Most Read Contributor in New Zealand, September 2016
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
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
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
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
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
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,
the effect on liquidators' claims (ongoing and
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
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
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
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%
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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As a demonstration of India's combined political will, the much awaited and debated Insolvency and Bankruptcy Code, 2016 was passed by the Upper House of the Parliament on 11 May 2016 (shortly after being passed by the Lower House on 5 May 2016).
The Code envisages that the insolvency resolution processes will be conducted by insolvency professionals.
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