“The peak indebtedness rule is not part of the law in New Zealand”, according to the Court of Appeal, in a decision dismissing two appeals on an issue “significant for both liquidators and creditors generally”.

The Court of Appeal has found that receivers can be personally liable for body corporate levies accrued during a receivership.

The judgment is based on a broader interpretation of the relevant provisions in the Receiverships Act 1993 than applied by the High Court in Body Corporate 162791 v Gilbert, and reverses that decision.¹    

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

If asked to provide information to a liquidator, the safest course may be to provide it under oath under section 261 of the Companies Act 1993 because the High Court has found that immunity will apply to such statements.

We look at the decision.

The case

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

Inland Revenue is now ahead of liquidators and receivers in the queue for payment where cash is available in liquidation and PAYE is owed.

Industry practice has been that PAYE is paid to the Commissioner of IRD only after the insolvency practitioners’ fees and employees’ wages have been paid but the Court of Appeal has accepted the IRD's argument that the Commissioner has first claim.¹

We picked the good faith defence in the voidable preference regime as one of the big five insolvency issues for 2013 and so it has come to pass, with a wealth of case law on the topic.

The High Court has found that a bankrupt member’s interest in a KiwiSaver scheme is available for distribution by the Official Assignee to creditors – but only after the bankrupt qualifies for a withdrawal (which will usually be at age 65) unless early partial release would alleviate the bankrupt’s significant financial hardship.

Three times in the last 12 months, liquidators have been told by the High Court that they cannot choose the “point of peak indebtedness” as the start of the “continuing business relationship” in an insolvent transaction claim. 

Of course, the three decisions are all from the High Court, and will not be binding in future cases.  The law will not be settled until the appellate courts hear the issue, and they may yet come to a different conclusion.