What is a Statutory Demand and When is it Used for Debt Collection?

A Statutory Demand serves as a formal court notice compelling a debtor company to settle an outstanding debt owed to a creditor, marking the initial step in the legal process of initiating the "winding up" of an insolvent company in accordance with Section 289 of the Companies Act 1993.

Essentially, a Statutory Demand functions as a litmus test for a Debtor Company, evaluating its financial viability by determining its ability to meet its obligations and settle debts promptly. It should however only be used as a debt collection tool if there is no dispute.

A disputed debt has a different process to follow.  A statutory demand should not be issued on a known disputed debt.  Pursuing legal proceedings in the District Court (claims less than $350,000) or the Disputes Tribunal (claims up to $30,000) is recommended as a more suitable course of action to resolve the dispute through standard legal channels. The High Court deals with higher debts and complex cases.

The issuing of a Statutory Demand often proves to be a successful strategy, compelling the Debtor Company to address the outstanding issue promptly and often leading to successful debt settlement.

Owed Money?  What to Consider before issuing a Statutory Demand

Certain restrictions should be carefully considered before issuing a Statutory Demand. It is imperative to evaluate whether the Debtor Company has previously contested the debt or disputed the owed amount. Also if the debt is $1000 or less it is deemed inappropriate to issue a statutory demand since it constitutes an abuse of the court process for winding up a company.

It is advisable to have a professional such as a lawyer, licensed Insolvency Practitioner or Debt Collector issue the Statutory Demand and for a process server to serve it.

Ultimately, the issuance of a Statutory Demand is a strategic move, often prompting swift action from the Debtor Company to fulfill the demand and avoid the potential consequence of being wound up.

Owe Money?  How should a Company that receives a Statutory Demand Respond?

Upon receipt of a Statutory Demand, the Debtor Company is granted a 15-working-day window to either settle the debt, fulfill the demand through alternative means, or formally dispute the matter in the High Court. Failure to pay the debt or initiate a dispute by way of a notice to set aside within this timeframe establishes an act of insolvency, empowering the creditor to file an application in the High Court for the winding up of the Debtor Company. This can lead to liquidation.

Where there is a valid dispute for reasons such as the debt is not owing or where there is a counter claim, setoff or cross demand, the window to act is small with the application to set aside required to be filed in the High Court and served within 10 working days of the service of the statutory demand. Prompt action to appoint a lawyer to act is important.

If there is no dispute but the debtor company has no ability to pay or offer a compromise (such as agreed security and/or instalment plan) then it is recommended to seek advice of a licensed insolvency practitioner to discuss the options of voluntary liquidation or company compromise or possibly a voluntary administration.

Options For Companies Who Have Been Served With A Statutory Demand - Undisputed Debt

• Do nothing and ultimately face liquidation proceedings (being served with a notice for putting a company into liquidation);
• Pay the amount owing;
• Enter into an informal compromise reaching a full and final settlement for an agreed sum - over a term or upfront - and possibly from sources not available should the company face liquidation;
• Offer a formal company compromise under Part 14 of the Companies Act 1993 - offering all creditors a payment arrangement on "compromise debt" and trade terms for ongoing trading;
• Offer assets as a form of security;
• Enter into a shareholder resolution placing the company into a voluntary liquidation before the winding up proceeding is filed with the consent of the applicant creditor. The voluntary liquidation process is generally less stressful as the entire procedure is well planned and the directors can assist and guide the liquidator.

For advice on when to issue a statutory demand and the next steps leading to a winding up proceeding OR for advice as the recipient of a statutory demand and the options and risks contact our team at MVP. We are here to help.

We all know it’s frustrating not being paid. What’s worse is that not getting paid affects your cash flow and chasing bad debts takes time that could otherwise be spent doing productive work.

If you decide that your best option for resolving the debt is to liquidate the debtor company, the process generally takes at least three months. There are a number of milestones along the way, which are outlined below.

Provided the debt is not disputed, the first step is to issue a statutory demand. The purpose of the statutory demand is to test the company’s solvency – the presumption being that, if the company is solvent and the debt is not in dispute, the company will pay the amount demanded in the statutory demand.

A company who receives a statutory demand has 10 working days from the date of service to apply to the High Court to set it aside, usually on the basis that the debt is disputed and/or the debtor company is solvent. If no setting aside application is made, the debtor company has 15 working days to pay the amount demanded in the statutory demand.

If the debtor company does not pay the amount demanded within the 15 working day timeframe, there is a legal presumption that the company is insolvent (which can be overcome if the company provides proof of solvency). The creditor can issue liquidation proceedings relying on the presumption of insolvency as the basis for its liquidation application for 30 working days from the date that the statutory demand expires.

When the liquidation proceedings are filed in the High Court, a hearing date is given. While the time between filing the application and the allocated hearing date can differ from Court to Court (if the Court is outside Auckland, Wellington, or Christchurch, the hearing date will need to coincide with the judges’ circuit sittings), the hearing date is usually between two and three months after the date of filing.

Once the processed documents are provided, they must be served on the defendant company. The application for liquidation also needs to be advertised in the paper where the company carries on business and the New Zealand Gazette. The advertising must be run at least five working days after the defendant company is served and at least five working days before the liquidation hearing date.

If the defendant company takes no steps in response to the liquidation application, the defendant company will be placed into liquidation by the High Court on the hearing date and the creditors’ nominated liquidators will be appointed. If the creditor does not produce a consent to act from its nominated liquidators at or before the hearing, the Official Assignee will be appointed as liquidator. If someone appears at the hearing on behalf of the company, the High Court can allow the proceeding to be adjourned (usually to allow time for settlement discussions or for payment of the debt to be made).

Creditors other than the creditor who brought the liquidation proceedings can appear at the liquidation hearing as either a creditor in support or in opposition to the liquidation application. If you are a creditor in support and the creditor who brought the liquidation proceedings decides to discontinue its proceeding (usually because some arrangement as to payment has been made), you can ask to be substituted as plaintiff. A substituted plaintiff can continue with the previous creditor’s liquidation application instead of having to start a new liquidation application and preserves the filing date of the application, which is used for calculating time periods for voidable, undervalue, and related party transactions.

If you are a creditor and want to discuss the liquidation process further, give our Licensed Insolvency Practitioners on 09 303 0506. 

Statutory demands (or Section 289 notices) pose a big threat to New Zealand businesses. These are written requests from a creditor for a debtor to pay overdue debt, with a payment term of 15 working days.

A creditor can serve a statutory demand on a company if formal demands for payment or debt collection services have not proven effective and the debt is not disputed. It will contain details such as:

How much is owed.
The repayment time frame.
Contact details for the creditor.
Potential consequences.
Details for a right of dispute within 10 working days.

When a debtor is properly served with a statutory demand, the risk of winding up proceedings or even legal action becomes very real. There are six main courses of action when this occurs - read on to find your best course of action.

1) Pay the debt in full

If the debtor is able, paying the owed funds within the designated time frame is the fastest and simplest way to resolve a statutory demand. Debtors can also offer assets as security in order to improve their situation - a combination of security and a payment plan may be enough to satisfy the creditors.

Debtors should ensure this is done within the period outlined in the statutory demand, 15 working days.

2) Reach a compromise, offer security or compound the debt

Under Part 14 of the Companies Act 1993, debtors can enter a creditors compromise through a formal process. Outside of this, they may try and engage creditors in an informal compromise, offer security as above or compound the debt.

A formal compromise is a binding agreement and considers all creditors by class. A successful compromise will allow the company in debt to continue operating. It must be approved by a majority in number representing 75 per cent in value of the creditors (who vote on the matter).

An informal compromise often utilises funding sources not available through the liquidation process. If the company eventually does face liquidation, there can be some risk of clawback if certain creditors have been preferred.

A compounding of debt is a mutual arrangement between the creditor and debtor to discharge the initial debt obligation, and establish a new one in its place, often involving assets used as security.

If any of these options are pursued, the creditor must approve of the method and the potential outcome. Debtors should try and facilitate this within the 15 working day period.

Reaching a compromise with creditors is one option available to debtors. 

3) Dispute the debt

By the time a creditor serves a statutory demand, there should be no dispute over what the debtor owes. However, if there are further issues, debtors can make an application to set aside the statutory demand within 10 working days of receiving it. Engaging a lawyer is required.

From here, courts may choose to set aside the demand or accept a counter-claim or cross-demand. If there is a defect in the demand that causes injustice to the debtor (for example, a gross misstatement of the amount owing), the courts may take this into account.

4) Debate whether the statutory demand was properly served

Creditors must follow a specific process when serving a statutory demand.

It must be served upon the debtor in writing.
It must be delivered to either the company's registered office, principal place of residence or immediately to the director.
If the debtor feels a creditor served the demand incorrectly, there may be further grounds for dispute.

There are many ways to respond to a statutory demand in New Zealand.

5) Initiate a shareholder-appointed liquidation

Debtors can take this proactive measure to avoid costs to the creditor by entering voluntary liquidation within 10 working days of receiving a winding up proceeding or later with agreement of an applicant creditor a filed court proceeding.  An independent, shareholder-appointed liquidator will realise the company's assets and pay down debt.  

This can result in these processes:

The business closes and assets are sold.
The business is sold to a third party as a going concern.
The business is sold to management/directors as a going concern at market value (with consideration to phoenix company provisions)
The business is restructured.

6) Do nothing

If debtors do nothing to address or dispute a statutory demand and do not pay the debt, the next step is typically legal action. Within 30 working days of a failure to comply, the creditor can formally apply to the High Court to put the debtor company into liquidation.

An affidavit of service of the statutory demand will be filed, alongside an application for the appointment of a liquidator - typically referred to as a winding up application. However, even at this late stage, debtors can repay the debt or advance a compromise (with an adjournment granted by the court for creditors to consider it) and avoid further action.

What can your business do when it is served with a winding up proceeding in New Zealand? 

A creditor- or court-appointed liquidation can be set aside or disputed, provided there is enough evidence. This can help the debtor avoid court proceedings, but it still has to pay the debt. If debtors cannot set aside the applications, the court will appoint a liquidator that will take control in the same way it would during a shareholder-appointed process.

Get ahead of your debts

When served properly with a statutory demand, the consequences of inaction can be severe and long-lasting. To find the best course of action for your business, speak to the insolvency experts at McDonald Vague.

Also refer to this article for more information on statutory demands.

Debt collection actions are gaining momentum. Winding up proceedings are on the rise. There is a climb in IRD initiated winding up proceedings.

Many NZ companies have been impacted by Covid-19 and are facing insolvency. To be insolvent means one of two things:

• Debts can’t be paid when they’re due.
• Total debt is more than the value of all assets.

The Commissioner of Inland Revenue has increased debt recovery actions. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company.

Ignorance Isn't Bliss

It is recommended for any business struggling to meet tax arrears that negotiations are entered into promptly to avoid a potential winding up proceeding.

Taxpayers are required to pay their tax in full and on time. Failure to do so leads to late payment penalties and interest. These charges compensate the Commissioner for the loss of use of the money and act as a deterrent to encourage taxpayers to pay the correct amount of tax on time.

If your company receives an IRD formal demand, doing nothing really isn’t an option. Inaction will limit your options and virtually guarantees insolvency. You can also be held personally liable for failing to pay PAYE.

In certain situations the Commissioner may be able to provide assistance to taxpayers if they are not able to pay on time, or if the imposition of penalties and/or interest is not appropriate. Depending on the circumstances the Commissioner may also agree to write off or remit amounts owing (so they do not need to be paid), or agree that the taxpayer enters into an instalment arrangement (so the amount is paid over time rather than immediately).

The IRD seek open communication and are more willing to consider instalment arrangements when directors have been upfront from the start. Company directors that bury their heads in the sand and have no plans in place may face less leniency and liquidation proceedings.

The IRD can find directors liable for their company’s tax under general insolvency law. The law also says if a company agreement purposefully leaves it unable to pay a foreseeable tax liability, a director can be personally liable.

In the first instance the IRD will try for a settlement. This is your chance to negotiate terms and arrive at a compromise that allows you to stay in business while the IRD claims their tax. If you can reach a repayment agreement, the IRD won’t take the matter further.

If you’re unable to reach a compromise, the IRD will issue a formal demand, followed by a statutory demand and then issue an application for putting the company into liquidation (winding up proceeding) if you don’t settle the demand. If you do nothing the company will be placed into liquidation by the High Court.

Relief Options

The IRD offer relief options for companies with viable businesses and have been supportive of businesses that have shown clear impacts of Covid-19 on their business.

Financial relief can be granted when a taxpayer cannot meet their payment obligations. The process to apply for financial relief or an instalment option is here.

The Commissioner is open to instalment arrangements towards tax arrears. Splitting up what you owe over weekly or fortnightly payments can make it easier to repay your tax debt.

The CIR may agree to collect the amounts owing over a period of time through an instalment arrangement, or to not collect the amount owing (that is, write off the amount), or a combination of the two options (that is, write off some of the debt and enter into an instalment arrangement for the remainder). An amount may be written off if collecting it would place the taxpayer in “serious hardship”.

Where an amount is considered irrecoverable, the Commissioner has the discretion to write it off. The Commissioner may write off amounts if collecting the amounts owing is considered to be an inefficient use of Inland Revenue’s resources.

Certain penalties may be remitted when an event or circumstance has occurred which is beyond the taxpayer’s control.

Interest or certain penalties may be remitted if to do so is consistent with the Commissioner’s duty to collect the highest net revenue over time.

Voluntary Liquidation

One possibility for meeting the IRD formal demand is voluntary liquidation. This gives the director and shareholders a small element of control over liquidation proceedings. If liquidation is inevitable then the opportunity to voluntarily appoint a liquidator is usually required within 10 working days of the winding up proceeding being served so acting promptly following the statutory demand (or earlier) is advised.

If you do nothing or you can’t reach a settlement, the IRD can apply for their preferred liquidator or Official Assignee and manage your affairs and liquidate your company. In this instance the Court will appoint the IRD’s liquidator. As company director you have less control over the process and must cooperate with the Court appointed liquidator or Official Assignee at all times.

Deciding between involuntary and voluntary liquidation may not seem like much of a choice. Appointing a licensed insolvency practitioner that you believe understands you, your business and your industry, and who can consider your interests while satisfying the IRD’s demands provides more certainty of the likely outcomes. Your liquidator can apply specialist skills to remove some of the sting from this traumatic process.

Statutory and formal IRD demands are outside threats to your business. There are just as many risks that can come from within, so how do you protect your business from those?

If your company is experiencing financial difficulty, download our free guide for NZ Companies to discover your different options.

WHAT SHOULD YOU BE CONSIDERING NOW?

1. Consider the risks of trading insolvently and how directors can be held personally liable.
2. Negotiate an instalment plan with IRD for historic arrears and have a plan in place. The Inland Revenue have pressure to maximise the recovery for the Commissioner under the Tax Administration Act. They are willing to work with companies that communicate early on and this can save further interest/penalties.
3. Assess the viability of the business and its future. Prepare a cashflow forecast.
4. Where cashflow is an issue, consider compromises with creditors leading to some debt forgiveness and time payment arrangements or voluntary administration.

If the company has lost too much from the impact of Covid19 and the prospects are that the company has minimal ability to repay creditors nor has a financial source to fall back on to offer a better position than what liquidation holds, then liquidation sooner may be the better option. Continuing to trade with knowledge of insolvency is a risk for the directors.

WE ARE HERE TO HELP
Our team are happy to discuss the options available for struggling companies and how to manage personal guarantees and personal exposure. Contact This email address is being protected from spambots. You need JavaScript enabled to view it.

If your company needs some advice on the restructuring options or is likely facing the prospect of liquidation, we are happy to advise on the process and consequences.

Statutory demands - minimising bad debts is critical for any business 

Debt collection is difficult for business owners.  Pursuing bad debts early on improves any chance of receiving payment.  A creditor that puts the most pressure on a debtor will most likely receive their money before others; however, they need to be conscious of the voidable transaction regime when they are dealing with an insolvent company. 

If you are owed a debt and that debt is not in dispute and you suspect the company you have been trading with may be insolvent, you can issue a statutory demand against the company.  Depending on your terms of trade, a statutory demand will require the debtor to pay you the outstanding debt, interest on the debt, and the legal costs for issuing the statutory demand.  The purpose of a statutory demand is to determine whether the creditor can pay and not that they are liable to pay. 

The statutory demand process provides a quick procedure for ensuring payment, or for at least achieving some knowledge on whether payment is possible.  This process is intended to be a first step in making an application to put a company into liquidation when a company genuinely cannot pay. 

It is important to get the process right and it is advisable to instruct a lawyer who has ethical obligations to ensure the correct steps are taken rather than issuing the demand yourself or a debt collection agency taking responsibility.  It is however an abuse of process if the statutory demand option is taken when there is no prospect of the company being placed into liquidation. 

The cost of issuing a statutory demand should not be taken lightly.  If there is a substantial dispute and the creditor is successful in its challenge, Court costs will be awarded against the creditor.  If a creditor gets this process wrong, not only are they out of pocket for additional costs but months may have passed and they are no closer to collecting the debt. 

Sections 289 to 291 of the Companies Act 1993 deal with statutory demands. 

The process 

Before serving a statutory demand it is sensible to ensure that the debt is not in dispute.  Sending a formal demand so any dispute can be raised will give you an opportunity to settle the debt without any further action being taken.  If, however, the debt is disputed you can file proceedings at the District or High Court and seek judgement on the claim. 

Step 1 - Serve a statutory demand for the debt 

The demand must be in writing and should be served on the debtor company's registered office.  The demand must require the company to pay the debt or to secure the debt or to settle it in some way.  If the debtor does not pay the amount claimed within 15 working days, you can apply to put the company into liquidation.  This is a powerful tool as it is quite likely the debtor will go to lengths to ensure that other creditors are not aware of liquidation proceedings pending or in progress.  The company has 15 working days after being served to comply with the notice. 

The statutory demand must specify exactly what amount is owed (and it must be over $1,000).  The document specifies when the sum must be paid and provides the alternatives to full payment such as to enter into a compromise (Part XIV of the Companies Act 1993), or otherwise compound, or give a charge over property to secure payment of the debt to the reasonable satisfaction of the debtor, all within 15 working days of the date of service of the demand, or such longer period if the High Court order. 

Once a statutory demand is served on the debtor company, the debtor has 10 working days to dispute the debt by filing an application to set aside the demand or pay the debt within 15 working days. 

Step 2 - Applying to the Court to place the debtor into liquidation 

In the event the debt is neither disputed nor paid, then, on the expiry of 15 working days the debtor is deemed to be insolvent and the creditor can apply to the Court to place the debtor into liquidation.  The onus is then on the debtor to satisfy the Court that it is solvent.  If the company is unable to pay then a liquidation with a Court appointed liquidator will follow, or, the shareholders within 10 working days of being served have an ability to appoint a liquidator by a shareholder resolution. 

A liquidation application can only be issued by certain persons and the order for the appointment can only be made on grounds specified in section 241(4) of the Companies Act 1993.  The decision on whether the company is placed into liquidation is at the Court's discretion.  The Court may only put a company into liquidation by the appointment of a liquidator if the Court is satisfied that the company is unable to pay its debts, or the company, or the board of the company, has persistently or seriously failed to comply with the Companies Act 1993, or the company does not comply with section 10 (essential requirements), or it is just and equitable that the company be put into liquidation. 

The alternatives to paying a statutory demand in full 

Compounding means "coming to an agreement with a creditor".  The most usual form of compounding is an acceptable offer of payment by instalments.  It can also be an offer of a deferred payment or a request to defer filing of a winding up proceedings. 

Company Compromise (Part XIV Companies Act 1993) is an agreement between the company and various classes of creditors that give the company an opportunity to survive by avoiding liquidation and trading out of financial difficulty.  In order to reach a compromise a majority in number representing 75% in value of each class of creditor voting in favour of such a resolution is required (at a meeting of creditors).  Once agreement is reached, all debts are frozen and no creditor can take action against the company during the term of the compromise.  The outcome could be creditors are repaid either in full or in part and over time.  It is specifically a good option if the business is solid and is in financial difficulty but customers and suppliers are prepared to provide support.  Find out more about Company Compromises. 

Another remedy upon receiving a statutory demand is to reach a full and final settlement.  However, it is always important to bear in mind voidable transactions when dealing with an insolvent company.  A payment from a third party or the director or a personal guarantee are wise. 

How to serve a statutory demand 

A statutory demand to qualify as being served on the company either must be delivered to a person named as a director on the New Zealand Companies register, to an employee of the company at the company's head office or principal place of business, be left at the company's registered office or address of service, and in accordance with directions as to service by the Court, or in accordance with any agreement made with the company.  It is recommended that the document is served by a document server.  The service of a statutory demand by facsimile cannot be relied upon. 

Disputing a statutory demand 

If a debtor can show that a defence or a counter claim or a set-off equal to the amount claimed in the demand exists, not only will a demand be set aside but the aggrieved creditor will be ordered to pay the debtor's costs and will be no closer to collecting the debt. 

A Court may set aside a statutory demand if the application is made within 10 working days of the date of service of the demand and the application was served on the creditor within 10 working days of the date of service of the demand.  The Court may grant an application to set aside the statutory demand if it is satisfied that there is a substantial dispute, whether or not the debt is owing or is due, or the company appears to have a counter claim, set-off, or cross demand and the amount specified in the demand, less the amount of the counter claim, set-off or cross demand is less than the prescribed amount or the demand not to be set aside on other grounds. 

A demand will not be set aside by reason only of a defect or irregulatory unless the Court considers that substantial and injustice would be caused if it were not set aside.  Under section 291 of the Companies Act 1993, if a Court is satisfied that there is a debt due by the company to the creditor that is not subject to a substantial dispute, or is not subject to a counter claim, or set off, or cross demand, the Court may order the company to pay the debt within a specified period and that in default of payment, the creditor may make an application to put the company into liquidation, or dismiss the application and make an order putting the company into liquidation on the grounds that the company is unable to pay its debts. 

The service of a statutory demand process can give great leverage to get paid quickly, however if a debt is disputed or the company that owes the money is not in financial difficulty the process is used at your own peril.

A statutory demand is a claim under Section 289 of the Companies Act 1993.  If you or a client receive a statutory demand you are required to pay the specified sum, enter into a compromise or give charge over property to secure payment of the debt to the reasonable satisfaction of the creditor within 15 working days of the date of service, or such longer period as the Court may order.

Received a Statutory Demand?
We can help

• If you have been served with a statutory demand you need to speak to us immediately.
• There is a 15 working day window before your options start to close.
• The earlier you contact us the more options you have.
• Contact us now for free and confidential advice.

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Peri Finnigan

Director

Phone: (09) 303 9519

Mobile: 021 900 657

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Non-compliance statutory demand - consequences

The service and non-compliance of a statutory demand allows the creditor who served the statutory demand to apply to the Court for the appointment of a liquidator.  Failure to comply with the statutory demand within 15 working days of service will result in a statutory presumption that the company is insolvent. Liquidation will likely follow.

Application to set aside statutory demand

If you want to apply to set aside the statutory demand, you must file the application in the High Court and serve a copy of the application on the creditor within 10 working days of the statutory demand being served on the company. The Court may grant an application to set aside a statutory demand if it is satisfied that:

• There is a substantial dispute whether or not the debt is owing or is due; or
• The company appears to have a counter-claim, set-off, or cross-demand and the amount specified in the demand less the amount of the counter-claim, set-off or cross-demand is less than the prescribed amount; or
• The demand ought to be set aside on other grounds.

If the application to set aside the statutory demand is rejected by the Court, that is,"the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the Court may (a) order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or (b) dismiss the application and forthwith make an order undersection 241(4)putting the company into liquidation, on the ground that the company is unable to pay its debts(Section 291(1))".

Winding up proceedings

Following the expiry of 15 working days from date of service of the statutory demand, the applicant creditor may issue proceedings in the High Court to wind up the company.  These proceedings, are issued under Section 241(2)(c).

Applications may be brought on a number of grounds, the most important being that the company is unable to pay its debts.  There are a number of factors that the Court will take into account when deciding whether or not to make a liquidation order.  The Court has a discretion as to whether or not to make the order, but generally make the order if the company is insolvent.

The notice of winding up application must include the winding up notice, a supporting affidavit, a statement of claim and notice of proceeding and the documents must be filed within 30 working days of the statutory demand expiring unremedied, (ie. 45 working days after service).  A date of hearing is allocated and documents must be served at least 15 working days before the date of hearing.  Advertisements must be placed in a daily newspaper in the area and in the New Zealand Gazette at least five working days before the hearing but cannot be placed until at least five working days after service.

It is not surprising that if a debtor is going to pay the debt before the hearing, they will usually try to do so before the creditor advertises the application.

The cost of a winding up application, including the service fee of the statutory demand, preparation and filing a winding up application, the service fee of the winding up application, advertising, a solicitor's appearance fee and cost of the filing of a winding up order.  We often consent to act on Court appointed liquidations. The applicant creditor's Court costs and disbursement are preferential in the liquidation under the Seventh Schedule of the Act.  These tend to be around $4,500.

Court appointed liquidation

Once a liquidator is appointed, the liquidator will represent the interests of all creditors and seek to collect and realise the company assets, discharge liabilities and distribute any funds in accordance with the provisions of the Companies Act 1993 and Personal Property Securities Act 1999.  The liquidator appointed is usually determined by the creditor.  A consent to act must be obtained prior to the Court hearing.

Options for companies who have been served with a statutory demand - undisputed debt

• Do nothing and ultimately face liquidation proceedings;
• Pay the amount owing;
• Enter into an informal compromise reaching a full and final settlement for an agreed sum - over a term or upfront - and possibly from sources not available should the company face liquidation;
• Offer a formal company compromise under Part 14 of the Companies Act 1993 - offering all creditors a payment arrangement on "compromise debt" and trade terms for ongoing trading;
• Offer assets as a form of security;
• Enter into a shareholder resolution placing the company into a voluntary liquidation before the winding up proceeding is filed with the consent of the applicant creditor. The voluntary liquidation process is generally less stressful as the entire procedure is well planned and the directors can assist and guide the liquidator.

Disputed debts

A statutory demand should not be used where the debt is subject to a dispute. Where there is a dispute, other legal action should be taken.  This is either through the District Court (if debt within the District Court jurisdiction $350,000) or Disputes Tribunal (if debt is less than $30,000).

If you or a client are facing the threat of a winding up notice, or are considering a voluntary liquidation, please contact our office to assist you/your client.  If you are the creditor and have commenced winding up proceedings we would be very pleased to consent to act on the appointment.

DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.