The use of statutory demands under the Companies Act 1993 is common – and may be viewed by a party issuing or receiving them as no more significant than a demand letter. The implications of serving a statutory demand are, however, potentially far reaching and whether you are on the issuing or receiving end there are some important matters of which you need to be aware.
Issued under section 289 of the Companies Act 1993, a statutory
demand is a notice demanding payment in respect of a debt owed by a
company. If the debt is disputed, the company served with the
demand has 10 working days within which to apply to set the demand
aside. It has 15 working days to make payment or enter into an
arrangement with the creditor. If none of these actions are taken,
the company is presumed insolvent, and liquidation proceedings may
be filed by the creditor in reliance upon that presumption.
Have you been served?
Any company served with a statutory demand that does not wish to
be placed into liquidation should promptly assess whether the
amount claimed is owed, or whether any portion of it is disputed.
Legal advice should be sought immediately so that options for
responding can be explored. If the debt is disputed, the dispute
should be raised with the party that has issued the demand, and
supporting documentation provided, along with a request that the
demand be withdrawn.
If the issuing party refuses to withdraw the statutory demand,
an application to have the demand set aside may be made to the High
Court. This must be made within 10 working days of service and so
should be attended to promptly. It requires supporting evidence in
affidavit form, and significant preparation of documents and
evidence may be necessary. The 10 working day deadline is both
short and strict, and can be difficult to meet unless the matter is
dealt with immediately upon receipt of the demand.
Are you planning to serve?
Many creditors use the statutory demand process even though they
are aware that the debt is disputed. This is potentially a
fruitless and costly decision - the courts take a dim view of the
use of statutory demands in such cases, and if application is made
by the recipient to set aside the demand, the creditor can expect
to face a costs award against it.
An assessment should always therefore be made by a creditor
prior to issuing a statutory demand as to whether any portion of
what is sought is or could be in dispute. It may be prudent to
first make formal demand on the debtor company by letter before any
statutory demand is issued so that any dispute will be raised, and
to give the debtor company an opportunity to settle the matter. If
the matter is disputed, the correct course is for the creditor to
file proceedings against the debtor company in the District or High
Court and to seek judgment on the disputed claim.
Creditors should keep in mind that issuing a statutory demand is
not a trivial matter, and legal advice should generally be sought
before one is issued. A statutory demand should preferably be
issued by a solicitor, not the creditor or a debt collector, to
ensure that it is correctly drafted and that it is the most
appropriate step in the circumstances.
If you have any questions about statutory demands, please
contact:
Cathy Murphy|Partner
ddi: + 64 336 0886
cathy.murphy@shieffangland.co.nz
This article gives a general overview of the topics covered
and is not intended to be relied upon as legal advice.
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