We specialise in debt collection matters. If you are owed money by another business and would like to know what your options are, please get in touch with our team here.
Show me the money!
One option for simple and easy debt recovery
It doesn’t matter whether your business is small or large – the current business environment is tough, and maintaining adequate cashflow is arguably the most critical aspect of keeping your head above water.
So, what happens when a business owes you money but hasn’t paid?
One of the most effective legal tools is the statutory demand. This article will explore the statutory demand process, its benefits, and what you need to know when pursuing debt recovery.
What is a Statutory Demand?
A statutory demand is a formal, legal notice issued to a debtor company, requiring the payment of a debt within 15 working days. It is a powerful tool under the New Zealand Companies Act 1993, designed to prompt the debtor to pay outstanding amounts or risk facing serious legal consequences.
If the debtor fails to make payment, then it is presumed to be insolvent and an application can be made to put the company into liquidation.
When to Use a Statutory Demand
A statutory demand is used when a debt is undisputed and overdue. It is not suitable for cases where there is an argument about the amount that is due. We often use a statutory demand when other methods of debt recovery, such as direct communication or negotiation, have failed.
The Process of Issuing a Statutory Demand
The first step is to provide details of the debt, including the due date that has been missed and any relevant contractual terms.
The statutory demand must be served on the debtor according to the rules set out in the Companies Act 1993. Getting this right is crucial, as any defects in the service process can render the statutory demand invalid. For this reason, we usually arrange for service to be completed by a professional service agent.
Once served, the debtor has 10 working days to apply to the High Court to set aside the demand. Otherwise there is a window of 15 working days for the debtor to either pay the debt in full or enter into a compromise agreement with you.
What happens if the debtor doesn’t respond
If the debtor doesn’t respond within 15 working days, you may apply to the court to have the debtor company placed into liquidation. A liquidator will then be appointed by the court to take over the company, and try to sell the business or its assets to repay all the company’s debts.
Benefits of Using a Statutory Demand
The statutory demand process is quick, providing a clear deadline for payment and a straightforward path to recovery.
Compared to other legal remedies, a statutory demand is less costly and can often result in payment without the need for further legal action.The cost of issuing a statutory demand is often less than $2,000 plus GST.
The threat of liquidation can provide significant leverage, encouraging debtors to settle their debts promptly.
Risks and Considerations
While a statutory demand is a powerful tool, it must be used carefully. If the debt is genuinely disputed, the debtor can apply to the court to have the statutory demand set aside. If the court finds that the demand was issued improperly, you may be liable for the debtor's legal costs.
Additionally, you need to be mindful of the debtor's financial situation. If the debtor is obviously insolvent, then you may be incurring further costs without any real prospect of recovery.
Conclusion
A statutory demand is an effective legal instrument for debt recovery. However, it requires careful preparation and consideration to avoid potential pitfalls. We are regularly asked to advise on appropriate debt recovery processes and how to navigate the complexities effectively.
Mark Swan of our office has considerable experience in dealing with, preparing and issuing statutory demands. Mark would be happy to review your debt recovery matter with you and explain the best course of action.
