Statutory Demands in New Zealand

How to improve your debt collection efforts in New Zealand with Statutory Demands

A statutory demand is one of the most underrated, but effective remedies a business can use to collect an overdue and undisputed debt in New Zealand. At Slater Byrne Recoveries, we are here to simplify the process and break it down for our clients so they understand their effectiveness and when and how to issue them.

What is a Statutory Demand?

A statutory demand is a legal demand by a creditor in respect of a debt owing by a company made under Section 289 of the Companies Act 1993.

The Stat Demand must be:

  1. for a debt that is due and has not been disputed,
  2. for a debt not less than $2,000.00,
  3. in writing and drafted by a solicitor, and
  4. served in person on the debtor company address.

Importantly, the Issuance of a Stat Demand requires the debtor company to either:

  1. pay the debt within the required time frame, or
  2. enter into a compromise/settlement mutually agreed to by both parties, or
  3. give a charge over its property to secure payment of the debt.

A debtor has 15 working days from the date of service of the Stat Demand to pay the amount claimed. The court may also prescribe a longer payment period if the debtor applies to pay over time, but this is not common.

Why Issue a Stat Demand?

A Stat Demand is best used to force a response and payment from a debtor company reminding them that it must pay the debt that it owes or face the consequences of Liquidation. 

It is often used as a “test” to establish that the Company is insolvent.

If a company has failed to comply with a Stat Demand by paying within the required time frame, the law presumes that that company is “unable to pay its debts” and is therefore deemed insolvent in the eyes of the court.

Moreover, when the debtor company fails to comply with a Stat Demand and pay the debt within the required time frame, the creditor may then apply to the court for an order that the company be put into liquidation, as they should not be allowed to continue to trade if they are unable to pay their debts.

A Stat Demand is the first step to winding up an insolvent company, or to secure payment from bad payers.

How Does the Statutory Demand Work?

There are two sides to the Stat Demand process: the creditor side and the debtor side. Let us focus on how the Stat Demand process works and how it helps the creditor successfully collect unpaid debts:

  1. Creditor issues statutory demand.
  2. The debtor will pay the unpaid amount on or before the 15 days indicated in the Stat Demand. Or, the debtor disputes the amount within 10 days from receipt of the Stat Demand. The Debtor may also apply to set aside the Stat Demand.
  3. If the debtor applies to set aside the Stat Demand, our solicitors will look at the merits of their dispute. If the dispute is genuine and must be worked through, we will consent to the Stat Demand being set aside while we work through the issues raised.
  4. Should the debtor not pay within the required time frame, the creditor may apply to put the debtor company to liquidation.

How to correctly serve a Statutory Demand in New Zealand

To correctly serve a Statutory Demand in New Zealand, you should consider the following:

  1. Service must be to a company. You can serve the Stat Demand only upon a debtor company, meaning you cannot serve it upon individuals. A company, under the law, must have a name, one or more shareholders, and one or more directors. As confirmation that the entity you are dealing with is legitimate, we will always check their New Zealand Business Number (NZBN). Moreover, the Stat Demand must correctly identify the debtor and the creditors legal entity.
  2. Undisputed unpaid amount. You can serve the Stat Demand only if the debtor has not disputed the amount due and owing. If the debtor has previously raised a dispute with the debt, the court may see serving a Stat Demand as an abuse of the court process.
  3. The debt is due and payable. The debt that is subject to the Stat Demand must be due and payable at the time of its drafting. For example, if you have a 30-day payment terms, wait out until the term has expired before issuing a Stat Demand.
  4. Date for payment. The Stat Demand must indicate the date within which the debtor must pay — that is 15 working days from the date of service.
  5. Creditor’s signature. For the Stat Demand to be a legally binding document, it must contain the signature of the creditor.
  6. Debtor’s receipt. A Stat Demand is served in person by a licensed field agent to the registered company address.

Key takeaways

As a professional debt collection firm, we have used the Statutory Demands in New Zealand in many instances especially where we have a debtor company who has made numerous broken promises, has stopped responding or communicating and is still trading.

There are many ways to effectively, ethically, and legally collect debts. We are always exploring unique solutions to our clients situations, including Stat Demands, to help our Clients recover money that is due and improve their cash flow.

Contact us at any time should you wish to discuss the above process in further detail or discuss your specific case and possible solutions to a swift resolution.

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