The Companies Act 1993 provides a formal procedure for creditors dealing with non-paying companies in New Zealand. One of the key tools available is the statutory demand.
What Is a Statutory Demand?
A statutory demand is a formal, written demand for payment served on a company that owes a debt. It’s a serious step in the debt recovery process and often a precursor to court action.
Once a statutory demand is properly served, the debtor company has 15 working days to:
- Pay the debt,
- Enter into an arrangement to settle the debt, or
- Apply to the High Court to set the demand aside.
What Happens If the Company Doesn’t Respond?
If the company fails to act within the 15 working days, this may be taken as presumptive evidence of insolvency. At this point, the creditor can apply to the court to have the company placed into liquidation.
Can the Debtor Company Challenge the Demand?
Yes. Under the Companies Act, the company served with the statutory demand can apply to the court to set it aside. The court will consider whether:
- The debt is genuinely disputed,
- The demand is defective or improperly served,
- There are other grounds that would make it unjust to proceed.
If the court does not find sufficient grounds to set the demand aside, it may order the company to pay the debt or proceed to liquidation.
Why Use a Statutory Demand?
Statutory demands are a powerful way to prompt payment from a reluctant debtor. However, they should be used carefully. They are not appropriate if there is a genuine dispute about the debt. In such cases, the court may view the use of a statutory demand as an abuse of process.
Links
- Section 289 – Statutory demands
- Section 290 – Application to set aside statutory demand
- Section 291 – Court may order company to be put into liquidation