Unusual history of payments prevents them being set aside on insolvency

In this case1, an unusual history of payments prevented payments from being set aside even though they were made within the specified period and when the company was unable to pay its debts.

The case involved an application by liquidators under section 292 of the Companies Act 1993 to set aside payments made by a company to an equipment hire business (the applicant).

It was not disputed that the payments took place during the specified period and at a time when the company was unable to pay its debts. However, the applicant claimed that it received the amounts in good faith and altered its position in the reasonably held belief that the payments were validly made.

The High Court agreed with the applicant in part. Looking at the established pattern of trade between the two businesses, it found that there was no orderly appropriation of payments to invoices and so, in accepting certain payments from the insolvent company, the applicant was merely acting in the ordinary (albeit unusual) course of business, and not in anticipation of the company's demise.

However, the applicant also accepted other payments on behalf of the insolvent company from a third party and those payments were found by the court to be voidable because there was no history of trading with, or receiving payments from, that third party.

 

1 Re Yukich Brothers Limited, 1 June 2006, High Court, Auckland, CIV 2005-404-3056

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