Two court judgments which could significantly affect New Zealand’s insolvent transactions regime are due out soon. When they are released, we will provide a Hothouse seminar on their potential implications for creditors and liquidators (sign up here).
We discuss the cases briefly here and provide an overview of the current liquidation “market” based on information supplied by the Companies Office.
Insolvent Transactions – big changes ahead?
Insolvent transactions are a controversial topic among the business community and insolvency practitioners alike. Few creditors welcome liquidators' attempts to claw back payments received prior to liquidation. Insolvent transactions can affect anyone who provides credit to their customers, where those customers become insolvent. Suppliers of goods and services to SME businesses often are the most affected.
The upcoming legal developments in this area should therefore be of interest to both insolvency practitioners and trade creditors. The decisions could materially change the insolvent transactions regime in New Zealand.
Supreme Court decision on the “good faith” and “gave value” defence
Many are eagerly awaiting a decision from the Supreme Court on the scope of the “good faith” and “gave value” defence to an insolvent transaction claim. The High Court and Court of Appeal have gone back and forth on how this defence works. In essence, a creditor will not be liable to repay if it received funds in good faith, without knowing or suspecting that the company was insolvent and if it “gave value” for the property.
The Court will decide whether it is sufficient for a creditor to have given value before the allegedly voidable payment was made, or whether new or fresh value must also have been given after the payment.
If the Court decides that it is sufficient for a creditor to have given value before the allegedly voidable payment was made, it will be much easier for creditors to raise this defence. Conversely, if new value is required after the allegedly voidable payment, it will be much easier for liquidators to succeed with their claims.
See our last article on this issue here
Court of Appeal on "Peak Indebtedness"
Since this concept was introduced into the New Zealand insolvent transactions regime in 2007, the starting point of the “continuing business relationship” has been hotly debated (see Chapman Tripp’s commentary here
Does the continuing business relationship start at the point of “peak indebtedness”? That is, the point most advantageous to the liquidator? Or should it start at the point of the company’s inability to pay debts? Or does it start at some other time?
The Court of Appeal’s ruling on the point should clarify this issue, with the result that voidable transaction claims may either be encouraged or discouraged, depending on the ruling.
Once the decisions are released, we will hold a Hothouse seminar to explain and discuss
their potential impact on trade creditors’ business, and
the effect on liquidators’ claims (ongoing and future).
If you'd like to receive an invitation to this event, please email us here
. We will be in touch with details regarding the date and time later.
New liquidation appointments
The statistics show that, as the initial shock waves from the GFC washed through the system, the number of new liquidations fell sharply in 2010 and 2011. Since then, the number of new liquidations has remained steady year-to-year (using pro-rated numbers for this year).
Completion of liquidations
As at 30 September 2014, 5072 private (i.e. non-Official Assignee) liquidations were in progress in New Zealand. The longest-running of these started in 1988. Of those which commenced in 2013, around half are ongoing, and half have been concluded. The rate of completion is higher for liquidations which started in 2012 or earlier.
Liquidations by firm
The figures for current (private) liquidations that commenced in 2014 reflect a market with a handful of firms dealing with a large number of liquidators, and a long tail of firms with five current appointments or fewer.
There were, as at 30 September 2014, 1562 active liquidations which had commenced in 2014. Those appointments were held between 138 firms. One firm had over 150 of those appointments, and only 17 other firms had more than 20 appointments. By contrast, 85 firms had between one to four current liquidations which had commenced this year.
A similar pattern can be seen in 2013.
Of the currently active liquidations commenced in 2013 and 2014, the top 20 firms (by number of appointments) hold approximately 71% of appointments.