Ordered by the High Court to return payment of a $37,400 trade invoice, Degree Plumbing Ltd had an uphill job to prove customer Podular Housing Systems Ltd was not insolvent at time payment was made having previously sued, threatening to wind up Podular Housing on grounds it was insolvent.
Podular Housing Systems in hopelessly insolvent. On surrendering payment, Degree Plumbing will join a raft of unsecured creditors claiming $6.5 million. Included in this figure are home buyers who have paid Podular Housing some two million dollars for houses yet to be started.
Dean McGowan, director of Northland-based Degree Plumbing, is furious that not only was Podular’s payment received months late but extra work was done at no cost to help it out as a customer. Being forced to repay now puts at risk Degree Plumbing’s financial viability, he said.
Insolvency law has little heart. When a business goes bust and there is not enough cash to pay all creditors, black-letter rules divide winners from losers.
One of the cruellest rules is a requirement that unsecured creditors paid in the six months prior to liquidation must return money received. This rule is justified as evening out losses; those paid in full at a time when the debtor was likely insolvent must return the benefit, joining a pool of unsecured claimants.
Creditors can keep payment if they acted in good faith, unaware the debtor was insolvent.
Podular Housing Systems liquidators sued in the High Court to recover $37,400 paid Degree Plumbing in weeks prior to Podular’s November 2022 liquidation.
Evidence was given that the debt ran unpaid from June 2022. Three months on, Degree Plumbing was in court putting pressure on Podular Housing, threatening to wind up the company alleging it was insolvent, unable to pay its debts as they fell due. That was fatal to any later argument that the subsequent payment was received at time when Degree Plumbing was unaware Podular was insolvent.
Podular liquidators’ most recent report indicates there will be no payout for unsecured creditors. First claim on Degree Plumbing’s repayment is liquidation costs.
Francis v. Degree Plumbing Ltd – High Court (18.10.23)
23.178