Should you serve a statutory demand on the builder who owes you?

When a statutory demand moves a stalled debt

A statutory demand is a creditor's formal, written request requiring a company to pay a debt within 21 days. If the company fails to comply, it is presumed insolvent and the creditor may apply to court to wind up the company. That presumption can put immediate pressure on a debtor to pay or negotiate when standard invoices and letters have been ignored.

The demand must relate to a debt or debts that are due and payable and total at least four thousand dollars. The debt must not be genuinely disputed. If the builder can show there is a real disagreement about whether the money is owed or the amount, a court will usually set the demand aside. Serving a demand has serious consequences and a creditor should obtain legal advice to ensure it is entitled to make a statutory demand.

Check the debt is undisputed before you serve

A statutory demand works only if the debt is not genuinely disputed. If the builder has raised defect claims, variation disputes or quality concerns about your work, serving a demand is risky. The builder can apply to court within 21 days to set the demand aside, and the court will set it aside if satisfied there is a genuine dispute about the debt's existence or amount.

Review the contract, invoices, email correspondence and any complaints or notices the builder sent before you decide. If the builder has remained silent and paid earlier invoices without objection, that silence strengthens your position. If they have consistently raised concerns about the work or withheld payment for stated reasons, those facts weaken your position and increase the risk the demand will be set aside.

Source: Official guidance

Confirm the company details on ASIC before you prepare the demand

The demand must be in writing, in accordance with the prescribed form, which is Form 509H. You need the exact company name and Australian Company Number from the ASIC register, and the company's current registered office address. A demand served on the wrong entity or at an incorrect address may be defective and fail to create the intended consequences.

Search ASIC's register online to verify the company is still registered and not already in liquidation or administration. Before filing a winding-up application, a creditor needs to obtain an extract of the records maintained by ASIC to ascertain whether there are any pending winding-up proceedings, whether the company is already in liquidation and whether the registered office has changed. Do this check before you prepare the demand, not weeks later when the company may have changed its details or status.

Prepare the demand and supporting affidavit correctly

If relying on a debt that is not a judgment debt, the demand must be accompanied by an affidavit that verifies the debt is due and payable by the company and complies with the rules. The affidavit is Corporations Form 7. The affidavit verifying the statutory demand must not pre-date the statutory demand. You must swear or affirm the affidavit after you sign the demand.

The affidavit must set out the facts that establish the debt is owed and is due and payable. Attach the invoices, contract, delivery records and any correspondence that supports your claim. The affidavit is evidence. If the builder later applies to set the demand aside or you later apply to wind up the company, the court will rely on what is stated in the affidavit and the documents you attach to it.

Serve the demand correctly and act within the time limits

Service would generally be in accordance with section 109X of the Corporations Act which provides that a document may be served on a company by leaving it at, or posting it to the company's registered office or by delivering the document personally to a director who resides in Australia. Keep proof of service. If you post the demand, use registered or express post and keep the receipt and tracking information. Personal service on a director requires an affidavit from the person who served it.

Once the demand is served, the company has 21 days to pay, secure or compound the debt, or apply to court to set the demand aside. If the company does neither, you can rely on the failure to comply as grounds for a winding-up application within three months. If you need to use the demand, you must meet strict time limits and procedural steps. Get advice now on whether a statutory demand suits your situation, and obtain help preparing and serving it correctly. CRP coordinates independent qualified professionals who can provide legal support, debt recovery and insolvency advice tailored to construction creditors. Contact CRP today to review your position and confirm your next step.