05 December 2012

Insolvency: re Window Holdings Ltd


Most creditors paid prior to a company liquidation will be able to keep their money thanks to new insolvency rules.  Creditors paid up to two years prior to a debtor company being wound up insolvent can keep the money provided they received payment in good faith, did not know the debtor was insolvent and had provided goods or services to the debtor equal in value to the payment received.
Insolvency law has detailed rules to even out the losses when a debtor company goes into insolvent liquidation forcing some creditors who were paid in full before the liquidation to repay the money received.  They are left to prove as unsecured creditors.  In practice, money recovered is used first to pay the liquidator’s fees.  Frequently, little is left for unsecured creditors as a whole.
Changes to insolvency law in 2006 replaced earlier recovery rules which were widely viewed as being unworkable.
Auckland insolvency specialist Jeff Meltzer challenged these new rules arguing they should be interpreted restrictively: any creditor paid in the two years prior to liquidation and getting 100 cents in the dollar should have to return that money if there are unpaid creditors.
In the High Court, Justice Toogood applied the plain wording of the new rules.  Creditors can keep their 100 cents in the dollar provided, at the time of payment, they acted in good faith, had no knowledge that the debtor company was insolvent and had provided monies worth in goods or services to the debtor company.
re Window Holdings Ltd (in liquidation) – High Court (5.12.12.)
12.037