A statutory demand is a claim under Section 289 of the Companies Act 1993. Failing to comply with a statutory demand or applying to set it aside within the specified timeframes will result in your company being deemed to be insolvent and liquidation may follow.
A company is insolvent if it is unable to pay its debts when they fall due.
Non-compliance with a statutory demand served on your company allows the creditor that served the statutory demand to apply to the High Court to appoint a liquidator. The most common basis for a company in New Zealand to be placed into liquidation by the High Court is from failure to comply with a statutory demand.
If you receive a Statutory Demand you need to act quickly. You can either pay the specified sum, enter into some form of compromise to pay the debt, or offer up some form of security to the satisfaction of the creditor.
If the debt is disputed you must apply under Section 290 to have the debt set aside. You will need to engage a lawyer.
The court may grant an application to set aside a statutory demand if it is satisfied that
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) the demand ought to be set aside on other grounds.
If no action is taken, nor a liquidator appointed voluntarily (by the shareholders) before the service of the Winding Up Proceeding, the Winding Up Application hearing takes place and if the High Court is satisfied that the company should be wound up, an order for the Company to be wound up is made and the Court appoints a liquidator. A liquidator is nominated by the applicant creditor and provides a consent to act prior to the hearing.
If your company does not satisfy the solvency test and is risking trading insolvently then the shareholders of the company can voluntarily appoint a liquidator so long as the appointment occurs before the service of a winding up application (which often closely follows the expiry of the statutory demand).
Pending Winding Up Proceeding – options to consider
Your company may be closed by the liquidator or the business sold. You can save your company from facing Court liquidation proceedings with the following options:
• Voluntary liquidation (if liquidation is inevitable)
• Voluntary Administration
• Company Compromise – Part XIV Companies Act 1993
• Debt Restructuring and a workout
• Advice on your options early on
Liquidation may be inevitable and a way out of a downward spiral. Speak to an a Licensed Insolvency Practitioner. It may not mean losing your business. Some companies advance liquidation voluntarily in order to restructure.
Get Advice
For advice on statutory demands, liquidation, hive down, voluntary administration or compromise contact our team at McDonald Vague.
If you need a Licensed Insolvency Practitioner to consent to act as liquidator on an upcoming court liquidation or to manage a voluntary liquidation, Boris, Iain, Colin, Keaton or Peri are pleased to assist.
Other Links:
1. Statutory Demand Infographic