Receivership Court Decision Welcomed

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Insolvency experts are welcoming a Court of Appeal decision they say gives comfort to firms trading with a company in receivership, reported. The wisdom of continuing to do business with a troubled entity was called into question by a dispute between the receivers of pet food manufacturer Lovitt's and packaging company Huhtamaki New Zealand. Huhtamaki claims it is $280,000 out of pocket after receivers Deloitte ordered ongoing supplies but then said there were no available funds to pay for them. The case raised the issue of whether suppliers stand behind a secured lender in the creditors' queue even when it is the receiver who is responsible for the debt. Now the Appeal Court has said that receivers can pay post-receivership bills ahead of the bank. Deloitte argued in the High Court that Huhtamaki had signed a form agreeing that the receivers' liability was limited to the available assets of Lovitt's, and there was nothing left over after the secured creditor Westpac was paid. The Lovitt's business was sold in March 2010 for $3.1 million, a significant shortfall to the $10m owed to Westpac. But the court said it was far from clear what ''available assets'' meant. It seemed to depend on the receivers' arbitrary assessment at any particular time, Associate Judge Christiansen said. Then last week the Court of Appeal said that receivers can cover their bills out of whatever assets the company has, and that takes priority over what is owed to the bank. Under the law, receivers were personally liable for the debts of a receivership. If they didn't do anything at all to limit that liability, in theory their own houses, cars and bank accounts could be at risk, Arthur said. Read more.