If your business is owed money by another company and your reminders, phone calls and letters of demand have gone unanswered, you may be wondering what your next step is.

One option available under New Zealand law is a statutory demand. When used correctly, it can be a highly effective way to recover unpaid debts and encourage prompt payment without immediately commencing Court proceedings.

However, statutory demands are not appropriate in every situation. Understanding when they can be used, and the risks involved, is essential before taking action.

What is a statutory demand?

A statutory demand is a formal legal notice requiring a company to pay a debt.

It can only be issued against a company and is used to determine whether that company is able to pay its debts as they fall due.

Once served, the company has 15 working days to:

• pay the debt in full;
• reach an agreement with the creditor; or
• apply to the High Court to have the demand set aside.

If none of these things happen, the company is presumed to be insolvent, which may allow the creditor to begin liquidation proceedings.

When can you issue a statutory demand?

Before issuing a statutory demand, you should make sure:

• the debt is more than $1,000
• the debt is clearly owed
• there is no substantial dispute about the debt
• the company does not have a reasonably arguable counterclaim.

It is also important to have evidence supporting your claim, such as:

• unpaid invoices
• contracts or agreements
• purchase orders
• terms and conditions
• correspondence confirming the debt.

Before escalating matters, creditors should generally make reasonable attempts to recover the debt through reminder notices, phone calls, emails or a formal letter of demand.

If those efforts have been unsuccessful, a statutory demand may be the appropriate next step.

What are the benefits of a statutory demand?

A statutory demand is one of the strongest debt recovery tools available to creditors.

Some of the key advantages include:

• Encourages prompt payment
  A statutory demand imposes a strict 15-working-day deadline with significant legal consequences if the debt remains unpaid.
  
  
• Supports future liquidation proceedings
  If the demand is not satisfied, it is evidence that the company is unable to pay its debts, which is one of the grounds for commencing liquidation proceedings.
  
  
• Helps prioritise your debt
  Companies experiencing financial difficulty are often dealing with multiple creditors. Receiving a statutory demand frequently encourages a debtor to prioritise your debt ahead of others.
  
  
• Demonstrates you are serious
  Unlike a standard reminder or letter of demand, a statutory demand clearly signals that you are prepared to take formal legal action if payment is not made.
  
  
• Creates an opportunity to resolve the matter
  Many statutory demands lead to discussions between the parties before Court action becomes necessary. In some cases, a negotiated settlement can save both parties significant time and legal costs.

What happens after a statutory demand is served?

After a statutory demand has been served, the company has several options.

It may:

• pay the debt
• negotiate a settlement or payment arrangement
• apply to the High Court to have the statutory demand set aside
• do nothing.

If the company takes no action within 15 working days, the creditor may choose to file an application to liquidate the company.

When shouldn't you use a statutory demand?

A statutory demand is not suitable in every debt recovery matter.

It should generally not be used where:

• the debt is genuinely disputed
• the debtor has a reasonably arguable counterclaim
• the debt is less than $1,000.

Using a statutory demand where there is a substantial dispute may be considered an abuse of the Court process and could result in costs being awarded against the creditor.

If the debt is disputed, commencing legal proceedings may be the more appropriate option.

Why should you engage a lawyer?

Although statutory demands may appear straightforward, they are governed by strict legal requirements.

Obtaining legal advice can help ensure:

• the debt qualifies for a statutory demand
• the demand is prepared correctly
• it is properly served
• you understand the legal process and timeframes
• your interests are protected if the company applies to set the demand aside.

The High Court recommends that statutory demands be prepared by a lawyer to reduce the risk of the process being used incorrectly. An invalid statutory demand can delay debt recovery and may expose the creditor to unnecessary legal costs.

Frequently Asked Questions

A statutory demand can be an effective way to recover an unpaid company debt without immediately commencing Court proceedings.



However, it is only appropriate where the legal requirements are met and there is no genuine dispute about the debt. Seeking legal advice before issuing a statutory demand can help you avoid costly mistakes and maximise your chances of recovering what you are owed.

If your business is owed money by a company, you're considering issuing a statutory demand, or you've been served with one, we invite you to become a client of Smith and Partners. For tailored legal advice specific to your situation, please contact Nathan Tetzlaff at nathan.tetzlaff@smithpartners.co.nz or phone 09 837 6844, or complete the form below to arrange an appointment.

We will require a retainer to be paid prior to your first meeting, and we cannot assist with legal aid matters. Please note that, in accordance with our obligations under the Lawyers and Conveyancers Act 2006, we cannot provide legal advice unless you have become a client of Smith and Partners and have received our Terms & Conditions of Engagement and Info for Clients.