A recent case, Webb v Booth [2026] has clarified what is considered an accounts receivable and therefore what must be paid to preferential creditors (staff members and Inland Revenue) instead of the bank.
Why this case is important?
How recoveries are allocated in liquidation is an issue which can be complicated. I have written on this issue previously [MT1]. Broadly speaking, there are two important estates when it comes to distributing assets:
- Secured creditors: These include specific security interests and General Security interests
- Preferential Creditors: Mainly former employee entitlements and Inland Revenue (for GST and PAYE)
In accordance with the PPSA and Schedule 7 of the Companies Act, ‘accounts receivable’ and ‘inventory’ which are not subject to a Purchase Money Security Interest will be paid to secured creditors.
If there are no secured creditors then all proceeds will be applied to Schedule 7, meaning preferential creditors will be paid first. However, if there is a secured creditor with a security interest in All Present and After acquired Personal property (typically seen in secured bank loans and/or overdrafts) they will be paid ahead of preferential creditors unless the recovery is from inventory or accounts receivable (provided no secured creditor has a Purchase money security interest).
Webb v Booth is important because it has clarified that accounts receivable includes services which have been performed, but have not yet been invoiced. Prior to this, the courts had found that if an invoice had not been raised they would not be considered preferential, despite the company having done the work.
The law (in New Zealand) prior to Webb v Booth
In New Zealand there are two primary cases which have dealt with this issue:
Strategic Finance ltd (in Rec & in Liq) v Bridgman [2013] NZCA
The key takeaways from the Court of Appeal’s order for an asset to be considered accounts receivable under the PPSA:
- There was a need for an existing liability to pay and a matching legally enforceable right to recover the payment (per accounting standards), in summary one party’s contractual right to receive (or obligation to pay) cash is matched by the other party’s corresponding obligation to pay (or right to receive)[1]
- When reading monetary and obligation together, the liability must be to pay an identifiable sum on an ascertainable date[2]
- A possible liability to pay an unidentifiable sum at an ascertainable future date will not suffice[3]
- For an amount to be receivable, it must currently be owed to a party who is entitled to expect its payment without undertaking further performance[4]
In summary, referencing accounting stands, the Court of Appeal found that in order for an asset to be considered ‘accounts receivable’, one company must have an asset of accounts receivable on it’s balance sheet and the other company must (or ought to have) an equal liability recognising this.
Brown v Heartland Bank Limited [2019] NZHC 1105
On the other hand in Heartland Bank the High Court found that unbilled work in progress was not accounts receivable as there was not an existing obligation on the customer to pay as there was no relevant ‘accounts receivable’ in existence at the date of liquidation. [5]
Webb v Booth
Background:
This company concerns the ELE group of companies. The companies employed 1,800 employees providing labour hour services in New Zealand.
The Companies were placed into receivership on 20 December 2023, with liquidators being appointed at a later date.
Broadly speaking, per the company’s terms of trade the company’s process as follows:
- ELE’s employees would complete timesheets recording their hours worked (at a customers site) every week
- The timesheets would be signed off by the customers site manager or another authorised person and submitted to ELE’s payroll hub. Despite being required to be submitted by Monday each week, they were usually submitted later in the week
- Timesheets were submitted in a number of forms, including email, text and hard copy.
- Invoices would be issued to customers on a Friday for the previous week’s work:
There were three categories of work in progress:
- Work completed in the last full week prior to receivers’ appointment (being Monday 11 to Sunday 17 December 2023), although timesheets should have been submitted by customers by midday on Monday 18 December 2023, a significant number came through following the receivers appointment.
- Work completed on Monday 18 and Tuesday 19 December 2023, for which time sheets may have been completed but which were not due to be approved or submitted by customers until the following week
- A small amount of work completed prior to 11 December 2023, for which invoices had not been issued due to late time sheet submission or inadvertent omissions.
Issue
The issue is whether the unbilled work in progress was accounts receivable as the work had been completed and the terms of trade (together with the timesheets) provided for a quantifiable (ascertainable) obligation and date of payment even though the invoicing had not been done by ELE prior to receivership.
Finding
In summary, the court found that the work in progress where services had been performed prior to appointment was accounts receivable for the purposes of Section 16 of the PPSA and therefore was to be paid to the preferential creditors rather than the secured creditors[6].
The court referenced Australian cases RCR Tomlinson and Hamersly Iron PTY LTD, to reach this conclusion:
In RCR Tomlinson[7], the NSW Supreme Court found that services which had been rendered prior to the appointment date and all that remained was for an invoice to be raised, or a certification or approval from the customer (prior to the invoice being raised) were considered accounts receivable.
In Hamersly Iron PTY Ltd, the Supreme Court of Western Australia effectively distinguished between obligations for payment by means of a contract and claims under tort or equity[8]:
- A payment for services (provided the agreement contains a mechanism for ascertaining the amount to be paid and the payment date) are accounts receivable. If there is a legally enforceable obligation and corresponding liability it is immaterial that enforcement by court proceedings is required.
- Claims in Tort or Equity are not accounts receivable because they do not constitute a monetary obligation until judgment is made
Conclusion
This decision is a welcome conclusion which clarifies that accounts receivable for the purposes of the PPSA is not limited to full invoiced accounts receivable, if the company had performed the services and administrative tasks (for example customer approval or an invoice needed to be raised).
If Brown v Heartland was followed $1,453,362 would have been paid to the bank instead of preferential creditors simply because customers had not returned signed timesheets and invoices had not been raised.
[1] Strategic Finance ltd (in Rec & in Liq) v Bridgman [2013] NZCA at [56 to 57]
[2] At [56] to [57]
[3] At [56] to [57]
[4] At [60] and [62]
[5] Brown v Heartland Bank Limited [2019] NZHC 1105
[6] Webb v Booth [2026] NZHC 1635 at [44]
[7] Webb v Booth [2026] NZHC 1635 at [40] to [41] referencing Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735
[8] Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd), at [261] and [264].
[MT1]https://waterstone.co.nz/insights/how-are-recoveries-allocated-in-a-liquidation/
