A statutory demand can threaten your company’s very existence. Used to collect debt, they’re the most common form of evidence used in the High Court to support liquidating a company. Given how serious receiving a statutory demand is, it’s important to act fast and seek professional advice. If you do nothing, liquidation proceedings are virtually guaranteed.
A statutory demand requires payment of debts owing more than $1000 within 15 days. Time is not your friend. If you can settle the debt within that time period then you should be fine. It may still be worth seeking professional advice to see whether your creditor is abusing the statutory demand process, as there could be legal repercussions for them.
If there is an issue with the debt or invoice, then statutory demands cannot be served. If you have a genuine dispute over payment you can apply to the High Court to have your statutory demand set aside, but it must be done within 10 working days!
The Court can take into account any counter-claim, cross-demand or other relevant issues and set aside the statutory demand.
Out of Court Resolution
There are a number of formal and informal compromises available to help you reach a settlement with the creditor who served you notice. Any offer needs to show your creditor that for you to continue trading is in their best interests. You can offer assets as a form of security while you negotiate a payment arrangement.
Statutory demands can be costly
In a real life example, a debtor company was late paying an invoice but paid the total amount in full. While the payment was being processed, the creditor company passed the debt over to their debt collection agency. The debt collectors contacted the debtor for the full amount of the invoice plus their debt collection fee which was over $1000.
At this point, lawyers for the debtor company disputed the collection fee and advised the debt collectors the original invoice had been paid in full. The debt collectors issued a statutory demand to recover their fee, but lawyers for the debtor company successfully argued in court to have the demand set aside.
The court felt the debt collectors had abused the statutory demand process, so they failed to recover their $1000 fee and were ordered to pay costs of over $4000.
Statutory demands are complex proceedings involving the High Court and the Companies Act (1993). Your best course of action is to always seek professional legal advice, and from there figure out how to proceed. Ignoring a statutory demand or acting too late will almost certainly mean liquidating a company, so get professional advice before it's too late.
For more information, download our free Guide for NZ Companies in Financial Difficulty.