Contractors and subcontractors have hailed a Supreme Court decision on a liquidator’s powers to claw back payments made by an insolvent company to a contractor, as a victory for common sense.
The Supreme Court recently overturned an earlier Court of Appeal ruling allowing liquidators to claim back payments made by a company up to two years before its collapse.
The decision was strongly welcomed by Civil Contractors New Zealand (CCNZ) and the Specialist Trade Contractors Federation (STCF).
Malcolm Abernethy, executive officer for the CCNZ which represents members of the civil contracting industry, said the decision would come as a huge relief to members of the organisation, which had helped to fund the appeal.
“Voidable transactions are intended to ensure all creditors of insolvent companies are treated equally,” Mr Abernethy says.
“They are intended to recover payments that have been made that are essentially out of the ordinary.
“This decision gives contractors some surety that payments received will not be clawed back under the voidable transactions provisions of the Companies Act.”
Relief to thousands
Graham Burke, president of the STCF which represents more than 5700 contracting firms in New Zealand, says the Supreme Court ruling on the practice, known as voidable transactions, would come as a relief to thousands of businesses.
“This affected every business providing goods and services on account. The building trade was particularly aware of the issue because there are more insolvencies in the construction sector than in other sectors,” Mr Burke says.
“The Court of Appeal decision means that any service supplied and paid for afterwards was a voidable transaction. That left businesses in a state of limbo — having been paid for a contract they had completed but with a risk that money could be clawed back for up to two years.
“That uncertainty made it difficult for small businesses to invest and grow. It’s been a long fight, but the Supreme Court decision has finally drawn a line under the issue. It’s a victory for common sense.”
The intention of voidable transactions was to prevent queue-jumping among creditors. However, Mr Burke says that under the Court of Appeal ruling, the balance was stacked heavily in favour of liquidators and preferred creditors such as the IRD.
“This is a very important decision for the contracting market. The construction sector is currently buoyant, but there have been some high profile insolvencies in recent years.
“Now, contractors can make decisions about investing in areas such as new equipment, training staff and expanding their businesses to meet the growing demand.
“That’s good for contractors and it’s good for New Zealand.”