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.

Voidable Transactions

Can be a significant risk for businesses

When an insolvent company goes into liquidation it’s accepted that not all creditors will get paid 100 cents in the dollar.However it often comes as a shock to creditors when the liquidator requires them to refund payments that had been made up to two years before the company was liquidated.

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.

Like many legal tests, the test for insolvency is easy to state, but hard to apply in practice.

The United Kingdom Supreme Court (UKSC)¹ has recently issued an important clarification, which confirms that an element of forwards projection must be applied – extending in extreme cases to assessments of balance-sheet as well as cash-flow solvency.

This liberal approach is likely to be followed in New Zealand, despite differences in statutory wording.

The recent Court of Appeal case of Kakara Estate Ltd v Savvy Vineyards 3552 Ltd [2013] NZCA 101 provides a useful reminder that an assignment and a novation of an agreement are different. When an agreement is assigned, the assignor remains a party to the agreement. If the agreement is novated, a new agreement is created between the assignee and the continuing party, and the "assignor" is released.

In a recent High Court decision, a bank (B) applied to appoint liquidators to the TPS Asset Trust and TPS Asset No2 Trust (Trusts). The defendants had guaranteed loans borrowed from B by their company, both personally and in their capacity as trustees of the Trusts.

The defendants had been found guilty of fraud, tax evasion and attempting to pervert the course of justice in August 2012. In July 2012 the defendants had also been adjudicated bankrupt and their company had been placed in liquidation.

In Hutchins v Edwards [2013] NZHC 336, the High Court declined an application for an adjournment by a debtor who sought further time to liquidate property in order to pay a judgment debt.

If a liquidator is found guilty of stealing money from a company in liquidation, most creditors would assume that he or she could never be a liquidator again. Not in New Zealand. A recent case highlights the need for urgent reform of the regulation of insolvency practitioners.

Under section 241(4) of the Companies Act 1993 the High Court "may" order that a company which is unable to pay its debts be put into liquidation.  While the Court retains a discretion not to order the liquidation of an insolvent company, it will not usually exercise that discretion in the absence of good reasons for doing so.