The Wellington litigation team successfully defended a voidable transaction claim under section 296(3) of the Companies Act 1993 by the liquidators of Contract Engineering Limited in the High Court in Farrell v ACME Engineering Limited [2012] NZHC 2874.

ACME Engineering manufactured and delivered a flash silencer to Contract Engineering in May 2010 and issued an invoice for it.  The invoice was paid late and pursuant to a payment plan.  Contract was placed into receivership in late 2010 and then into liquidation in July 2011. 

The principal issue was whether ACME could prove that it satisfied the good faith defence under section 296(3) of the Act.  Section 296(3) of the Act requires a creditor to prove that when it received the payment:

  • It acted in good faith
  • A reasonable persons would not suspect and it did not have reasonable grounds for suspecting that the company was or would become insolvent
  • It gave value or altered its position in the reasonably held belief that the transfer of the payment was valid and would not be set aside.

The case turned on whether ACME 'gave value' for the payments.  The 'gave value' element of the defence was added into section 296 of the Act in 2007 and was an adoption of the equivalent provision in the Australian Corporations Act 2001.  His Honour held that the giving of value included value given by accepting the payment in satisfaction and release of an antecedent debt.  His Honour's reasoning was set out in the related judgment of Farrell v Fences and Kerbs Limited [2012] NZHC 2865.  Both decisions have been appealed and the Fences and Kerbs appeal will be heard on 7 February 2013.  The Fences and Kerbs decision was followed by his Honour Justice Toogood in Meltzer v Hiway Stabilizers New Zealand Limited [2012] NZHC 3281.

See Court decision here.