What is a statutory demand?
A statutory demand is a creditor’s formal written demand that a company pay a debt. It’s made under section 289 of the Companies Act 1993 and must be in the prescribed form. It can only be used for a debt that’s due and not genuinely disputed, and the debt must be at least the minimum amount set by regulation.
It isn’t a court document. No judge has looked at it. But it carries serious weight because of what the law says happens if it’s ignored: the company is presumed to be unable to pay its debts, and the creditor can apply to the High Court to have it put into liquidation.
Statutory demands are widely used by trade creditors, landlords, finance companies and Inland Revenue. With IRD referring hundreds of companies to court for liquidation each year, anyone owing tax should take them seriously.
The timeline
| When | What |
|---|---|
| Day 0 | The demand is served on the company, usually at its registered office |
| Within 10 working days | Deadline to apply to the High Court to set the demand aside, and serve that application on the creditor |
| Within 15 working days | Deadline to comply: pay, compound or give security |
| After day 15 | Creditor can apply to the High Court to liquidate the company |
| Within 30 working days after the compliance period ends | The period in which the creditor must file a liquidation application relying on the failure to comply |
How to count working days
Under the Companies Act, a working day excludes Saturdays, Sundays, public holidays (including Matariki and Mondayised holidays) and the days from 25 December to 2 January. Start counting from the day after service. When the deadline matters this much, get your lawyer to confirm the date in writing.
A useful habit: as soon as a demand arrives, write both dates, day 10 and day 15, on the front page.
Your three ways to comply
Section 289 gives the company three ways to satisfy a demand within the 15 working days.
1. Pay the debt
The simplest route. Pay the amount demanded in full to the creditor or their lawyer, and get written confirmation that the demand is satisfied.
2. Compound with the creditor
“Compound” means reaching a settlement the creditor accepts, such as a reduced amount paid now or a payment plan. The key word is accepts. A proposal the creditor hasn’t agreed to doesn’t count. Put any agreement in writing and make sure it says the demand is satisfied or withdrawn.
3. Give security
The company can give the creditor a charge over its property to secure the debt, if the creditor accepts it. In practice this is less common, because creditors typically want money, not a security interest.
If the debt is disputed: setting a demand aside
If there’s a genuine, substantial dispute about whether the debt is owed, or the company has a counterclaim or set-off that would reduce the debt below the minimum amount, the company can apply to the High Court to set the demand aside under section 290. The application must be filed and served within 10 working days of service. That deadline is strict, and the court has no power to extend it.
Some points to know:
- A minor defect in the demand alone usually won’t get it set aside unless keeping it in place would cause substantial injustice.
- Setting-aside applications are court proceedings with legal costs. They’re meant for real disputes, not for buying time.
- This is legal territory. If you believe the debt is wrong, talk to a lawyer the same day.
What happens if you don’t comply?
After day 15, the creditor can file a liquidation application in the High Court. From there:
- The application is served on the company, with time to file a notice of opposition.
- Notice of the application is advertised, and other creditors can support it or seek to take it over.
- At the hearing, the court can appoint a liquidator.
Once an application has been filed, dealing with it becomes more complicated and more expensive, even if the original debt is later paid. Other creditors can apply to be substituted as the applicant. That’s why acting inside the 15 days matters so much.
How funding fits in
For many companies, the practical question isn’t legal. It’s where the money comes from. A bank may not lend to a company that’s just been served a demand. But a specialist lender that secures its loan on New Zealand property may be able to move quickly:
- property-secured business loans from $20,000 to $1m;
- no financials or tax returns needed for the initial assessment;
- first or second mortgage, even behind an existing home loan;
- the creditor paid directly at settlement;
- funding within 24 hours of approval in some cases.
A smaller demand may be covered by an unsecured loan based on turnover, if the business has been trading six months or more.
Even when money is being arranged, tell the creditor in writing. A creditor who knows payment is coming is more likely to agree to a short extension, although they don’t have to.
A practical day-by-day plan
- Day 0–1: Record service date, day 10 and day 15. Read the demand. Is the amount right? Contact your lawyer if it’s disputed.
- Day 1–2: Contact the creditor in writing. Ask for a payout figure. Start the funding conversation.
- Day 2–5: Provide documents to the lender promptly: property details, ID, the demand itself, other debts.
- Day 5–12: Valuation, approval, loan documents, legal work.
- Before day 15: Settlement and payment to the creditor, with written confirmation that the demand is satisfied.
Before you choose liquidation
Some owners, faced with a demand, are advised to appoint a liquidator voluntarily. If the business is viable and there’s equity in property, read before you talk to a liquidator or insolvency practitioner first. Paying the demand and keeping control of the company is often possible.