the strongest material is documentary and usually already exists: an uncertified variation claim; an extension of time or delay claim supported by site records; a quantified cost of rectifying defects; or a payment claim the company served under the Building and Construction Industry Security of Payment Act 1999 (NSW) to which the creditor failed to respond with a payment schedule in time. Each can support a genuine dispute or an offsetting claim. The work in the first 48 hours is to identify which of them the ledger actually supports.
Partial disputes. Most construction accounts are disputed in part, not in whole. The court works out the “substantiated amount”: what is left of the demand after the genuine dispute and any offsetting claim are deducted. If that amount is below the statutory minimum (currently $4,000), the demand is set aside. If it is at or above the minimum, the court may vary the demand to the lower figure instead, and the company must then pay that amount within the time the court allows or face the presumption of insolvency. A dispute over part of the ledger is valuable, but it may not end the demand on its own.
The affidavit must carry the dispute. The grounds of the dispute must appear in the affidavit filed and served within the 21 days, and a company generally cannot add new grounds or fill gaps later. A thin affidavit filed on day 21 can lose an application that a properly evidenced one would have won. That is why the evidence work belongs in the first 48 hours.
Demands based on an adjudication. Where the creditor has obtained an adjudication determination under the Security of Payment Act and filed it as a judgment, the room to argue about the underlying construction contract narrows sharply, and a dispute that would otherwise be genuine may not be enough. Treat this as a reason to instruct a lawyer on day 0.
Day 2 — form the position, in writing
Decide which of three positions applies, and record it in writing. Do this without paying anything towards the demand.
Admitted. If the whole debt is owed, pay it in full before day 21, or obtain the creditor’s written agreement to withdraw the demand as part of a settlement or payment arrangement. Talks that do not produce payment or a binding written agreement do not stop the clock.
Genuinely disputed, wholly or in part. Prepare the s 459G application and supporting affidavit now. If part of the debt is undisputed, get advice before paying it. Paying the undisputed balance can be the right move, but the payment and any covering letter will be read as admissions.
Not yet capable of being evidenced. Instruct a lawyer immediately. The gap between what you believe and what you can prove has to close before day 21.
Separately, check the demand itself. An inaccurate description of the debt, a misdescribed creditor, or improperly combined debts can found a separate ground under s 459J. Note any defect apart from the merits, and do not assume it carries the application: the court will set a demand aside on this ground only if the defect would otherwise cause substantial injustice, and a creditor can often simply reissue a corrected demand.
Instruct now. The size of the debt is not the test. What matters is whether the application and its affidavit can be prepared and served in time, and whether the dispute can be evidenced to a standard a court will accept. Instruct a lawyer immediately if: the service date is unclear; the account involves variations, defects or cross-claims; the demand is founded on an adjudication determination or judgment; the creditor’s description of the debt does not match the ledger; more than a week of the 21 days has passed; or a director has personally guaranteed the debt, which the creditor can pursue separately from the company.
If none of these applies and the window is protected, the pay-or-fight question can be weighed on its merits. Our guide to whether to pay a statutory demand or fight it covers that decision.
The five mistakes that can be fatal to a set-aside application
Each of these mistakes is common, and each is avoidable.
Action in the first 48 hours | Why it can be fatal | What to do instead |
Part payment before advice | Can be put to the court as an admission of the debt | Pay nothing until advised; reserve rights in writing |
Written acknowledgement of the sum | Can be relied on as an admission of the debt | State the dispute, not the balance |
Waiting for the creditor to “clarify” | Consumes the 21 days | Treat day 21 as fixed from service |
Negotiating a payment plan only | Stops neither the clock nor the presumption | Negotiate without prejudice, and still file |
Letting a broker or insurer “handle it” | Delays instruction past the filing window | Instruct one decision-maker immediately |
The last two are commercial decisions rather than legal ones, so they usually fall to whoever is closest to the file. That person needs to know the 21-day rule as well as the directors do.
Practice note. Section 459G requires the application to be both filed and served within 21 days, and compliance is strict: a day late is fatal, and the court has no power to extend time. Counsel is not needed to file the application, but the supporting affidavit must be filed and served with it, and it must contain the grounds of the dispute. A director can swear the chronology while the legal argument is settled; sequencing those two tasks is what makes a short window workable. The Federal Court publishes a guide to winding up proceedings that sets out the requirements, and the Corporations Act 2001 (Cth) is the governing statute.
Warning. A statutory demand is not a debt-collection letter, and treating it as an opening position for negotiation is a serious and avoidable mistake. Once the s 459C presumption is available, the question in a winding-up application becomes whether the company can prove it is solvent. That usually requires full financial records and often expert accounting evidence. The underlying construction dispute may never be heard: a company that did not apply to set the demand aside generally needs the court’s leave to rely on grounds it could have raised then, and leave is available only if the ground is material to proving that the company is solvent (s 459S).
Key cases
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265: the 21-day period in s 459G cannot be extended.
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785: a genuine dispute requires a plausible contention, not a bare assertion.
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452: the affidavit filed within the 21 days must disclose the grounds of the dispute.
Corporations Act 2001 (Cth) s 459S: grounds that could have been raised on a set-aside application generally need the court’s leave to be raised against a winding-up application.
What happens after you file
Filing and serving a s 459G application, in the Supreme Court of NSW or the Federal Court, extends the time for complying with the demand: generally until seven days after the application is decided, unless the court orders otherwise. The court lists the application for a first return date and gives directions for any further evidence and the hearing. If the application succeeds, the demand is set aside or varied. If it fails, the company must pay within the time the court allows and is usually ordered to pay the creditor’s costs. That costs exposure is another reason to test the evidence in the first 48 hours rather than file on instinct.
How Merlo Law can help
Merlo Law acts for NSW construction companies served with statutory demands, from head contractors to subcontractors. Our statutory demand lawyers follow the sequence set out above: we fix the service date, test the ledger, and prepare and serve the s 459G application within the window.
To get started, send us four things: the demand, the date and manner it arrived, a current ASIC extract, and the ledger for the account. We will confirm your day 21, tell you whether the ledger supports a genuine dispute or offsetting claim, and set out what has to happen before that date. Please contact us before making any payment towards the sum demanded.
If the demand cannot be resisted, the focus shifts to solvency and directors’ duties, and our guides to insolvent trading and safe harbour cover that ground. Background on the wider regime is in our guide to statutory demands in NSW construction.
Conclusion
Each step depends on the one before it. A fixed service date gives you a deadline; the ledger gives you evidence; and the evidence tells you, and your lawyer, whether a genuine dispute or offsetting claim can be put into an affidavit before day 21. A company that assembles evidence first and argues later keeps the s 459G application available.
FAQs
What should a director do first after a statutory demand is served?
Establish the date of service, not the date someone opened it. Then diary day 21 from that date and work backwards.
How do we work out the date of service?
Under s 109X a company may be served at its registered office, by leaving or posting the demand there, or by personal delivery to a director who lives in Australia. Pull the current ASIC extract. If the date can’t be fixed, treat the earliest possible date as day 0.
Should we pay part of the demand while we work out our position?
Not before you have advice. A payment, or a written acknowledgement of the balance, can be treated as an admission of the debt. Paying the undisputed part can sometimes be the right move, but only on advice and with rights reserved in writing.
What documents should we collect in the first 48 hours?
The contract with every variation, the payment claim it answers, the ledger showing what was withheld and why, the correspondence on the disputed sum, and a chronology signed by the person with direct knowledge.
Can the 21 days be extended?
No. The court has no power to extend the time to file and serve a s 459G application. If the window is missed, the company’s options narrow to paying, negotiating with the creditor, or opposing a winding-up application on the question of solvency.
We have already made a part payment. Is it too late?
Not necessarily. A part payment is evidence against the company, not an automatic bar. What matters is whether a genuine dispute or offsetting claim remains over the balance, and whether the undisputed amount left after deducting any offsetting claim falls below the statutory minimum (currently $4,000), in which case the court must set the demand aside. Get advice before day 21.
What if the demand is based on an adjudication determination?
The scope to dispute the debt is much narrower, because the Security of Payment Act restricts challenges based on the underlying contract once a determination has been filed as a judgment. Instruct a lawyer on day 0.
Does this apply to sole traders?
No. Statutory demands are served on companies. Individuals, including sole traders and partners, are pursued through a bankruptcy notice, which has its own rules and timeframes.
This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law
Comments