Subcontractors are calling for the Supreme Court to end a nine-month wait for a decision on the ability of liquidators to claw back payments made by insolvent companies to contractors.
In mid-2013, the Court of Appeal ruled that when companies went bust, liquidators could claw back payments made by an insolvent company up to two years before its collapse, a practice known as voidable transactions.
This could include where a sub-contractor had been paid for work they had completed.
Shocked contractors appealed the decision to the Supreme Court.
The Supreme Court heard the case in March last year, but no decision has been published.
Graham Burke, president of the Specialist Trade Contractors Federation which represents more than 5700 contracting firms, said: “While this decision is pending, thousands of businesses remain in a no-man’s land with regard to voidable transactions.”
“Under the Court of Appeal ruling, any service you supply and are paid for afterwards is a voidable transaction.
“That affects every business in New Zealand which provides goods and services on account. However, the building trade is particularly aware of this because there are more insolvencies in the construction sector than in other sector.”
Voidable transactions are intended to ensure all creditors of insolvent companies are treated equally, but Burke said funds clawed back from subcontractors ended up being paid out to pay liquidators’ fees, employees of the company that went bust, and the Inland Revenue.
Contractors, who are generally unsecured creditors, are at the bottom of the heap when it comes to being paid in a liquidation, Burke said.
“The current ruling means that contractors who complete a contract properly and have paid their suppliers and staff, cannot have certainty that payments they have received will not be recovered,” Burke said.
Until the Court of Appeal decision, it had been thought that providing a contractor was paid for work done, then they were safe from having money clawed back.
No longer being able to rely on that created a great deal of uncertainty, and was upsetting business planning, he said.
“This makes it difficult for small business to plan to invest and grow,” Burke said.
“The contracting market is currently buoyant but there have been some high profile insolvencies in recent years. The issue of voidable transactions needs to be resolved so businesses can make decisions about investing in areas such as new equipment, training staff and expanding their businesses to meet the growing demand.”
If the Supreme Court does not reverse the Court of Appeal’s judgement, the federation would campaign for politicians to draft new laws.
“If we don’t get a favourable decision, we need a political one,” Burke said.
“It’s not only about our industry. The whole economy needs certainty.”
The Court of Appeal judgement “flies in the face of natural justice”, he said.
Taupo-based Mike Field, owner of Fences & Kerbs, was one of the contractor companies involved in the Supreme Court case.
Fences & Kerbs did concreting and steel foundation work on a pipeline being built for Contact Energy at Wairakei by Contract Engineering in 2010, and was paid $58,000 in two instalments between August and September of that year.
Contract Engineering went into liquidation in July 2011 and its liquidators served a notice to set aside the payments to Fences & Kerbs.
Field’s case, grouped together with two others, were the subject of the Supreme Court hearing, and if the Court of Appeal decision is allowed to stand, Fences & Kerbs will have to pay back the $58,000.
“What I have decided is they can all go to hell as far as I am concerned,” Field said.
“The only hope we have got is that the Supreme Court likes sticking it to the Court of Appeal. It’s over-turned that many decisions.”
The Supreme Court is currently closed and unavailable for comment.
Stuff News Businessday. Story by Rob Stock. Thursday January 15, 2015.