Precision and Genuine Disputes: Setting Aside a Statutory Demand

What is a Statutory Demand?

A statutory demand is a creditor's formal, written request requiring a company to pay a debt within the statutory period (currently 21 days). A statutory demand must be:

• in writing;
• in the prescribed from (Form 509H);
• relate to a debt or debts that are due and payable and total at least the statutory amount (currently $4,000); and
• be signed by or on behalf of the creditor,

(s459E of the Corporations Act 2001 ("Act")).

How do you respond to a Statutory Demand?

Upon being served with a statutory demand, a company has 21 days to respond. The company has two options:

• pay the amount the subject of the statutory demand; or
• make an application to the Court, pursuant to section 459G of the Act, to set aside the statutory demand on the basis that there is a genuine dispute about the existence or amount of the debt or that the company has an offsetting claim (s459H of the Act).

If the company does not respond to the statutory demand, within the 21 days, a presumption of insolvency arises (s459C of the Act). This enables a creditor to make an application to the Court to wind up the company on the basis that it is insolvent.

Setting aside a Statutory Demand

An application to set aside a statutory demand must be both filed and served within 21 days of the statutory demand being served on the company. The application must also be supported by an affidavit ("Supporting Affidavit") which sets out either:

• that the company has an offsetting claim; or
• that there is a genuine dispute between the company and the creditor about the existence or the amount of the debt.

For there to be a genuine dispute, the dispute must be bona fide, truly exist in fact and the grounds for alleging the existence of a dispute must be real and not spurious, hypothetical, illusory or misconceived. The existence of the dispute must be raised in good faith and must not be "merely created or constructed in response to the pressure created by the service of the statutory demand"[1]. Furthermore, the Supporting Affidavit ought to set out the "plausible contention requiring investigation" or "serious question to be tried" in relation to the alleged facts that are disputed[2]. Additional grounds of dispute cannot be raised at a later stage. Therefore, it is critical that the Supporting Affidavit sets out with precision the specific ground(s) of dispute on which the company seeks to rely. This issue was recently considered by the Supreme Court of Victoria in Re BRC Group [2024] VSC 563 and on appeal by the Court of Appeal.

Re BRC Group

On 12 March 2024, Watagan Park Pty Ltd ("Watagan Park") served a statutory demand on BRC Group Pty Ltd ("BRC Group"), claiming a debt of $1,044,372.42 pursuant to a loan agreement with a principle sum of $900,000 and $144,372.43 owing on account of interest. BRC Group filed an application in the Supreme Court of Victoria to have the statutory demand set aside.'  BRC Group disputed the debt on the basis that the "loan agreement was never finalised and as such, a final agreement as to the terms of the loan agreement was never reached"[3]. In 2021, the parties entered into and discussed a number of documents/agreements including:

• an unsigned loan agreement upon which the statutory demand is based;
• a consultancy agreement dated on or about January 2021;
• a letter dated 1 January 2021 which invited to Watagan Park to apply for an equity right in BRC Group, completed by the director of Watagan Park on or about 31 March 2021; and
• a signed Equity Right Agreement dated on or about 31 March 2021.

BRC Group exhibited the unsigned loan agreement to its Supporting Affidavit. BRC Group contended that although an agreement existed, its terms were different than those alleged by Watagan Park. In the judgement, the Honourable Associate Justice Barrett noted that the position of BRC Group was "less than rigid". It is well established, and sometimes referred to as the Graywinter principle, that: "an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a "supporting affidavit" in so far as the different genuine dispute is coherent, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit file within the statutory time period"[4]. Watagan Park contended the following:

• in its Supporting Affidavit, BRC Group relied on the ground of dispute that there was no concluded loan agreement; and
• that the subsequent affidavit material and submissions sought to go beyond this ground and contended that there was an agreement, but on different terms.

BRC Group argued that the Supporting Affidavit sufficiently raised the grounds sought to be relied on, and that the material subsequently filed with the Court expanded on the grounds already raised in the Supporting Affidavit. His Honour disagreed with the contention of BRC Group for three reasons. Firstly, His Honour found that BRC Group's position was clearly stated in the Supporting Affidavit: that there was no concluded agreement. The Supportive Affidavit did not set out that there was an agreement on different terms. Secondly, the Supporting Affidavit exhibited correspondence which was explicitly relied on to establish that there was no concluded agreement because negotiations were ongoing. His Honour found that this was inconsistent with the ground that there was an agreement but on different terms. His Honour found, that in such circumstances, Watagan Park could not have been fairly on notice that BRC was contending that there was an agreement but on different terms. Thirdly, given the Supporting Affidavit clearly stated that no agreement was reached, it was irreconcilable with the later contention of BRC Group that the loan amount was repayable not before a particular date or after a particular process was undertaken. The Honourable Associate Justice Barrett found in favour of Watagan Park, that there was no genuine dispute about the amount or the existence of the debt the subject of the statutory demand.

Court of Appeal

BRC Group sought leave to appeal the decision in BRC Group Pty Ltd (as trustee for the BRC Group Unit Trust) v Watagan Park Pty Ltd (as trustee for Clancy Family Trust MKT2) [2025] VSCA 36. The key ground of appeal was that the judge at first instanced had "erred in holding that there was no serious question or plausible contention on a ground raised" in the Supporting Affidavit[5]. BRC Group contended that the Supporting Affidavit was an "an affidavit 'supporting the application' in relation to the additional dispute" and that the "threshold requirement for the contents [of a Supporting Affidavit]'€¦ is low"[6]. The Court of Appeal refused leave to appeal, and agreed with the judge at first instance ' that the statement in the Supporting Affidavit to the effect that the debt was 'not payable' did not delineate a dispute that the debt was payable but on different terms. Furthermore, the Court of Appeal agreed that the statement in the Supporting Affidavit that there is no agreement was plainly inconsistent with the later assertion that there was an agreement but on different terms.

Conclusion

If you intend to make an application to set aside a statutory demand, make sure that the Supporting Affidavit identifies the ground(s) of the genuine dispute with precision. If filing an application to set aside a statutory demand in the Supreme Court of Victoria, a Notice to the Profession was published on 11 July 2025 which seeks to facilitate the just, efficient, timely and cost-efficient resolution of such an application by setting out a timetabling procedure[7].

By Vivienne Williams and Alice Rudaya

 

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[1] Re BRC Group [2024] VSC 563 [77]. [2] Thomson v Australia and New Zealand Banking Group Ltd [2024] QCA 73 [40]. [3] Re BRC Group [2024] VSC 563 [16] [4] Scream Construction Pty Ltd v Clyne (2021) 64 VR 404 [43]. [5] BRC Group Pty Ltd (as trustee for the BRC Group Unit Trust) v Watagan Park Pty Ltd (as trustee for Clancy Family Trust MKT2) [2025] VSCA 36 [3]. [6] Ibid, [5] & [22]. [7] Notice to the Profession - Statutory Demands | The Supreme Court of Victoria