Liquidator clawbacks to be slashed for third-party suppliers

Tuesday 5th November 2019

Liquidators' clawback powers will be slashed from two years to six months for payments made to third-party suppliers of failed companies under insolvency law reforms announced by Commerce Minister Kris Faafoi.

At present, any supplier of goods or services to a company that turns out to have been trading while insolvent can be forced by a liquidator to refund payments made up to two years prior to the insolvent company's failure.

"This is too long a period for any creditor to be uncertain about whether an amount they received in good faith will have to be recovered, sometimes putting their own financial situation at risk," said Faafoi. “We’re going to improve commercial confidence by reducing the clawback period to six months."

However, the news is not so good for creditors with a close connection to a director of a failed company.

In their case, the two-year clawback period will increase to four years "in relation to transactions with related parties that are akin to fraud on creditors," according to a Cabinet paper accompanying the announcement.

Most of the changes were recommended by the Insolvency Working Group in a report published in 2017 and will be included in a future Insolvency Law Reform Bill.

The Cabinet paper says the ‘voidable transactions’ regime is "based on the idea that companies are typically insolvent for months, sometimes years, before a liquidator is appointed."

"Individual creditors who have been paid in full during this time have received more than they would have obtained if the company had been liquidated before that payment was made. This is inconsistent with the equal treatment principle. For this reason they can be required to return the amount or difference, even though they may have received the payment in good faith."

Faafoi also announced changes to protect employees' leave and severance payment entitlements and to require companies in liquidation to honour 50 percent of the value of gift cards and vouchers.

“We’re extending the scope of the entitlements for employees of failed companies so that both payments in lieu of notice and long service leave will be protected in the same way as wages,” he said.

(BusinessDesk)

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