Playing It Straight - Debt Recovery and Statutory Demands

The Bollywood production Players started out looking sweet, but ended up leaving a sour taste in a lot of people’s mouths. They came here with pretty good budget, a fairly intensive shooting schedule, and the offer of a decent chunk of work for a number of techos. What the producers forgot to say was that they were going to leave without paying all their bills. I mean, it only seems reasonable that you tell someone you’re not going to pay them before they actually start the work don’t you think? That way, they can decide if they want to work for free or not, rather than having that choice forced on them at the end of the project.

Money wasn’t the only problem; the numbers of Indian nationals on the sets didn’t quite seem to tally with the immigration approvals, and the attitude to safety was perhaps more in line with a cultural belief that if you die you just get reborn, than the prevailing attitude here that once dead, you stay that way for a very long time…

But I’m here with a good news story (reminds me of Alec Baldwin’s line in Glengarry Glen Ross – “I’m from downtown. I’m here from Mitch and Murray. And I’m here on a mission of mercy”. Perhaps overstating the case but I do love that movie). When you don’t get paid, there are things you can do about it. And it doesn’t have to cost a lot of money, particularly if you team up with other people in the same situation (and when the money dries up on a film set, there are always going to be others in the same situation).

I acted for a couple of clients who were owed money by Players Film Ltd. They did get their money back, but as much as I would like to claim the credit, it was really due to the long awaited GST refund finally coming through. But what we had done to prepare for the very real possibility that the promised refund did not appear, was issue a statutory demand against the NZ production entity for the film. This is a simple process that is available to creditors who are owed money by a company, and where it appears the reason they are not being paid is that the company doesn’t have enough money to pay (rather than that the debt is disputed).

A statutory demand is a demand for payment of a debt, backed up by a threat to put the company into liquidation if it doesn’t pay. If a statutory demand is unpaid after 20 days that creates a legal presumption that the company is unable to pay its debts. The advantage of achieving this presumption is that if it is necessary to apply to wind the company up, you don’t have to prove that it is unable to pay its debts. This makes the winding up process much cheaper and quicker as the only evidence you need to advance is evidence that you are owed money, and that you have served a statutory demand which has not been paid.

It may seem pointless to wind up a company if it has no money to pay its debts. And it probably is pointless if there is a major secured creditor (for example a bank) as you will have to stand in line behind them. But once you get a liquidator appointed it is surprising what can turn up in the way of assets to satisfy debts (including IRD payments).

But probably the key benefit of the statutory demand process is that it can force the company to address the issue of unpaid creditors when it otherwise might just ignore them. For a variety of reasons, the shareholders of a company generally will take steps to avoid liquidation rather than just walking away from the company. It may be that there are tax losses they wish to use, or they may be averse to the publicity associated with being a director and shareholder of a failed company. And there may in fact be assets that they do not wish to fall into the hands of creditors.

Another good thing about the statutory demand/winding up application is that other creditors can attach to the process once it is commenced. It only takes one creditor to start it, then other creditors can join in to the same proceeding. This makes it potentially a very cost-effective process in situations where there are a number of creditors of the same company (which will usually be the case where the company is a film production company).

The important thing to realize is that there are options, and you don’t have to just take it lying down when a company refuses to pay you what they owe you. Or as Alec Baldwin’s character says in Glengarry Glen Ross – “they want to give you their money! Are you man enough to take it?”