What is a Statutory Demand and When Should I Use It?

1. What do you do when you are chasing a company for a debt and despite your requests, pleas, calls and curses, the company is failing or refusing to pay?  The statutory demand process may be suitable in such circumstances.
2. A statutory demand is a Court document and is used to initiate Court proceedings to forcibly "wind up" an insolvent company where a debt is due for the sum of $1,000.00 or more.  Statutory demands are not issued against individuals (the bankruptcy process is used instead).
3. The service of a statutory demand requires the debtor company to take prompt action to pay or face liquidation.  The High Court has commented that a statutory demand should be issued by a solicitor to ensure that the process is only used in appropriate circumstances.  Where a statutory demand is used inappropriately, the High Court is likely to impose costs against the party issuing the demand, which can be significant.
4. The statutory demand should not be used to place undue pressure on a debtor, and should only be issued where the debt is not subject to a genuine dispute by the debtor company.  Where it is apparent that there is a genuine dispute or potential dispute by the debtor company, the ordinary District Court or High Court claim procedure should be used to obtain judgment against the debtor company.
5. Once served, the debtor company is required to take action within a short time frame.  If the debtor company fails to respond (pay or dispute) to the statutory demand within 15 working days after it is served, the debtor company is presumed to be unable to pay its debts (insolvent).  The creditor is then entitled to apply to the High Court to have the debtor company wound up (liquidated). The end result of the process is that a liquidator is appointed by the Court and tasked to collect the pool of assets owned by the debtor company and disburse them to all creditors.
6. The statutory demand can be an effective and strong tool to prompt a tardy debtor company.  In some circumstances, however, it is preferable to consider alternative methods to recover the debt, for example, where it is better to compromise with the debtor to allow it to continue to trade and pay the full amount of the debt back.

Please contact our Litigation Teams to discuss your debt collection requirements on:

• (09) 415 4477 - Albany

• (09) 377 9966 - Auckland

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Insolvency, Bankruptcy and Securities Enforcement

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