Reading time: 5 minutes

Unpaid debts are a recurring nightmare for countless businesses in New Zealand. Particularly when the debts are of a substantial amount, debtors not paying will slow down your cash flow and potentially harm the growth of your business. One option if you are chasing a company over an unpaid debt is to issue a statutory demand. These can be up the ante on unpaid debts, get a court involved to order the company to pay a debt, or start a debt recovery process if you believe the company is insolvent. This article will set out:

  • how statutory demands work in New Zealand;
  • when you and your business should use them; and
  • how to respond if your business receives a demand issued by a creditor. 

How Statutory Demands Work

Statutory demands are issued by creditors against debtors who owe them money and have not paid their debts. The statutory demand process is aimed at giving creditors an effective and efficient way to seek their unpaid debts.

However, it is not intended to solve complicated or divisive disputes over debts. For that reason, these demands are for debts where the parties agree on the amount of debt, and the date payment was due.

In the right situation, a statutory demand can be a  cost-effective tool for your business to help recover money and improve any cash flow issues. The ability to issue a demand is provided for in New Zealand law. Unlike other processes, you do not need to go to a court beforehand. Instead, you can issue a demand directly to the debtor in question. There are three key criteria: 

  1. the debt must be for $1000 or more;
  2. there must be no substantial dispute about whether the money is owing or due; and
  3. the debt must fall due on or before the statutory demand is issued.

In the right situation, a statutory demand can be a cost-effective tool for your business to help recover money and improve any cash flow issues. 

How to Issue Statutory Demands

There are certain requirements when you or your business issues a statutory demand against a debtor. You must issue this demand in writing, and it must give details of what the debt is for and specify the amount owing. It should also say where payment can be made and give an address where the debtor company can serve any proceedings on your business.

The debtor company then has 15 working days to, or a longer period if a court orders that it should have more time, to:

  • pay the debt;
  • secure the debt; or
  • agree a compromise with your business as the creditor.

Apply to the High Court

If the debtor company fails to pay the debt or respond to your statutory demand, you have a further 30 working days to apply to the High Court to have the debtor company placed into liquidation. If you fail to make the application to the High Court within that time period, the demand is deemed ‘stale’ and you can no longer rely on the demand to show that the debtor company is unable to pay its debts. However, in this situation, you will be able to issue a new statutory demand if the debtor has still yet to pay their debt. 

If the Debtor Disagrees With the Statutory Demand

The other option is that the debtor company disagrees with the contents of the statutory demand you have issued. In this case, it has ten working days to apply to the High Court to have the demand set aside. In particular, when issuing the demand, be careful not to do so for debts that are disputed in some way.

The High Court has been harsh on these kinds of demands in the past. It may consider them to be an abuse of process and issue an award of costs against your company. That would mean you have to pay additional costs without receiving payment of a debt any faster.

Key Takeaways

Statutory demands are a useful tool for creditors to use against debtors who have not paid their debts. The statutory demand process is aimed at giving creditors an effective and efficient way to seek payment of those unpaid debts. However, it is a streamlined process and so is not intended to solve any complicated disputes over debts. When your business is owed money and the debt due date has passed, your business can issue the demand directly to the debtor. There are three key criteria for these demands:

  • the debt must be for $1000 or more; 
  • there can be no substantial dispute about whether the money is owing or due; and
  • the debt must fall due on or before the statutory demand is issued.

If you want to know more about issuing or responding to a statutory demand, feel free to call LegalVision’s disputes lawyers on 0800 005 570 or complete the form on this page.

FAQs

How long does the debtor company have to respond to a statutory demand?

Debtors have 15 working days to respond to a statutory demand. They have 10 working days to apply to the High Court to have the statutory demand set aside. 

Can I issue a statutory demand for smaller debts, such as $200 or $500?

No, the minimum debt for a legitimate statutory demand is $1,000. Otherwise, the demand could be considered an abuse of process.

Who can issue a statutory demand?

A creditor can issue a statutory demand to a debtor where there is no reasonable dispute about the amount of the debt, or the fact that it is due.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2019 Top 25 Startups - LinkedIn
  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards