Reading time: 5 minutes

A company owes you money and you have tried everything to get them to pay. It is time to take formal legal action. You have been told that you can either issue a creditor’s statutory demand or file a statement of claim. This article will explain the difference between these options, how each of these work, their pros and cons, and when you should file them.

What is a Creditor’s Statutory Demand?

A statutory demand is a notice issued by a creditor (the party owed money) to a debtor company where the debt is more than $2000. The Statutory Demand requires the debtor company to pay the debt within 21 days. If the company fails to pay, it is presumed to be insolvent and can be wound up. However, there are cases in which the debtor company can apply to the court to have the order set aside. These include if:

  • the debtor company believes the debt is not due;
  • the debtor company disputes the debt for some reason; or
  • there are any defects in the form of the statutory demand.

In these cases, the company needs to apply to the court to have the demand set aside within 21 days of receiving the statutory demand.

Advantages of Issuing a Statutory Demand

There are significant cost and time benefits of issuing a statutory demand. For example:

  • you do not need a court judgment to issue a statutory demand;
  • you can issue a statutory demand with invoices or other documents confirming a debt is owed;
  • there is no large filing fee;
  • it is a relatively quick process as it requires the Defendant to pay within 21 days; or
  • there is a good chance the debtor will respond, even if it is to offer a payment plan to pay the debt.

Disadvantages of Issuing a Statutory Demand

However, you can only issue a statutory demand if the debt is due and owing. You cannot issue a statutory demand if there is any dispute over the debt. In addition, if the debtor company does not respond to the statutory demand within 21 days, your only option to enforce the debt is to wind up the company. This can be time-consuming and expensive, with no guarantee the debt will be paid.

There are many circumstances in which a debtor company can seek to set aside a statutory demand. These include where there is a:

  • ‘genuine dispute’ as to the debt;
  • offsetting claim that puts the debt amount below $2000; or
  • defect in the form of the demand.

If the debtor company applies to set aside the statutory demand, you may face further court proceedings. They can also seek orders that you pay their costs of the application, which may be substantial.

What is a Statement of Claim?

A statement of claim is the first document filed in legal proceedings. It is used to make a claim against another party, such as a claim for payment of a debt. Below is the rough process of issuing a statement of claim:

  1. A court will issue the statement of claim. The exact court will depend on the amount of your claim. The Local Court usually issues smaller claims, while the Supreme Court typically issues claims of more than $100,000.
  2. The statement of claim is served on the other party, known as the defendant.
  3. The defendant must respond or file a defence to the claim within a certain timeframe, usually 28 days.
  4. If the defendant files a defence then the matter goes to trial and the court will decide which party is successful.
  5. If the defendant does not file a defence or otherwise respond to the statement of claim, you can apply for a ‘default judgment’. A default judgment is a court order that the defendant owes you the amount claimed.

Advantages of Issuing a Statement of Claim

The one key advantage of issuing a statement of claim is that it can be issued for debts of less than $2000. This is great if the debt owed is a small sum of money. As long as you can prove that the defendant owes a debt and the defendant does not dispute the claim, you can apply for a default judgment from the court ordering that the defendant owes you the amount claimed. This is both time and cost efficient, allowing you to reclaim your debt quickly with minimal proceedings.

Disadvantages of Issuing a Statement of Claim

However, there are several disadvantages to issuing a statement of claim, particularly if the debtor files a defence or disputes the claim. In particular:

  • you need to prove the debtor owes a debt, which may be difficult if the debtor disputes it;
  • it can be expensive to run court proceedings if the debtor files a defence;
  • it can be time-consuming to get a result (it can take up to several months or more if the matter goes to trial); and
  • if you are successful at trial and the court enters a judgment against the debtor company, you still need to take steps to enforce the judgment.

Key Takeaways

Statutory demands and statements of claim can both be effective ways of pursuing a debt owed by a company. However, there are limitations to both. A dispute over the debt could result in significant costs and lengthy proceedings. If you are unsure about what you should file, we recommend you seek legal advice if you are considering either of these options. If you have any questions about creditor’s statutory demands, statements of claim or recovering a debt, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.


Corporate Governance 101: Responsibilities for New Directors

Wednesday 27 April | 11:00 - 11:45am

If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

Rogue Directors and Business Divorces: How to Remove a Director

Thursday 28 April | 11:00 - 11:45am

Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer