If a company owes a debt and hasn’t paid, creditors in New Zealand have a legal tool known as a statutory demand to help recover what’s owed. Under section 289 of the Companies Act 1993, a statutory demand is a formal written notice that requires the company to pay the debt, come to an arrangement, or dispute it within a strict timeframe. If not dealt with, serious consequences can follow—including the risk of liquidation.
What is a Statutory Demand?
A statutory demand is a notice given by a creditor to a company requiring payment of a debt over $1,000. It’s used when a company has failed to pay a debt that is due and undisputed. The demand must:
- Be in writing and in the prescribed form (Form 9 of the High Court Rules),
- Specify the amount owed and how it arose,
- Be signed by the creditor (or their lawyer),
- Give the company 15 working days to comply.
What Happens After It’s Served?
Once served, the company has three options within the 15 working days:
- Pay the debt in full;
- Enter into a compromise or other satisfactory arrangement with the creditor;
- Apply to the High Court to set the demand aside.
If the company does none of these, the law assumes the company is unable to pay its debts and is therefore insolvent.
What Can the Creditor Do Next?
If the company doesn’t respond or comply with the statutory demand, the creditor may then apply to the High Court to liquidate the company (commonly referred to as “winding up”).
This is a serious step. If successful, the Court will appoint a liquidator who takes control of the company’s assets, investigates its affairs, and attempts to pay creditors from the proceeds.
Can the Demand Be Challenged and on what grounds?
Yes. The company can apply to the Court to set aside the statutory demand within the 15 working day period. Common reasons include:
- The debt is genuinely disputed;
- The company has a counterclaim;
- There’s a substantial injustice in allowing the demand to stand.
If successful, the Court will cancel the demand, and the creditor cannot rely on it for liquidation purposes.
Important things to note for Creditors
A statutory demand should only be used where the debt is clearly owed and not disputed.
It’s a preliminary step toward liquidation—so it must be used carefully.
A poorly prepared or wrongly issued demand can be struck out, wasting time and costs.
Important things to note for Companies receiving a statutory demand
Failing to respond can lead to the company being presumed insolvent. So never ignore a statutory demand.
If the debt is disputed, get legal advice urgently and apply to have the demand set aside before the deadline.
If the company is in difficulty, consider entering into payment negotiations early.
Conclusion
A statutory demand under section 289 of the Companies Act is a powerful tool for creditors but comes with strict formalities. For companies, ignoring it can result in liquidation. Whether you’re owed money or on the receiving end of a demand, legal advice is critical. Prompt action is often the key to preserving your rights.
