Served With A Statutory Demand? Applying to Set Aside a Statutory Demand

14 November, 2014 | Duncan Lang

A company served with a statutory demand does not have the luxury of time.   Steps can be taken to deal with the statutory demand, but action is needed as soon as possible.

What is a statutory demand?

A statutory demand is a formal demand served on a company claiming a debt is owed by that company.  It must be in writing and be for a debt of at least $1,000. Service on a company can occur in a number of ways, such as by delivery to a person named as a director or by leaving it at the company’s registered office.

What does a statutory demand mean?

A statutory demand gives the company 15 working days from the date of service to either pay the debt, or enter into an arrangement to the creditor’s satisfaction, such as a payment plan or a charge over property.

What happens if I do not comply with the statutory demand?

If the company fails to comply with the statutory demand, then it is presumed that the company is unable to pay its debts and is therefore insolvent.  In turn, this can lead to liquidation of the company.

What steps can I take if I disagree with the debt claimed in the statutory demand?

There may be circumstances where the company may be unwilling to comply with the statutory demand, such as if it disagrees that the debt is owed. In that case, the company can apply to set aside (cancel) the statutory demand.  This must be done within 10 working days of service of the statutory demand.  The time limits for applying to set aside the statutory demand are strict and cannot be extended, so quick, decisive action is required.

How is an application to set aside a statutory demand made?

An application to set aside the statutory demand with a supporting sworn statement (an affidavit) is made to the High Court, and must be served on the creditor.   Before setting aside a statutory demand, the Court must be satisfied of one of the following:

• that there is a substantial dispute as to whether the debt is owing
• that the company has a counter claim which when set against the amount demanded results in a net sum due that is less than $1,000
• that the demand ought to be set aside on other grounds.

The statutory demand remains in place until your application is heard, but your lawyer can ask the court to extend the time under the statutory demand.  This will prevent the creditor from taking steps against the company until the application has been dealt with.

What happens if the Court disagrees with the company?

If the court finds that the statutory demand should not be set aside, it has the power to order the company to pay the debt within a specified period.  It could also order the company to be put into liquidation.

A statutory demand should not be taken lightly. If you have been served with a statutory demand please contact litigation executive, Mikayla Sagar by email on Mikayla.sagar@smithpartners.co.nz or by phoning 09 837 6890 to schedule an appointment with statutory demand specialist, Duncan Lang.