Payments made by insolvent companies – what is in the ordinary course of business?

The High Court considered whether a payment made by an insolvent company was in the ordinary course of business and determined that, in this case, it was.

The case1 involved a company that made a payment on 28 September 1998 for invoices rendered in August 1998. The payment was made 13 days before the company ceased trading and four days before it was placed in receivership by resolution of its shareholders.

Considering whether the payment should be set aside, the court took into account:

• whether the company was able to pay its debts as at 28 September 1998 – the court determined that it was not; and
  
  
• whether the payment enabled the payee to receive more towards satisfaction of its debts than it would otherwise have received in liquidation – the court determined that it did.

The court then considered whether the payment was in the ordinary course of business of the company. The court found that the payment was made according to an arrangement agreed between the parties at the outset of their relationship and was no different to the payment made the previous month. Accordingly, the payment was in the ordinary course of business of the company and, as such, should not be set aside.

1 Re Wienk Industries Limited, Wiri Wholesale Timber Company Limited (Associate Judge Lang, High Court, CIV 2003-404-816, 17 September 2004)

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