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.

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.

When insolvency practitioners consider who may be held accountable for corporate failures, auditors are often near the top of the list. It is easy to see why. From a practical perspective, auditors are relatively likely to be able to meet good claims, and from a legal perspective it is easy to identify the duties that the auditors owed and, in an unfortunate number of cases, breached.

Justice Heath issued a sweeping judgment last month limiting the ability of liquidators to examine witnesses and seek documents. In the decision, ANZ National Bank Ltd v Sheahan and Lock [2012] NZHC 3037, the Court also:

The High Court has clarified the extended good faith defence, introduced into the Companies Act in 2007, for creditors facing ‘claw back’ of a payment by liquidators.¹

The Court’s interpretation, while good news for creditors, may make it more difficult for liquidators to recover insolvent transactions.

The 2007 amendment to section 296(3)

The High Court recently allowed a secured party to amend financing statements to correct a mistake as to the identity of the debtor, without losing the benefit of its initial time of registration. 

The case was determined in the context of an application by Universal Trucks and Equipment Limited to maintain the registration of security interests.  The liquidator of Chars Transport Limited (in liquidation) had made a demand under section 162 of the PPSA that Universal register a financing change statement that excluded two industrial trailers. 

A recent case alleging serious misconduct by a liquidator highlights the need for New Zealand to reform the regulation of insolvency practitioners. The case, Official Assignee v Norris [2012] NZHC 961, illustrates the inadequacies of our current regime.

In Gibbston Downs Wines Limited and RFD Finance No 2 Limited v Perpetual Trust Limited HC Christchurch CIV-2010-409-00176 28 May 2012, the High Court considered the effect of registration of a subordination agreement on the respective priority of two perfected security interests registered on the Personal Properties Securities Register (PPSR).

From 28 September 2012 the maximum priority amount for employees in liquidations, receiverships and bankruptcies will increase from $18,700.00 to $20,340.00 per employee.

Liquidators, receivers and the Official Assignee in a personal bankruptcy must pay certain amounts to employees, in priority to ordinary unsecured creditors. 

These preferential employee entitlements include:

The High Court decision of Official Assignee v Norris [2012] NZHC 961 examined whether the Official Assignee could apply for orders relating to Mr Norris' actions as liquidator of multiple companies, and whether adequate notice of his alleged failure to comply with his duties as a liquidator had been given.