A customer owes me money – How can I get them to pay?

11 January, 2021 | Duncan Lang

Keeping on top of cash flow is key to the success in any business. Being able to quickly and easily recover debts is an important step in keeping that cash flowing. Occasionally, you will have customers who you just can’t get to pay their bill. When debts become problematically outstanding, a civil litigation lawyer is able to assist you to recover those debts.

Often all that is needed is a stern standard demand letter for payment of the outstanding debt, addressed to the company from your lawyer to nudge that sluggish customer into paying – this is an easy and cost effective first step. If no response is received to the demand letter, and the debtor company has never disputed the debt, then a Statutory Demand can be issued which allows the company fifteen working days from the date of service to pay the outstanding debt or ten days to dispute it.

The debtor company, if it has a genuine dispute to the debt, is able to make an application to set aside the Statutory Demand within ten working days after the date of service of the Statutory Demand. The debtor company will have to establish to the Court that there is a genuine dispute in relation to the debt claimed by the creditor. However, once the tenth working day expires, the High Court has held that it has no jurisdiction to grant an extension of time to enable the debtor company to dispute the debt.

After the expiry of the fifteenth working day, if there is no response (i.e. money) received, then liquidation proceedings can be filed in the High Court (not the District Court as the District Court does not have jurisdiction to deal with liquidation).

Alternatively, if the debtor company makes an application to set aside the statutory demand, we can assist you to negotiate a settlement with the debtor company. This can be a timely and cost effective alternative to going to court to argue the setting aside application.

If you do choose to file liquidation proceedings, once the documents are released from the High Court, they are served on the registered office of the debtor company and a date is assigned for the hearing your Application for Liquidation. The application must then be advertised in the local newspaper and the New Zealand Gazette. Your lawyer would then appear at the hearing and request that the Court order that the company be put into liquidation.

If an order is made putting the company into liquidation, the Court will usually order an amount for costs be made out of the company assets prior to paying any other creditors. However, the original debt will have the same priority for payment as other unsecured creditors and any payment is dependent on the company having sufficient assets to cover the cost.

For debts that are disputed by the company or are somewhat controversial, the Statutory Demand procedure prescribed under section 289 of the Companies Act 1993 (“the Act”) cannot be employed. For claims below $30,000, clients may be able to employ the procedures in the Disputes Tribunal to recover the outstanding debt. Claims for disputed debts above this amount would require civil proceedings to be initiated either in the District Court (for claims below $200,000.00) or the High Court (for claims above $200,000.00).

To find out how we can help you with debt recovery contact our debt recovery experts by phone on 09 837 6844 or email partners@smithpartners.co.nz to set up an appointment.