Last Updated on 1 August 2022

By Brent Norling

So you or your client have been served with a statutory demand. What does it mean? What are the consequences? What must I do and by when? These are all questions that need to be asked and answered within a tight space of time.

A statutory demand is a demand made pursuant to s 289 of the Companies Act 1993. If one is received, the defendant company is required to pay the specified sum, enter into a compromise or give a charge over property to secure payment of the debt to the reasonable satisfaction of the creditor within 15 working days of the date of service, or such longer period as the Court may order.

Failure to comply

If you do not comply with the statutory demand, the creditor is able to apply to the Court to liquidate the company. The creditor will usually choose a liquidator and the Court usually appoints the liquidator of the creditor’s choosing.

However, you are able to apply to set aside the statutory demand within 10 working days of service. Unless you file and serve the application within this time frame, the company will be deemed to be insolvent and liquidation is more likely to follow.

Setting aside the statutory demand

The Court may set aside the statutory demand if it is satisfied that there is a substantial dispute as to whether the debt is due and owing, there is a counter-claim, set-off or cross-demand or such other ground that the Court thinks fit.

If the application fails, the court may forthwith liquidate the company or grant further time to the debtor company to comply with the demand.

Liquidation proceedings

The creditor has 30 working days from the last day of compliance with the statutory demand to file a liquidation application which relies on the statutory presumption of insolvency by reason of failing to comply with a statutory demand.

The debtor company may appoint its own liquidator before liquidation proceedings are filed and served or it will lose the opportunity to do so. Once liquidation proceedings are served, the shareholders are not able to appoint a liquidator of their choice, unless the creditor who commenced proceedings consents to this. This time frame is strict. As such, if the shareholders are considering appointing a liquidator of their choice, it is important that they assess this prior to the expiry of the statutory demand.

A debtor company may use this as a last opportunity to defend the demand from the creditor and defend the liquidation proceedings, if appropriate.

The creditor may advertise the liquidation of the debtor company in the gazette and local newspaper. The advertisement may be published after 5 working days after service of the liquidation application. If you want to stop this from occurring, then you must move quickly to restrain advertising.

What should you do?

The answer to this question is always case dependent. Once served with any of the above documents, it is advisable that you seek legal advice promptly. There are many strict statutory time frames that must be navigated without delay to avoid any irretrievable damage being caused.

You can book a consultation here.

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.