A dispute about construction work can quickly become a question of whether a company can pay its debts. A missed payment schedule or an unpaid adjudication determination may lead to a statutory demand and, ultimately, an application to put a company into liquidation.

While that may come as a surprise to a company that believes it has good reasons for disputing payment, concerns about defects, variations or project delays do not necessarily prevent an immediate obligation to pay.

If a company does enter liquidation, the issues extend beyond the unpaid debt. Construction claims may remain unresolved, work may be unfinished and retention money may be held by, or owed to, the insolvent company. Those issues can create further uncertainty for everyone involved in the project.

How can a payment dispute lead to a statutory demand?

A statutory demand can arise from several types of unpaid construction debt. Two common examples are an unpaid payment claim where no compliant payment schedule was provided, and an unpaid adjudication determination.

The Construction Contracts Act 2002 is often described as a “pay now, argue later” regime. In both situations, a company may be required to pay even though it continues to dispute the amount owed.

Where a valid payment claim is served and a compliant payment schedule is not provided within the required timeframe, the payer becomes liable to pay the claimed amount on the due date. If it remains unpaid, the amount may be recovered as a debt. The Court of Appeal confirmed these consequences in Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480.

An adjudication determination requiring payment can also be enforced, even though the underlying dispute may later be considered through other proceedings. Challenging the determination does not itself suspend the obligation to pay. A recent example is Future Sustainable Construction Ltd v 1st Piler Ltd [2026] NZHC 2871, where the High Court confirmed that the determination remained binding despite judicial review proceedings and declined interim orders to prevent enforcement.

In either case, failing to pay may expose the company to a statutory demand, even while it continues to dispute the underlying claim.

How can a statutory demand lead to a liquidation application?

Once a statutory demand is served, a company generally has 15 working days to comply, but only 10 working days to file and serve an application to set it aside.

To avoid the risk of liquidation, it is crucial to act within these deadlines, either by applying to set aside the demand where there are proper grounds to do so, or by paying or otherwise satisfying it by the compliance date.

A claim for defects or delay will not necessarily prevent enforcement. If the demand is not met, the creditor may apply to put the company into liquidation.

An application does not mean liquidation is inevitable, and a commercial resolution may still be possible. However, settling with one creditor may not end the risk if others wish to continue the proceedings.

What happens if the company is liquidated?

The liquidator takes control of the company’s assets and affairs. Creditors generally submit their claims to the liquidator, but whether they receive payment depends on the funds available and other creditors’ claims.

For those involved in a construction project, liquidation does not necessarily bring matters to an end. Ongoing concerns may include:

• Outstanding claims: The liquidator may pursue unpaid accounts, while other parties have claims for defects, delay or completion costs.
• Unfinished work: Responsibility for site security, completion and defects may remain unresolved, and the cost of a replacement contractor may not be recoverable.
• Retentions: Money held back as security for performance may be protected by a statutory trust, but missing funds, unclear records or disputed entitlements can complicate recovery. Where retentions are owed to the insolvent company, liquidation does not automatically make them payable or allow the holder to apply them against competing claims.

How we can help

Construction payment disputes can not only significantly disrupt the completion of a project but also put a company’s future at risk. Where a company enters liquidation, others may be left facing unfinished work, additional costs and uncertain recovery.

Our specialist construction and insolvency lawyers advise developers, contractors, subcontractors and insolvency practitioners on these issues. We help clients understand the risks and identify practical, commercially sensible next steps tailored to their circumstances.

If you need help navigating any of these issues, please feel free to get in touch with one of our experts.