Know the Process
Statutory demands in NZ: what they are, how they work, and the rules you cannot afford to get wrong.
A statutory demand is one of the most effective debt recovery tools available to NZ businesses. It is also one of the most misunderstood. This is the plain English guide to how they work under section 289 of the Companies Act 1993, who can use them, the strict rules around drafting in Form 9 of the High Court Rules and serving them, and what to do when the 15 working days run out.
What is a statutory demand and how does it work?
A statutory demand is a formal legal notice served on a company under section 289 of the Companies Act 1993. It demands payment of a debt within 15 working days. If the company fails to pay, reach a satisfactory arrangement or successfully apply to set the demand aside, it is presumed to be insolvent under section 287 of the Act.
That presumption of insolvency allows the creditor to apply to the High Court under section 241 for an order to liquidate the company. The threat of liquidation is why statutory demands are so effective. Most companies pay rather than face the reputational and commercial consequences of winding up proceedings.
A statutory demand is sometimes called a "self-help" remedy. Unlike a court judgment, it does not require a court order before it is issued. The creditor prepares and serves the demand directly on the debtor company. No court application is required at this stage, which makes it significantly faster and cheaper than standard civil debt recovery through the courts. It is also commonly used as an escalation step in broader commercial debt collection after softer recovery methods have not produced payment.
Presumption of insolvency: Under section 287 of the Companies Act 1993, a company is presumed unable to pay its debts if it has not paid, reached an arrangement, or set aside a statutory demand within 15 working days of service. This presumption is the foundation of a liquidation application under section 241.
What are the requirements for a valid statutory demand?
A valid statutory demand must meet strict requirements. The debt must be owed by a company registered under the Companies Act 1993. It cannot be served on individuals, sole traders or partnerships. A separate legal regime applies to those debtors and a different approach to debt recovery is required.
The debt must be at least $1,000, currently due and payable, and must not be genuinely disputed. Serving a demand for a disputed debt is a misuse of the process and the debtor can apply to the court under section 290 to have it set aside, potentially with a costs award against you.
The demand itself must be in the prescribed Form 9 of the High Court Rules. It must correctly identify the creditor, the debtor company, the amount of the debt and the basis on which it is owed. It must be served correctly, generally by personal service on a director or at the company's registered office as shown on the Companies Office Register.
Any defect in the form, content or service of the demand can give the debtor grounds to apply to set it aside. This is why professional preparation matters. An incorrectly drafted demand that is set aside has warned the debtor, given them time to restructure and may have cost you more than the original debt.
What happens after the 15 working days?
Once the 15 working day period expires, three things can have happened. First, and most commonly, the debtor pays the debt in full or reaches a settlement. In which case no further action is needed and the demand has served its purpose.
Second, the debtor may have applied to the High Court within 10 working days to set aside the demand under section 290. This is only available where the debtor has a genuine dispute about the debt, a counterclaim that offsets the amount owed, or where the demand is defective. The court will dismiss spurious applications but a genuine dispute will succeed.
Third, if the debtor has done nothing (has not paid and has not applied to set the demand aside) the presumption of insolvency arises. The creditor has 30 working days to apply to the High Court under section 241 for an order to wind up the company. At this stage you will need to engage a solicitor as court representation is required. We can guide you on next steps and refer you to appropriate legal counsel.
Can a statutory demand be set aside?
Yes. A debtor company can apply to the High Court within 10 working days of service to set the demand aside. The court will grant the application if the debtor can show that the debt is genuinely in dispute, that there is a counterclaim or cross-demand that equals or exceeds the amount of the demand, or that the demand is defective in some other way.
Courts have consistently emphasised that the statutory demand process is not intended to be used as a pressure tool to recover disputed debts. Using a demand for a debt that is genuinely contested is an abuse of process and can result in the demand being set aside with costs awarded against the creditor.
This is why the initial eligibility assessment is critical. If there is any real prospect that the debtor will dispute the debt, an alternative approach such as a demand letter, negotiation or our broader debt collection service may be more appropriate. We assess this before drafting anything and advise honestly if a statutory demand is not the right tool for your situation.
Anyone promising a guaranteed payment after a statutory demand. No one can guarantee the outcome because it depends on the debtor's response and financial position. What you can control is the quality of the demand itself and the eligibility assessment behind it. That is what we do.
Statutory demand vs judgment debt: what is the difference?
A statutory demand does not require a court judgment. It is a pre-litigation step that creates pressure through the threat of insolvency proceedings. It is faster, cheaper and often more effective than court action for undisputed commercial debts. However it can only be used against companies, and only for undisputed debts.
A judgment debt is obtained after court proceedings, either by default judgment where the debtor does not defend the claim, or after a hearing. A judgment can be enforced against individuals and companies alike, through asset seizure, charging orders over property or examination summons. Enforcement of a judgment is separate from obtaining one.
For undisputed company debts, a statutory demand is often the first and most effective step within a broader debt recovery process, triggering payment before court proceedings are necessary. For disputed debts, or debts owed by individuals, court proceedings are the appropriate route. If your debtor is the IRD rather than a private company, see our IRD debt negotiation service.
How should a statutory demand be served?
Service of a statutory demand is governed by section 387 of the Companies Act 1993. The demand must be served on the company, not just sent by email. The primary methods are personal service on a director of the company, service at the company's registered office, or leaving the document with a person who appears to be in charge of the registered office.
The 15 working day clock does not start running until the demand is properly served. Incorrectly served demands, for example simply emailing them, may not be legally effective and could be challenged. Where service is disputed this can affect whether the presumption of insolvency arises.
We provide detailed guidance on how to serve your specific demand, including the company's registered office address from the Companies Register and the best approach for your circumstances. Keeping proof of service, ideally a signed acknowledgement or statutory declaration, is strongly recommended. Strong terms of trade drafted before credit is extended can also make this entire process simpler the next time around.
The bottom line
A statutory demand is a serious legal step with strict rules. Used correctly, it is the fastest and most cost-effective way to recover an undisputed debt from a company. Used incorrectly, it backfires. The difference comes down to eligibility assessment, proper drafting in Form 9, and correct service under section 387. That is the work we do, for a fixed fee of $495 + GST, with no surprises.