What Is A Statutory Demand?

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What is a statutory demandA Statutory Demand is a court document giving written notice that a debtor company must pay the debt that is owed to the creditor. It is the first step in a legal proceeding to “wind up” an insolvent company pursuant to Section 289 of the Companies Act 1993. Ultimately, a Statutory Demand is a test on a Debtor Company to establish an act of insolvency (to see whether the Company is able to pay its debts when they fall due).

Smith and Partners Statutory DemandOnce the Debtor Company has been served with a Statutory Demand, it then has a period of 15 working days to pay the debt or otherwise satisfy the demand (or make a formal dispute to the Court). If the debt is not paid, or a formal dispute of the debt lodged with the Court, then an act of insolvency as been established, which then provides the creditor with the ability to file an application in the High Court to wind up the Debtor Company (the District Court does not have the jurisdiction to deal with these applications).

Often, serving a Statutory Demand is a very effective way of motivating a Debtor Company to focus on the issue and can be a very effective procedure to achieve payment.

Restrictions on issuing a Statutory Demand
Before doing issuing a statutory demand, it is extremely important to consider the following:

• whether the Debtor Company has ever disputed the debt or the amount that is owing; and
• whether the amount of the debt is greater than $1000.

If there is a substantial dispute over the debt or the amount owed to you, then serving a Statutory Demand is not the appropriate course of action and is considered to be an abuse of the court process for winding up a Company.

The High Court recommends that a Statutory Demand be issued by a firm of solicitors to ensure that this procedure is not used inappropriately.

In the event that there is a substantial dispute with the Debtor Company, it would be a more appropriate course of action to determine the dispute in the ordinary course by issuing legal proceedings in the District Court or the Disputes Tribunal.

Why issue a Statutory Demand?
Often, the service of a Statutory Demand results in the Debtor Company taking prompt action to satisfy the demand in order to avoid being wound up.

 A statutory demand isIf you have been served or would like to serve a Statutory Demand
 please contact Wendy Alexander on (09) 837 6844 or by email at wendy.alexander@smithpartners.co.nz.

You may also be interested in reading:
Motivating Debtors to Pay: Understanding The Bankruptcy Process