Subcontractors call for decision on voidable transactions

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Subcontractors are calling for the Supreme Court to release its decision on the ability of liquidators to claw back payments made by insolvent companies to contractors, and put an end to months of uncertainty for New Zealand businesses.

Last year, the Court of Appeal backed a liquidator’s power to claim back payments made by an insolvent company to a contractor up to two years before its collapse, a practice known as voidable transactions.

An appeal against the decision was heard at the Supreme Court in March 2014. However, a leading industry body representing subcontractors is frustrated at the wait for a decision.

Graham Burke, president of the Specialist Trade Contractors Federation which represents more than 5700 contracting firms in New Zealand, says while this decision is pending, thousands of businesses remain in a “no-man’s land” with regard to voidable transactions.

“Under the Court of Appeal ruling, any service you supply and are paid for afterwards is a voidable transaction,” Mr Burke says.

“That affects every business in New Zealand which provides goods and services on account. However, the building trade is particularly aware of this because there are more insolvencies in the construction sector than in other sectors.”

Voidable transactions rules are intended to prevent queue-jumping among creditors. However, Mr Burke said that under the current ruling, the balance is stacked heavily in favour of liquidators and preferred creditors such as the IRD.

“Most contractors are unsecured creditors. The current ruling means that contractors who complete a contract properly and have paid their suppliers and staff, cannot have certainty that payments they have received will not be recovered.

“This makes it difficult for small business to plan to invest and grow. The contracting market is currently buoyant, but there have been some high profile insolvencies in recent years.

“The issue of voidable transactions needs to be resolved so businesses can make decisions about investing in areas such as new equipment, staff training and expanding their businesses to meet the growing demand.”

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