Served With A Statutory Demand? A guide for debtors

14 November, 2014 | Nathan Tetzlaff

Article updated 16 September 2024

A company served with a statutory demand does not have the luxury of time. Steps can be taken to deal with the statutory demand, but action is needed as soon as possible.

What is a statutory demand?

A statutory demand is a formal demand served on a company claiming a debt is owed by that company. It must be in writing and be for a debt of at least $1,000.00. Service on a company can occur in a number of ways, such as by delivery to a person named as a director, or by leaving it at the company’s registered office or address for service.

What does a statutory demand mean?

If your company is served with a statutory demand, you have a strict statutory timeframe of 15 working days from the date of service to either pay the debt, or enter into an arrangement to the creditor’s satisfaction, such as a payment plan or a charge over property or face the risk of having your company liquidated.

What happens if I do not comply with the statutory demand?

If your company fails to satisfy the statutory demand, then it is presumed that your company is unable to pay its debts and is therefore insolvent. In turn, this can lead to the creditor making an application to the High Court to have your company liquidated.

What steps can I take if I disagree with the debt claimed in the statutory demand?

There may be circumstances where you dispute the debt and do not want to comply with the statutory demand. In this case, you can apply to the High Court to set aside (cancel) the statutory demand. This must be done within 10 working days of service of the statutory demand. The time limits for applying to set aside the statutory demand are strict and cannot be extended, so quick, decisive action is required.

How is an application to set aside a statutory demand made?

You can make an application to the High Court to set aside the statutory demand. This must be supported by a sworn affidavit. The application and affidavit must then be served on the creditor. Before setting aside a statutory demand, the Court must be satisfied of one of the following:

1. There is a substantial dispute as to whether the debt is owing.
2. Your company has a counterclaim which, when set against the amount demanded, results in a net sum due that is less than $1,000.00.
3. The demand ought to be set aside on other grounds.

The statutory demand remains in place until your application is heard, but your lawyer can ask the Court to extend the time under the statutory demand. This will prevent the creditor from taking steps against the company until the application has been dealt with.

What happens if the Court disagrees with your company?

If the court finds that the statutory demand should not be set aside, it has the power to order your company to pay the debt within a specified period. It could also order the company to be put into liquidation.

A statutory demand should not be taken lightly. If you have been served with a statutory demand please complete the form below, and we will get back to you promptly, or contact Nathan Tetzlaff on 09 837 6844 or nathan.tetzlaff@smithpartners.co.nz