One of the common defences raised to a claim made by a liquidator that a transaction is voidable is that the transaction forms part of a continuing business relationship, also known as a running account.
The running account defence is provided for in section 292(4B) of the Companies Act 1993:
(4B) Where
- a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including a relationship to which other persons are parties); and
- in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then
- subsections (1) and (1A) (as relevant) apply in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
- the transaction referred to in paragraph (a) may only be taken to be an insolvent transaction voidable by the liquidator if the effect of applying subsection (1) or (1A) in accordance with paragraph (c) is that the single transaction referred to in paragraph (c) is taken to be an insolvent transaction voidable by the liquidator.
The Court of Appeal case Timberworld Ltd v Levin [2015] NZCA 111 is the leading case in New Zealand on running accounts, and sets out the key features of a running account at paragraph [34].
Essentially, what this means is if a supplier receives payments from an insolvent company in the weeks or months prior to its liquidation, these would usually be voidable. However, if the payments received by the supplier are then followed by the supplier continuing to supply goods or services to the insolvent company, they are not individually voidable.
Instead, the liquidator is required to undertake an analysis of the “debits and credits” in the trading relationship with this creditor. This means the liquidator must look at all the supplies given and all payments made by the insolvent company throughout the trading relationship (prior to, and within the restricted period), and find the net position. If there is a net increase in the debt owed to the supplier, then no payments are voidable. If there is a net decrease in the debt owed to the supplier, then only the net decrease is voidable. However, this is only the case if the payments made can be linked to further supply.
Let’s look at an example
Smith Ltd (now in liquidation) (Smith) had a trading relationship with Wilson Ltd (Wilson) from 1 July 2020 to the date of its liquidation, being 1 August 2025.
Between 1 July 2020 and 31 January 2025 (being the day prior start of the restricted period), Wilson supplied Smith with $100,000 worth of logs. During this same period, Smith only paid Wilson $80,000 for these logs. The net balance at this point is $20,000.
Then between 1 February 2025 and 1 August 2025, Smith made 4 payments to Wilson of $10,000 for logs, with payment being made on 3 February, 3 April, 3 May and 3 July. During this period, Wilson supplied Smith with $50,000 worth of logs. The last date of supply of the logs was on 15 July.
Since Wilson supplied $50,000 worth of logs, but Smith only made payments of $40,000, there was a net decrease at the end of the restricted period, as Wilson’s debt increased from $20,000 as at 31 January 2025 to $30,000 at liquidation. Because of this net increase of debt, the 4 payments received by Wilson are not voidable, as the payments can be linked to further supply being provided.
But what happens if Wilson stopped supplying to Smith at some point?
If Smith made 4 payments to Wilson on 3 February, 3 April, 3 May and 3 July, but Wilson stopped supplying logs to Smith on 15 June, the final payment on 3 July is voidable as the running account principles stopped applying on 15 June. This is because the payment on 3 July cannot be inextricably linked to the provision of further supply. The payment of $10,000 at this point can only be said to reduce the debt between Smith and Wilson.
This payment can therefore be isolated from the net off arrangement, and be set aside by the Court.
Real world application
A similar set of facts to the above example came before the High Court in Grant v Kiwi Hire and Sales Ltd [2026] NZHC 376.
Here, the Court held that since no further supply was provided by Kiwi Hire to the company in liquidation from 30 June 2020, and additional payments totalling $48,000 were received by Kiwi Hire were voidable, as they could not be linked to the inducement and provision of further supply by Kiwi Hire, as no supply eventuated.
