Voidable transactions in New Zealand – where to from here?

The Court of Appeal's judgment in McIntosh v Fisk, released this month, regarding liquidators' ability to claw back payments made by Ponzi schemes to investors would have gone very differently but for the Supreme Court's landmark ruling last year in Fences & Kerbs on the meaning of "gave value".

The majority expressly noted that, had they not felt bound by the Supreme Court's interpretation, they would have agreed with the minority and required the investor to pay back not just the fictional profits, but also the profits of his capital investment.

We look at the reverberations last year from Fences & Kerbs and speculate on their continuing effect this year.

Case volume

Ten judgments dealing substantively with the claw-back of voidable transactions under section 292 of the Companies Act 1993 were issued last year, three at appellate level.1 The courts found:

for the liquidator(s) in five cases - three of which resulted in a full recovery while in the remaining two, the liquidators were allowed to recover only part of the claimed amount, and for the creditor in four cases. The other case2 was an appeal from two different decisions, one in which the result was for the creditor and the other in which the liquidator achieved partial recovery.

Key principles

Case law developments in 2015 have clarified a number of key concepts in the voidable transactions regime.

"Gave value"

Because in a voidable transactions claim, "value" given by a creditor at the time of the original transaction is sufficient to satisfy the "gave value" limb of the good faith defence in section 296(3)(c), this defence will be available to any creditor that received a payment in good faith without knowledge of insolvency. (See Allied Concrete and Chapman Tripp's commentary on it.)

The broader nature of the defence and its focus on subjective elements increases the burden faced by liquidators who seek to challenge a creditor's lack of knowledge or suspicion of insolvency (see Madsen Reis and Levin v Donovan Drainage).

Peak indebtedness

The start of the "continuing business relationship" is the beginning of the specified period, not the point of "peak indebtedness". (See Timberworld and Chapman Tripp's commentary.)

Continuing business relationship

A continuing business relationship will exist only where payments made between a company and its creditor are for the purpose of securing more than the payment of a pre-existing debt - i.e. payments must be for the purpose of...