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
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.
Directors beware – unless you are careful to maintain a subsidiary’s independence, the parent company may be liable for the debts of its subsidiary.
That is the effect of a recent High Court decision invoking a rarely used provision in the Companies Act.
We analyse the judgment and draw some practical advice from it.
Section 271
Section 271(1)(a) of the Companies Act 1993 (the Act) has been used only rarely and is unique to New Zealand law, although Ireland has a similar provision.
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.
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New Zealand in a Nutshell
A case recently heard in the UK suggests that, in certain circumstances, a claim for conversion of assets may be brought against administrators and liquidators of a company. While the claim did not succeed on the facts inEuromex Ventures Ltd & Anor v BNP Paribas Real Estate Advisory & Ors [2013] EWHC 3007 (Ch), the case illustrates that claimants may bring a proceeding on the basis of alleged acts of conversion by a company's liquidators and administrators.
In our December 2012 insolvency update we reported on CP Asset Management Ltd v Grant, in which the High Court upheld a creditors' resolution to appoint new liquidators. The High Court found that a resolution should only be set aside when it was found that the prejudice to creditors was unreasonable. In the High Court, the minority of creditors who voted against the resolution were unable to e
Rowmata Holdings Limited (in liquidation) (RHL) & Anor v Hildred & Ors [2013] NZHC 2435 involved a sale and purchase agreement whereby land was sold to two trusts, subject to finance. RHL (a company incorporated by the purchasing trusts) claimed and received a GST refund for the purchase. However, on settlement date, RHL defaulted on the purchase, went into liquidation, and the GST refund became repayable to the Inland Revenue Department (IRD).
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.