In a recent case a debtor company was served with a Statutory Demand. It did not respond to the Demand and the creditor filed an application to liquidate the debtor company.

Once the application was filed, the debtor company managed to negotiate with the creditor and the creditor agreed to withdraw its application from the Court.

However, two other companies, that were owed money by the debtor company, applied to be substituted as creditors in the proceedings. The Court accepted this application. The successful negotiations with the first creditor were not enough to stop the application to liquidate the debtor company.

This unfortunate turn of events for the debtor company may have been avoided if it had negotiated with its first creditor as soon as it received the Statutory Demand, before the initial application was for liquidation was made.

A Statutory Demand asks for payment within 15 working days of service, or such longer time as the Court may order. With no forthcoming payment, the first creditor had applied to the Court to liquidate the company. Once the application was before the Court, other creditors were able to piggy-back in on the first creditor’s Statutory Demand – which for 30 working days from the deadline for payment counts as evidence that the debtor company cannot pay its debts.

Had the debtor company negotiated successfully with the first creditor, when it initially received the Statutory Demand, things may have worked out differently. It pays to respond to the Demand and not wait until Court proceedings are filed.