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…

In our 38th Insolvency by the Numbers, we look at our data set for the year end 2023 in review along with January 2024. We look at how the year has tracked compared to prior years and what to we can expect in 2024, followed by a look at how January 2024 has compared to the last few years. The latest data release shows that inflation has fallen however the portion of it generated by non-tradeable inflation figures remains high. Economists are predicting that it is unlikely that we will see an official cash rate drop till the later part of the year with come commentators still expecting the first drop in 2025. The property market however has now stabilised…

Many NZ companies are currently affected by cash flow issues 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 ("CIR") will take debt recovery action where debts are in arrears. 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…

The start of the year can be a challenging time for many business owners, especially after the extended break over the Christmas and New Year period. The pressure is compounded by the need to settle various financial obligations, from employee holiday pay to tax payments. Many businesses are facing the strain from having paid employees holiday pay entitlements, a period where income has not been generated due to closure and then obligations such as November GST due 15 January, Paye due on 22 January, Oct to Dec FBT due on 22 January, provisional tax due on 15 January and for the larger employers more PAYE due on 5th of February. Some are now struggling with the reality that these obligations…

In our 37th Insolvency by the Numbers, we look at our data set for November 2023 and past years to see how the month has tracked and what may be coming up in the coming months. We now have a coalition sorted giving people an idea of what is in store for the next 3 years, the Reserve Bank has kept the OCR stable and has said that rates will not be coming down till 2025 as expected. With Christmas fast approaching businesses are rushing around trying to complete work for customers before the year end when the customer has had all year to get it sorted but left it to the last minute, so business as normal for this…

Managing cash flow during the Christmas close-down period is crucial for businesses, as it often involves reduced operations and potential disruptions. Implementing proactive measures can help mitigate cash flow challenges during this time: 1. Forecast Cash Flow:• Prepare in Advance: Anticipate the impact of reduced sales or operations during the holiday period. Review historical data to estimate income and expenses accurately.• Create a Cash Flow Forecast: Develop a detailed cash flow forecast covering the close-down period. This forecast should include expected revenues, expenses, and any planned payments. 2. Adjust Payment Schedules:• Invoice and Payment Timing: Expedite invoicing before the close-down period to ensure prompt receipt of payments. Request early payments from clients or customers to improve cash flow before the…

The impacts of global unrest and overseas bank failures can have various implications for businesses in New Zealand: 1. Financial Instability:• Market Volatility: Global unrest can lead to financial market volatility, impacting investment portfolios and affecting businesses relying on international trade.• Credit Availability: Overseas bank failures or financial crises may tighten credit availability, affecting businesses seeking loans or lines of credit from international financial institutions.• Exchange Rate Fluctuations: Currency fluctuations due to global instability can impact import/export businesses, affecting profit margins and pricing strategies. 2. Supply Chain Disruptions:• Dependency on Imports: New Zealand businesses reliant on imports may face challenges due to disruptions in global supply chains, leading to delays in raw materials or finished goods.• Export Market Instability: Instability…

Personal guarantees (PGs) are regularly sought to secure trade terms for company debt. Understanding the implications of PGs in the event of a company's failure is critical for both business owners and stakeholders. 1. Personal Guarantees Defined: Personal guarantees represent a commitment by an individual, often a company director or shareholder, to take responsibility for a company's debts or obligations in case of default. These guarantees provide lenders with an added layer of security when extending credit to businesses. 2. Impact of a Failed Company and Personal Guarantees: When a company fails, and it's unable to meet its financial obligations, the presence of personal guarantees ties the guarantor (often the director) to the debt. In such instances, the guarantor becomes…

Insolvency by the Numbers: NZ Insolvency Statistics October 2023 In our 36th Insolvency by the Numbers, we look at our data set for October 2023 and past years to see how the month has tracked and what may be coming up in the coming months. With October and the election finally at an end, except for specials, we have an indication of what party will be front footing it into the next 3 years. The consensus that came out over the election campaign however was that getting back on the good footing may take some time, with cuts in government spending appearing to be an interesting topic. Whether this happens only time will tell, but hopefully we will see a…

What are the reasons that can be given for a debtor not complying with a statutory demand? What are the defences? Can they avoid liquidation at a High Court winding up proceeding? Section 289 of the Companies Act 1993 enables a creditor to issue a statutory demand to a company for a debt that is both due and payable. Issuing such a demand is a significant step that warrants careful consideration. If the indebted company fails to comply with the statutory demand within 15 working days, it is assumed to be insolvent. Consequently, the creditor may apply to the court to initiate the process of liquidating the company, which entails engaging a lawyer to serve a notice for winding up…

Accepting an informal instalment arrangement for a debt that is owing to you instead of being paid on trade terms is not obligatory, giving you the discretion to evaluate the situation before making a decision. However, it's crucial to assess both the potential advantages and the associated risks. If a debt is owing and not being paid there are common courses of action such as negotiating an agreeable solution and instalment plan, issuing a statutory demand, enforcing a judgment, engaging a debt collection agent, mediation, caveats (where there is a caveatable interest), lodging a report with credit agencies etc. There are benefits and risks to most options. We discuss the informal arrangements here. Risks of Accepting an informal Instalment Arrangement:…

In our 35th Insolvency by the Numbers, we look at our data set for September 2023 and past years to see how the month has tracked and what may be coming up in the coming months. With September coming to an end, we are in the last two weeks of NZ’s latest election campaign. As predicted it has been a month of promises and debates from all parties. Unsurprisingly like with a lot of our past elections there is a level of uncertainty across all markets from housing, the economy and the stock market. The September OCR announcement once again saw no change to the rate, however heavy emphasis was given to the idea that we may be in line…