The Court of Appeal has backed liquidators’ power to claw back payments made by an insolvent company up to two years before its collapse.

Three High Court decisions last year undid a commonly held belief about voidable transactions, where a liquidator can order a creditor to repay money received from a troubled firm.

The voidable transaction process is designed to prevent creditor queue jumping. A creditor can defend against a claim if it can prove it acted in good faith in accepting the payment, had no reason to suspect the business it was trading with was in trouble and gave value for the funds received.

The High Court ruled a creditor should not be disadvantaged just because it provided its services before being paid, as many suppliers did.

The High Court decisions meant voidable transactions would be virtually unenforceable and so appeals were lodged.

Source: Fairfax NZ

Maria Slade. Business Day 30 March 2013. www.stuff.co.nz

For further details see:

Interim Judgment of the Court of Appeal dated 27 March 2013.

Farrell and Rogan as Liquidators of Contact Engineering Ltd v. Fences & Kerbs Limited

CA 773/2012 [2013] NZCA 91

Given  by P. Randerson J.

Hearing date 7 February 2013

O’Regan, P. Randerson, and French JJ

http://www.courtsofnz.govt.nz/front-page/cases/farrell-and-rogan-as-liquidators-of-contact-engineering-limited-v-fences-kerbs-limited