If you or your company is owed money by another company, and that company fails or refuses to pay the debt, one option available to you might be to serve a statutory demand on the debtor under section 289 of the Companies Act 1993 (Act).
What is a Statutory demand, and how can you proceed?
Statutory demands are formal demands served on debtor companies in respect of undisputed debts. They specify the amount of the debt owed, outline what that debt relates to, and provide a strict timeframe for the debt to be paid.
Statutory demands must:
- Relate to an undisputed due debt of $1,000 or more;
- Be in writing;
- Be served on the debtor company (in accordance with the service provisions contained in the Act); and
- Require the debtor company to pay the debt, enter into a compromise or compound the debt, or give a charge over its property to secure payment of the debt, to your reasonable satisfaction, within 15 working days of the date of service of the statutory demand on the debtor company.
Once a statutory demand has been served on a debtor company, that debtor has 10 working days to formally challenge the statutory demand in the High Court or, failing that, 15 working days from the date of service to comply with the requirements of the statutory demand.
If the debtor fails to take these steps within the timeframes provided, the debtor's failure to comply with the statutory demand creates a presumption that the debtor is unable to pay its debts, and that can be relied on by you to support a High Court application for an order putting the debtor company into liquidation. On liquidation, a liquidator will realise the debtor's assets to attempt to meet that debtor's liabilities.
What should you consider doing if you were served with a statutory demand?
If your company has been served with a statutory demand in accordance with the requirements of the Act, and if your company disputes the demand, your company should consider requiring the party who issued the statutory demand to immediately withdraw the demand. If that approach is unsuccessful, your company should consider filing and serving an application challenging the statutory demand in the High Court within 10 working days from the date on which your company was served with the statutory demand. This timeframe for bringing such an application is strict and cannot be extended.
The Court has the ability to set aside a statutory demand if there is a substantial dispute about whether the debt is due, if your company appears to have a counterclaim, set-off or cross-demand which would reduce the amount claimed in the statutory demand to less than $1,000, or if other grounds exist which the Court considers justify setting aside the statutory demand. If your application is successful, the statutory demand will be set aside and no liquidation application can be brought by the party who issued the statutory demand in reliance on that statutory demand.
If you or your company are considering issuing a statutory demand, or if your company has been served with a statutory demand, or if you require advice in respect of any debt recovery issues, please contact our litigation team.