Using a Statutory Demand in New Zealand: Recovering Your Deposit from a Non-Communicative Company


When you pay a deposit for a service or product and the company fails to communicate, it's a frustrating and concerning situation. This article explores how/when to use a statutory demand to recover your funds if you suspect the company may be insolvent. We also discuss steps for smaller disputed debts within the Disputes tribunal, recovery of larger deposits, and specific considerations for building agreements in New Zealand. Additionally, we will cover the possible costs and time involved in pursuing legal action, and why such cases are often not pursued due to economic reasons.

Scenario: Unresponsive Company Holding Your Deposit

Imagine you paid a significant deposit to a company for a building project. The company has since ceased all communication, and you fear losing your funds. This scenario can be distressing, but there are steps you can take to help recover your money.

Step 1: Determine the Debt Amount and the Default

First, ascertain the amount owed to you and how the supplier is in default (refer to the terms of the contract). If the debt is disputed and within the jurisdiction of the Disputes Tribunal (disputes up to $30,000), you can consider lodging a claim:
If the debt is undisputed then contact a debt collector for assistance or your lawyer considering a formal demand or statutory demand.
For larger deposits, especially in the context of a building agreement, you may need to take more substantial legal action.

Step 2: Assess the Company's Solvency

Before proceeding, determine whether the company is insolvent. Signs of insolvency include:

• Ceased trading activities
• Unpaid debts to multiple creditors
• Ignored communications from creditors

Step 3: Legal Options for Debt Recovery
Disputes Tribunal

For debts within the Disputes Tribunal's jurisdiction (small claims up to $30,000):

1. File a Claim: Complete the necessary forms and submit your claim to the Tribunal.
2. Mediation: The Referee will work towards a mediation to resolve the dispute.
3. Hearing: a hearing will be scheduled between the applicant and the respondent where both parties present their case.

The referee is not a judge but their decision is binding.

Statutory Demand for Undisputed and Larger Debts

For larger debts (not disputed) or when dealing with potentially insolvent companies, a statutory demand can be an effective tool.  A statutory demand is a formal, legal notice issued to a debtor company, requiring the payment of a debt within 15 working days. A statutory demand is used when a debt is undisputed and overdue to prompt payment. It is not suitable for cases where there is an argument about the amount that is due.

1. Prepare the Statutory Demand: A statutory demand must include:

o The amount owed
o The basis of the debt (e.g., unpaid invoice, breached contract)
o A demand for payment within 15 working days

It is advisable to gain advice on preparing the statutory demand and/or engaging a professional to prepare this to ensure it is valid.

2. Serve the Statutory Demand: Serve the demand to the company's registered office or principal place of business. Service can be done in person, by courier, or registered mail.

3. Wait for a Response: The company has 15 working days to respond (or 10 days to file a notice to set aside). If they fail to pay or dispute the debt, you can apply to the High court to liquidate the company. This involves a lawyer issuing a winding up notice followed by an application putting the company into liquidation. There are costs involved for the applicant creditor however the costs have some priority in the event of liquidation.

If there is no suspicion of insolvency or the debt is disputed and you have a civil dispute for between $30,000 and $350,000, you’ll usually go to the District Court. For larger or more complex disputes you’ll usually go to the High Court.

Building Agreement Considerations

In the case of a building agreement:

1. Review the Contract: Ensure you have a clear understanding of the terms and conditions.
2. Document Communication: Keep records of all communications with the company.
3. Consult a Lawyer: Given the complexities of building agreements, seeking legal advice is recommended.

Costs and Time Involved

Costs

• Disputes tribunal: Filing fees range from $45 to $180, depending on the claim amount.
• Statutory Demand: Legal fees/Debt collector fees for preparing and serving a statutory demand can range from $500 to $1,500 or more.
• Court Action: If the company disputes the debt, court proceedings can be expensive, with legal fees potentially reaching thousands of dollars.
• Winding Up proceeding putting a company into liquidation: will incur legal fees which are a claim in the liquidation and hold a preferential status.

Time

• Disputes tribunal: Resolution typically takes a few months.
• Statutory Demand: The initial demand process takes 15 working days, but court proceedings can extend the timeline to several months or more simply due to availability for a court hearing.

Why Such Cases Are Not Often Pursued

Pursuing legal action for debt recovery can be time-consuming and costly. Small claims may not justify the expense, and even larger claims can result in prolonged litigation with uncertain outcomes. For these reasons, many individuals opt for alternative dispute resolution methods or write off the loss as a bad debt.

Conclusion

Using a statutory demand is a powerful tool for recovering debts, particularly from unresponsive or insolvent companies. Understanding the process, costs, and time involved is crucial for making informed decisions. Whether dealing with a small claim or a significant deposit under a building agreement, seeking legal advice and carefully considering your options can help you navigate the complexities of debt recovery in New Zealand. An insolvency practitioner can provide advice on the options – contact our team.

 

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