Navigating Statutory Demands: A Strategic Tool for Debt Recovery
Ryan Wang
Unpaid debts can be a real headache for businesses, affecting cash flow and disrupting day-to-day operations. If your business is owed money by another company and they’re not paying up, a statutory demand can be a powerful tool to get the debt settled quickly. However, knowing when to serve a statutory demand is key, and it always requires careful consideration and a good understanding of the legal requirements.
What is a Statutory Demand?
A statutory demand is a formal legal notice issued by a creditor to a debtor company under Section 289 of the Companies Act 1993. It requires the debtor to either:
- Pay the outstanding debt;
- Secure or compound the debt to the creditor’s satisfaction; or
- Enter into a compromise within a specified period.
Failure to comply with a statutory demand within 15 working days creates a presumption of insolvency, potentially leading to liquidation proceedings.
Why Use a Statutory Demand?
A statutory demand is an effective way to recover unpaid debts when traditional reminders and collection efforts haven’t worked. It creates immediate pressure on the debtor because ignoring it can result in serious legal consequences. Many businesses find it useful because:
- It is a cost-effective method of debt recovery compared to litigation;
- It prompts swift action from the debtor due to the risk of insolvency;
- It establishes a clear legal position if further action is needed.
When Can You Issue a Statutory Demand?
Not every unpaid invoice qualifies for a statutory demand. Before issuing one, you must ensure that:
- The debt must be undisputed and exceed $1,000;
- The amount must be due and payable at the time of the demand;
- The debtor must be a registered company in New Zealand.
It’s important to avoid using statutory demands for disputed debts, as this can backfire and lead to legal costs if the debtor successfully challenges the demand in court.
Statutory Demand vs. Other Debt Recovery Options
While a statutory demand is a powerful tool, depending on the circumstances, other options may be more suitable:
| Debt Recovery Method | Pros | Cons |
| Statutory Demand | Fast, cost-effective, creates insolvency risk for debtor | Only works for undisputed debts; debtor may challenge demand |
| Court Proceedings | Can result in enforceable judgment, can claim disputed debts | Time-consuming and costly |
| Debt Collection Agencies | No upfront legal costs, persistent follow-up | Less legal leverage, often takes longer |
| Mediation or Settlement | Preserves business relationships, flexible agreements | May not result in full debt recovery |
Choosing the right approach depends on factors such as the size of the debt, the debtor’s financial position, and whether the debt is in dispute.
What Are Your Options if You Receive a Statutory Demand?
If your business has been served with a statutory demand, don’t ignore it—doing so can put your company at serious risk. You have 10 working days to apply to the High Court to have the demand set aside if you believe it’s unfair or incorrect. Otherwise, you must act within 15 working days to pay or settle the debt.
How We Can Help
At K3 Legal, our litigation team has extensive experience helping businesses recover unpaid debts and defending against unfair statutory demands. We understand that every situation is unique, and we provide tailored advice to help you get the best possible outcome.
We can assist with:
- Assessing whether a statutory demand is the right option for your situation;
- Drafting and serving statutory demands that comply with legal requirements;
- Negotiating with debtors to achieve timely settlements;
- Applying to set aside a statutory demand if your business is served with one;
- Commencing liquidation proceedings if the debtor fails to respond.
If your business is struggling with unpaid debts or has been served with a statutory demand, don’t wait until it’s too late. Contact us today and let’s discuss the best course of action for your situation.
