Ciaran King and Richard Williams

Recovering business debts may seem like trying to get blood out of a stone. However, while not always easy, it doesn’t have to end up in court. Outlined below are three common ways you can go about getting your money back from a debtor company.

Letter of Demand – Ok, so you’ve been calling and emailing the company about your debt for weeks and want to ‘up the ante’.  Step One – Send a letter of demand.

A letter of demand is a useful tool for identifying whether or not the debt is disputed. On receipt of a letter of demand, the debtor company will likely contact you to advise you why the debt has not been paid. You can’t take step two (service of a Statutory Demand) if there is a genuine dispute.

A letter of demand is more assertive than a simple email, particularly if your lawyer writes one for you! It is also helpful if you want to maintain a working relationship with the company. Sending a letter of demand may serve as fair warning to ‘pay up’ before you think about elevating your debt recovery strategy to the next level…serving a Statutory Demand.

Statutory Demand – If you’re unable to recover your debt using a letter of demand, service of a statutory demand is the next step.  The statutory demand process can be used against a company who owes debts of $1,000 or more, as long as there is no substantial dispute surrounding the debt. The Companies Act 1993 sets out the requirements in terms of form of notice and time frames.

Once the debtor company has been served the demand they have 10 working days in which to have the notice set aside, or 15 working days or to comply with its terms.

If the demand is not set aside and the debtor company fails to comply with its terms, an application can be made to put the company into liquidation.

Liquidation – Creditors in a liquidation are paid out in order of priority. After the costs of liquidation, secured creditors and preferential creditors (staff and the IRD) are paid first, and then unsecured creditors.  

Unsecured creditors are at the bottom of the heap and only recover debts owed to them once all other creditors have been paid. An unsecured creditor is generally better off trying to recover their debt using one of the first two options described above, rather than taking their chances in a liquidation.

There are risks involved in pursuing a debtor company. One such risk arises if the debtor company successfully sets aside the statutory demand. Not only will you have failed to recover your debt but you will then be liable for the debtor company’s costs to have the order set aside.

To avoid falling further out of pocket or missing out completely, you should always seek proper advice on the right way to go about recovering your debt.




The content of this post is necessarily general and readers should seek specific advice on particular matters and not rely solely on this post. The advice given in this post is based on New Zealand law only.