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What is a Statutory Demand? And what to do if you receive one.

Understanding Statutory Demands in New Zealand

Polite requests from creditors can quickly escalate to more severe measures when payment obligations are not met.

With most New Zealand businesses facing tough economic times ahead, it is not implausible to suggest a good number will not survive. One of the first signs of financial difficulty is the inability to pay debts. Although creditor requests may be gentle at first, they can quickly become more tense when payment is not received. And in these challenging times, unpaid debt bears heavily upon a weakened business.

In this article we look at the Statutory Demand process and the important timeframes you need to be aware of to avoid potential liquidation.

What is a statutory demand?

A Statutory Demand is a demand for payment that is supported by a legal framework and has serious consequences if settlement is not achieved. The purpose of a Statutory Demand is to provide creditors with a way to initiate the necessary action to recover outstanding debts.

The Statutory Demand Process

If your company receives a Statutory Demand, it is important to seek guidance from an insolvency practitioner or Voluntary Administration expert immediately. Timely and expert advice is crucial to avoid a delayed or incorrect response, which could further jeopardise the outcome.

There are strict timelines relating to the Statutory Demand.

The first is that if the claim is disputed, a filing must be made in the High Court within 10 working days to apply to have the demand set aside.

In due course the substance of the dispute or counterclaim will be heard, and a decision made. Care should be taken to ensure there is a genuine dispute and the action is not merely frivolous to frustrate the creditor or to buy time. The Court has the power to immediately place the company into liquidation if the finding deserves that action.

The second critical issue is that the demand matures after 15 working days from its date of service. 

If settlement or other arrangements are not made at that time, then the default can be used as evidence of the company’s insolvency. This is relevant if the creditor wishes to push on and apply for a liquidation order. Insolvency is grounds for the Court to make an order for liquidation. This is likely to happen rapidly because the demand becomes stale if not used as evidence within 30 working days.

An important housekeeping matter is to check that your company’s registered office is correct. It is at this address that service will be made, and it is important to ensure all such documents served reach the right person in a timely way.

Want to know more? You can read more about what to expect when you are served a Statutory Demand here.

Why have I been served a Statutory Demand?

Perhaps the most important matter to consider is why a Statutory Demand has been issued by a disenchanted creditor. This may be the time to consider underlying issues relating to the solvency of your business.

Business life is jam-packed with issues to be resolved but sometimes it’s worth taking a step back from operations and looking beneath the surface to see what can be done to fix the bigger issues. Taking a health check may seem inconvenient, but the reality is that once a Statutory Demand is served a company is vulnerable. Getting to the root of the problems may not only prevent the unwanted consequences of this demand but prevent it from happening again.

Bigger forces at play: How inflation affects business health in New Zealand

There will be difficult times over the next 12 months but that is not a surprise given the recessionary policy being forced upon the economy to rein in inflation.

It’s too easy to frown upon the Reserve Bank for its engineering tactics – the reality is they are obligated to attack the menace of inflation. If, as a nation, we cannot increase production to justify price increases, we must suffer lowered demand from consumers. Ultimately this will result in innovation and efficiency to beat off competitors as consumers become more discerning with their limited discretionary income.

Some businesses are sure to get caught in the maelstrom that’s on its way.

However, it’s important to remember that these difficult times are not unexpected. By preparing for the obstacles that lie ahead, businesses can navigate the changing landscape and position themselves for success in the long term.

BWA Insolvency is known New Zealand-wide for combining skills of restructuring, recovery, and rehabilitation of businesses with the legal model of Voluntary Administration to avoid the consequences of insolvency and the impact of a Statutory Demand being served. If you have been served a Statutory Demand, contact us today for a confidential, no-obligation chat.

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