What you can expect following service of a statutory demand

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?
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  • 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.
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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.

What you can expect following service of a statutory demand



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.

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