The debate over what constitutes an "accounts receivable" has largely been clarified in Strategic Finance Limited (in Liq & in Rec) & Anor v Bridgeman & Ors, a decision handed down by the Court of Appeal last month. That decision settles the debate in favour of a wide interpretation of the term – one which is not limited to "book debts".

Strategic Finance Limited claimed its general security agreement (GSA) over the property of a company in liquidation entitled it to the recovery of certain funds in priority to the claim of the IRD over those same funds. As a preferential creditor, the IRD was entitled to payment of accounts receivable in priority to GSA holders under the provisions of the Companies Act. The two parties' competing claims required the Court to decide on the meaning of "accounts receivable" in the Companies Act context.

In summary, the Court held that "accounts receivable" will include an existing monetary obligation, not earned by performance and not evidenced by chattel paper, an investment security or by a negotiation instrument, imposed on or assumed by, one party to pay a certain or identifiable sum of money to the other party on a specific or ascertainable date. It will not include a possible liability to pay an unidentifiable sum at an unascertainable future date.

See Court decision here.