Under the Companies Act 1993, the liquidator of a company in liquidation has the power to set aside certain transactions if the transaction resulted in the person or company receiving more than they would have in the liquidation of the company.
If the transaction is successfully set aside by the liquidator, then the transaction can be unwound, which may result in that person or company having to repay the money received to the liquidator. This is regardless of whether they are still owed anything by the company in liquidation.
Section 292(3) of the Companies Act defines what a “transaction” means in this context:
- a. Conveying or transferring the company’s property
- b. Creating a charge over the company’s property
- c. Incurring an obligation
- d. Undergoing an execution process
- e. Paying money (including paying money in accordance with a judgment or an order of a court)
- f. Anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it.
Section 292(4) notes that a transaction also includes a transaction by a receiver of a company, except where the transaction that discharges (whether in part or in full) a liability for which the receiver is personally liable under section 32(1) or (5) of the Receiverships Act 1993 or where they are personally liable under a contract entered into by the receiver.
The list in section 292(3) is exhaustive, but covers most kinds of transactions to which a company may be party to. The main types of transactions are:
Payment of money
This is the most obvious type of transaction that a liquidator can set aside as voidable. The Courts have held that the payment of money is not required to be made from the company’s own money, and can be paid by a third party – Fisk v McIntosh [2015] NZHC 1043; McIntosh v Fisk [2017] NZSC 78; Robt. Jones Holdings Ltd v McCullagh [2018] NZCA 358.
Conveyance or transfer of property
The conveyance or transfer of property is given a wide meaning and includes every means by which property may be transferred from one person to another.
This includes:
- The assignment of a chose in action – Levin v West City Construction Ltd [2014] NZCA 98
- The issue of credit notes (being a transaction under section 292(3)(f)) to reclassify shareholder loans allowing the transfer of title to a related party creditor – Scutter v Tawa Ltd Partnership [2022] NZHC 848
