A recent Western Australia decision in the receivership and liquidation of a construction company may have overturned the hitherto accepted view that set-off remains effective against a receiver.

The case in question could cost the principal tens of millions of dollars and is under appeal. The finding is potentially relevant in New Zealand because the provisions relied on are materially identical to those in our Companies Act and Personal Property Securities Act (PPSA).

Failing to register security interests on the Personal Property Securities Register (PPSR) - a simple and straightforward exercise - can be costly.

This was amply demonstrated recently when General Electric's attempt to argue that its $60 million wind turbines were exempt from the operation of the Personal Property Securities Act (PPSA) was rejected by the Supreme Court of New South Wales.

The case

The first significant decision¹ under the Australian Personal Properties Securities Act 2009 has followed New Zealand and Canadian law.

The case involved competing claims by a general security holder and a lessor to three civil construction vehicles located in the Northern Territory.

The relationship between the parties

Liquidators are not limited to the procedure set out in section 295 of the Companies Act to recover a debt once an insolvent transaction has been set aside. 

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.

The Supreme Court has today considerably expanded the “good faith” defence for voidable transactions. 

Where a creditor “gave value” through the original transaction, that creditor can now defeat a voidable transaction claim by proving only that it acted in good faith, with no suspicion of insolvency. 

The Court of Appeal has confirmed that if a secured creditor votes its secured debt in a liquidation meeting, the vote is invalid – and the security remains. 

Liquidation meetings are for unsecured creditors.  A secured creditor has no vote, except in respect of debt that is unsecured.

The case

Liquidators must seek a court order to recover an insolvent transaction – even where the creditor has not objected in time to a notice under section 294 of the Companies Act.

The importance of following the prescribed procedure was recently reinforced by the High Court.¹

We look at the decision and the conclusions to be drawn from it.

The case

Confirmation by the Court of Appeal that “accounts receivable” are more than just book debts and include other legally enforceable monetary obligations owed to a company will provide welcome certainty to receivers and liquidators.

The issue is significant because it determines the assets available to pay preferential claims.

The lessons to be drawn from the Crafar receivership in relation to the Personal Properties Securities Act (PPSA) have now been distilled by the Court of Appeal, which has largely confirmed the High Court’s reasoning.

We discuss the implications of the litigation.