Australia has an Insolvency Law Reform Bill in Parliament and plans for more change further down the track in the form of recommendations from the Australian Productivity Commission, which the Australian Government has signalled it will adopt.

These developments will be of interest to New Zealand insolvency practitioners, company directors and creditors.  We summarise the proposed changes and comment briefly on the possibility of similar reform in New Zealand.

Insolvency Law Reform Bill

​It has become our recent practice to dust off the crystal ball and look ahead to what we expect will be the ‘big five’ insolvency issues.   

Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

The big issues for 2013

Our ‘top five’ picks for last year were:

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

A director is not absolutely liable for all losses suffered by a company on his or her watch.

So the Court of Appeal has ruled in a recent liquidation dispute.

The context

Rowan Johnston, a former investor and director in NZNet, pumped funds into the company when it ran into difficulties, but found that NZNet’s managing director Stephen Andrews had misled him about the company’s financial position.

On 15 September 2011, he resigned his directorship and a couple of months later, NZNet went into liquidation.

Over the last couple of years, we have developed the habit of periodically pushing up the periscope to try to determine the ‘big five’ insolvency issues on the horizon. 

Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

The big five for 2015

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. 

The Supreme Court, in a judgment released last Friday,¹ has overruled the Court of Appeal by deciding that the IRD stands behind liquidators and employees when cash is available in liquidation and PAYE is owed.

This decision, which upholds the payment waterfall in Schedule 7 of the Companies Act, will be welcomed by insolvency practitioners after the Court of Appeal had upset previous industry practice.

Context

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