In the current economic environment, businesses are plagued by unpaid invoices and other payments that go ignored. These unpaid debts affect the business’s cash flow and operations moving forward. There are various ways to obtain payment from a debtor company; one of them is to serve a statutory demand.
What Is a Statutory Demand, and When Can It Be Utilised?
A statutory demand is a legal notice under section 289 of the Companies Act 1993. It is issued by the creditor to notify the debtor company of the due amounts.
It requires the debtor to resolve the debt by:
- Paying the total outstanding debt, or
- Secure the debt to the creditor’s satisfaction; or
- Enter into a formal arrangement or compromise with the creditor to pay the debt
From the date of service of the statutory demand, the debtor has 10 working days to apply to the High Court to set aside the demand if it disputes it, or 15 working days to comply/make payment. If the debtor fails to do either of these, the debtor is presumed to be unable to pay its debts.
On the back of that, a creditor could then apply to the High Court to place the debtor into liquidation, and that threat alone can incentivise the debtor to pay to avoid that prospect (or the negative optics of such an application being advertised).
However, a statutory demand is not available in every circumstance, and it is not appropriate to issue a demand unless the debt in question:
- Exceeds $1,000;
- is due and owing at the time of the demand;
- is owed by a company registered in New Zealand; and
- is undisputed
It is crucial that the debt owing is not substantially disputed by the debtor. Where a debt is disputed and a statutory demand is issued against it, the debtor could apply to have it set aside, which in turn could expose the creditor to costs.
Of All the Options – Why a Statutory Demand?
Statutory demands provide creditors with a path to recover their debts when standard payment reminders have been unsuccessful, and swift deadlines and unpleasant legal ramifications force the debtor to engage and generally pay what is owed.
If you need guidance on unpaid debts or you have been served with a statutory demand, our Litigation and Disputes team can help you understand your options and the best way forward. Call Sharp Tudhope today.