Supreme Court grants leave of appeal in crucial business case

Contractors’ federation welcomes Supreme Court decision on liquidation "injustice".

The Supreme Court has granted leave for an appeal to be heard, which could have critical outcomes for businesses throughout New Zealand.

Stabilisation technology specialist Hiway Stabilisers had been paid $13,000 for work it had completed for a company which went into liquidation two years later. The liquidators then demanded that the money should be repaid.

Hiway Stabilisers successfully challenged these demands in court. However, this was overturned in July when the Court of Appeal agreed that a liquidator can legally claw back payments made by an insolvent company to a contractor up to two years before its collapse even if legitimate services had been delivered in good faith in the normal course of business.

Hiway Stabilisers is a member of the New Zealand Contractors Federation (NZCF) which decided to support a challenge of the Court of Appeal decision, financially supporting the company’s appeal to the Supreme Court - which has now granted leave for appeal.

Seventy NZCF members have already donated nearly $18,000 to the costs of running the case, which could reach up to $50,000.

NZCF Chief Executive Jeremy Sole said that the federation, and Hiway Stabilisers, were delighted that the case would now be heard in the Supreme Court.

"The Court of Appeal decision set a dangerous precedent which could leave many New Zealand businesses, of all kinds, that supply goods and services on credit, facing the risk of having to pay back money they have legitimately earned if a customer goes broke within two years" said Mr Sole.

"Hiway completed the contract properly, they were paid, and the deal was closed off. They then paid their suppliers and staff and invested the profit. Now they’re being asked to give it all back.

"This is an absurd situation and significantly bigger than just the case we are assisting Hiway Stabilisers to fight. It could impact across the entire business sector especially where the effects of liquidations of large entities have the potential to cascade into supply chains."

Mr Sole said the issue has arisen due to changes to the Companies Act 1993, aimed at bringing New Zealand’s law on ‘voidable preferences’ into alignment with Australian commercial law.

Leading commercial and public law expert Stephen Franks, of Franks & Ogilvie, has described the Court of Appeal decision as a "purist" interpretation of the changes

He said that the interpretation given by the Court of Appeal means, with some exceptions, most payments for goods and services supplied on credit can be clawed back if an insolvent customer goes into liquidation within two years.

The Supreme Court case will examine whether the Court of Appeal was correct to conclude that the payment made to businesses, including Hiway Stabilisers, should be set aside and that judgement should be entered against them.

Any businesses or organisations which would like to contribute to the federation’s fund to support the Supreme Court case can contact the Federation on 0800 692 376