Two pending decisions - one from the Supreme Court and the other from the Court of Appeal - could hugely alter how claims are made from insolvent companies by creditors and liquidators - as both compete for the same cash.
Michael Arthur, a partner at Chapman Tripp, one of the country's largest law firms, has previewed the pending decisions, looking at ''peak indebtedness'' of a company and ''insolvent transactions'' - whether an earlier payment to a creditor can be kept, or whether the liquidators can seek return of the payment after liquidation.
''Insolvent transactions are a controversial topic among the business community and insolvency practitioners alike,'' Mr Arthur said.
Liquidators around the country have put some claims on hold, awaiting the courts' decisions, which may affect how they proceed.
The decisions may be released by the end of the year.
The two court judgements could significantly affect New Zealand's insolvent transactions regime, prompting Mr Arthur to give an overview of the present liquidation ''market''.
''The decisions could materially change the insolvent transactions regime in New Zealand,'' he said.
The Supreme Court decision on the ''good faith'' and ''gave value'' defences of creditors may well set a precedent.
''Few creditors welcome liquidators' attempts to claw back payments received prior to liquidation,'' Mr Arthur said.
Mr Arthur said, in essence, a creditor would not be liable to repay money if they received funds in ''good faith'', meaning they did not know or suspect that the company was insolvent, and if in supplying the company with goods ''gave value'' in the exchange.
''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,'' he said.
If the court decided it was sufficient for a creditor to have given value before the allegedly voidable payment was made, it would be much easier for creditors to raise this defence.
However, if new value was required after the allegedly voidable payment, it would conversely be much easier for liquidators to succeed with their claims, Mr Arthur said.
Since the concept of ''peak indebtedness'' was introduced into the New Zealand insolvent transactions regime in 2007, the starting point of the ''continuing business relationship'' had been ''been hotly debated'', he said.
The question was whether the continuing business relationship started at the point of ''peak indebtedness'', that is the point most advantageous to the liquidator, or at the point the company was unable to pay debts, or at another point in time, he said.
He noted that while the Court of Appeal's ruling should clarify the issue, the outcome could still be appealed in the Supreme Court.
The Supreme Court decision is based on three separate liquidation cases, while the Court of Appeal decision is based on multiple claims.
Liquidations
Liquidations around the country ...
• As at September 30, there were 5072 private (non-Official Assignee) liquidations in progress around the country. The longest-running started in 1988. Of those started in 2013, about half are ongoing, and half completed.
• As at September 30, there were 1562 active liquidations which started in 2014.
• Those appointments were held between 138 firms. One firm had more than 150 of those appointments, and only 17 other firms had more than 20 appointments.
- Sources: Chapman Tripp/Companies Office
