The Court of Appeal has rejected the controversial "peak
indebtedness" approach to calculating voidable transactions in
The decision, released on Friday last week, concerned the
correct method of calculating a voidable preference where the
company had a "continuing business relationship" with a
creditor – for example, an on-going supply contract. The
defining feature of a continuing business relationship is the rise
and fall from time to time in the level of indebtedness.
Under s292(4B) of the Companies Act 1993, a liquidator must
treat payments that are part of a continuing business relationship
as a "single transaction". In effect, this means that the
liquidator may only claim the net indebtedness during the
course of the relationship, rather than all payments to the
creditor during the relevant period. The net indebtedness is the
difference between the level of debt at the starting point of the
assessment, and the level of debt at liquidation. A decrease in the
level of debt indicates that the creditor was preferred; an
increase indicates that there was no preference.
There has been long-standing uncertainty about the starting
point for assessment of the net indebtedness. Under almost
identical legislation in Australia, liquidators may choose any time
during the specified period. Invariably, they will always pick the
date of peak indebtedness within that period, soas to recoup the
maximum amount possible.
On the other hand, the creditors contended that the starting
point should be at the beginning of the specified period, or
continuing relationship (whichever happened later).
In the Court of Appeal, the creditors' view prevailed. The
decision was based on the statutory wording, which requires
"all of the transactions" within a continuing business
relationship to be treated together. The Court considered that in
light of this plain wording, a liquidator could not then disregard
some of the transactions during the specified period. It said:
It follows from this position
that to arrive at some artificial point during the course of all
the relevant transactions and to select the date of peak
indebtedness (resulting in the transactions prior to this point
being disregarded), would be to ignore the express wording used by
Accordingly, the starting point for the calculation is the start
of the specified period, or the start of the running account if it
This decision diverges from the Australian case law, despite
almost matching legislation. It is a definite "win" for
individual creditors, particularly when considered together with
the recent Supreme Court decision2 which widened the
defence to voidable transaction claims.
1Timberworld Ltd v Henry David Levin and
Vivienne Judith Madsen-Ries; Henry David Levin and Vivienne Judith
Madsen-Ries v Z Energy Ltd  NZCA 111.
2Allied Concrete Ltd v Meltzer (SC
51/2013), Fences & Kerbs Ltd v Farrell, Hiway Stabilisers New
Zealand Ltd v Meltzer (SC 81/2013)  NZSC 7. Our summary
of this decision is
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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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