Your business’s cash flow can be adversely affected by your debtors not paying your invoices on time. It can often feel like you are acting as a lender to your debtors, by providing them goods and services and they then expect to be able to pay over time or not at all in breach of your terms of trade.
If your debtor is a registered Company you have an additional option to obtain payment of your unpaid invoices by way of Statutory Demand which is available under the Companies Act 1993 (“the Act”).
A Statutory demand is demand in a form set out under the Act which is then personally served on the debtor company. It is the first step in the Liquidation process, of applying to place a company into Liquidation. Often a debtor company will pay on a statutory demand and you will not need to proceed any further.
Once a debtor company is served with the Statutory Demand they then have 15 working days to pay the debt along with the costs of preparing and serving the Statutory Demand, if they do not pay within that time frame they will be deemed to have committed an act of insolvency, as they are unable to pay their due debts and we would discuss with you proceeding to issue Liquidation Proceedings on the debtor company.
In order to serve a Statutory Demand on your debtor, we need to satisfy ourselves of the following:
- That the debt is due, may seem simple, but often in contracts or terms, due dates may differ.
- That the amount owing is more than $1000.00.
- That there is no substantial dispute as to whether the debt is due and owing, to avoid this we will write a legal letter of demand to the debtor prior to issuing a Statutory Demand. If the debtor has a substantial dispute they have the opportunity to respond at this time.
- That the debt is owed by a company registered in accordance with the Act and has not been struck off or is not in the process of being struck off, this is easily determined by searching the Companies Website and ensuring the invoices etc are made out to the company and not for example a director in his personal capacity.
The benefits of issuing a Statutory Demand:
- It is a relatively cost effective means of recovering what is due and owing to you.
- It can achieve results in a timely manner.
- It is simple to prepare and issue.
The risks of issuing a Statutory Demand:
- The debtor may apply to set it aside if they believe it has not been issued validly with the most likely reason being that they believe the debt is in substantial dispute. We mitigate this risk by making demand on the debtor company prior to the issuing of the Statutory Demand.
- If the Debtor Company is eventually put into Liquidation after they have paid you under the Statutory demand, the Liquidator may deem that the transaction was voidable and claw back the payment. The following would be considered when determining that a payment may be deemed voidable:
- Whether the creditor acted in good faith, and a reasonable person in their position would not have suspected the debtor company on reasonable grounds were insolvent.
- The debtor company made the payment when they were unable to pay their due debts.
- The payment made put you in a better position than you would have been in if the debtor company had been liquidated and the surplus distributed.
- The payment was made within two years of the debtor company going into Liquidation.
Prior to issuing a Statutory Demand, we will fully discuss your options with you, to minimize any risk to you, and if we believe a Statutory demand is not the best recommended way forward we will discuss your other debt recovery options that we can assist you with.
Our Debt Recovery Team, which is part of our larger Litigation team, are ready to discuss your options with you with regard to your outstanding debt and will work with you to assist you with your debt recovery whether it be business debt, personal debt, large or small.
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Published: Thu, Aug 9th, 2018 by Helen McDermott