The use of statutory demands under the Companies Act 1993 is common – and may be viewed by a party issuing or receiving them as no more significant than a demand letter. The implications of serving a statutory demand are, however, potentially far reaching and whether you are on the issuing or receiving end there are some important matters of which you need to be aware.
Issued under section 289 of the Companies Act 1993, a statutory demand is a notice demanding payment in respect of a debt owed by a company. If the debt is disputed, the company served with the demand has 10 working days within which to apply to set the demand aside. It has 15 working days to make payment or enter into an arrangement with the creditor. If none of these actions are taken, the company is presumed insolvent, and liquidation proceedings may be filed by the creditor in reliance upon that presumption.
Have you been served?
Any company served with a statutory demand that does not wish to be placed into liquidation should promptly assess whether the amount claimed is owed, or whether any portion of it is disputed. Legal advice should be sought immediately so that options for responding can be explored. If the debt is disputed, the dispute should be raised with the party that has issued the demand, and supporting documentation provided, along with a request that the demand be withdrawn.
If the issuing party refuses to withdraw the statutory demand, an application to have the demand set aside may be made to the High Court. This must be made within 10 working days of service and so should be attended to promptly. It requires supporting evidence in affidavit form, and significant preparation of documents and evidence may be necessary. The 10 working day deadline is both short and strict, and can be difficult to meet unless the matter is dealt with immediately upon receipt of the demand.
Are you planning to serve?
Many creditors use the statutory demand process even though they are aware that the debt is disputed. This is potentially a fruitless and costly decision – the courts take a dim view of the use of statutory demands in such cases, and if application is made by the recipient to set aside the demand, the creditor can expect to face a costs award against it.
An assessment should always therefore be made by a creditor prior to issuing a statutory demand as to whether any portion of what is sought is or could be in dispute. It may be prudent to first make formal demand on the debtor company by letter before any statutory demand is issued so that any dispute will be raised, and to give the debtor company an opportunity to settle the matter. If the matter is disputed, the correct course is for the creditor to file proceedings against the debtor company in the District or High Court and to seek judgment on the disputed claim.
Creditors should keep in mind that issuing a statutory demand is not a trivial matter, and legal advice should generally be sought before one is issued. A statutory demand should preferably be issued by a solicitor, not the creditor or a debt collector, to ensure that it is correctly drafted and that it is the most appropriate step in the circumstances.
If you have any questions about statutory demands, please contact:
Cathy Murphy | Partner
DDI: + 64 336 0886
This article gives a general overview of the topics covered and is not intended to be relied upon as legal advice.