Being served with a statutory demand is a serious legal event that can quickly escalate into the liquidation process if not handled correctly. Whether you dispute the debt or simply need more time to repay, acting fast is crucial. Many directors delay or ignore these notices, not realising that the timeframe to respond is both short and unforgiving.
In this blog, we explain how to respond to a statutory demand and what your options are. We also outline why seeking professional advice early can be the difference between resolution and court-ordered liquidation.
If you have received a statutory demand, you may be wondering what to do next. This can be a fork in the road at this point. Either you owe the money, or you do not.
If your company does not owe the money, you need to be proactively communicating. Write to the creditor and outline the dispute. Perhaps there was poor workmanship, or maybe you have a counterclaim.
Get that in writing and ask them to withdraw the statutory demand immediately. If you do not do that, they will be entitled to file a liquidation application with the High Court and seek the liquidation of your company.
There is a legal process that follows once a formal demand is served, and the timeframes are strict.
If you do owe the debt, the same advice applies: be proactive and communicate. There is likely a reason you have not paid; perhaps your business is under pressure, or you simply need more time to pay. The creditor is likely serving the demand because you have failed to be proactive so far, and they do not have any certainty on what or when they are going to get paid.
Ask for a payment plan, and be clear about what you need. You might need to provide evidence of your financial position, so put your cards on the table. Transparency might give you the time you need to resolve the issue.
If you are unable to pay the debt owed on time, or at all, you should get specialist insolvency advice immediately.
Once a company has been served with a statutory demand, it has 15 working days to pay the debt or reach an agreement. After that specified period, the creditor is legally entitled to apply to the High Court to put the debtor company into liquidation.
If an application to liquidate the company is filed, you have just 10 working days to appoint your own liquidator, after which the opportunity to control the process is lost.
It is essential that you seek advice early, because the tight timeframes are strict, so the longer you wait, the more you start losing your options.
At Norling Law, we have seen many cases where a zealous liquidator is appointed by the creditors with a mandate to be quite aggressive. It might be because you have failed to be proactive about engaging with the creditor, or because you have been uncontactable so they have become frustrated.
In short, the sooner you get advice, the sooner you will understand your options—and those options actually might be more substantial than if you wait.
So, two real takeaways if your company receives a statutory demand: firstly, proactively communicate, and secondly, get legal advice early.
If your company has been served with a statutory demand, do not delay. Whether you intend to dispute the debt, negotiate a compromise, or need help filing an application to set aside the statutory demand, early legal advice is essential.
At Norling Law, we help businesses across New Zealand respond to statutory demands, protect their position, and avoid unnecessary liquidation. Book your free 30-minute consultation today.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
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