NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
• A transaction that was entered into during the relevant period (being six months prior to the liquidation or two years for related parties) and at a time that the company was unable to pay its debts due, enabling the counterparty to receive a preferential payment. A creditor’s exposure to such a recovery action can be minimised, or entirely avoided, by undertak- ing a “running account” analysis if a continu - ing business relationship exists between the debtor and creditor. • Where the transaction was entered into at a time company was unable to pay its debts due (or was unable to pay due debts as a result of the transaction), a liquidator may recover from the counterparty the difference between the value that they received and the value that the company in liquidation received. • Transactions for inadequate/excessive con - sideration with directors and certain other related persons that occurred three years prior to the company’s liquidation. • Dispositions of property that are made by way of gift, with an intention to prejudice creditors, in circumstances when the company cannot pay its due debts and certain other circum - stances with a six-year limitation period from the date of the dispositions. • Distributions to shareholders that were made at a time when the company failed the solvency test. A six-year limitation period applies from when the distribution was made. A “good faith defence” is available to share - holders who did not know that the company failed to meet the solvency test at the time that a distribution was made.
There are certain defences to many of these actions, including the “good faith defence”. This requires: • the payment to have been received in good faith and in circumstances when a reasonable person in the creditor’s position would not have suspected, and the creditor did not sus - pect, that the company was or would become insolvent; and • the creditor to have given value to the com - pany (which can be given before or after the creditor received payment) or changed its position in the reasonably held belief that the transfer was valid and would not be set aside. 7.7 Set-Off Rights Section 310 of the Companies Act provides for mandatory and self-executing set-off upon liq - uidation between an unsecured creditor and the company in liquidation where (subject to limited exceptions) there have been mutual credits, mutual debts, or other mutual dealings between a company and a claimant in the company’s liq - uidation. In addition, a separate regime in the Companies Act governs the application of set-off under a netting agreement in a company’s insolvency. 7.8 Out-of-Court v In-Court Enforcement There is no “typical” private credit out-of-court restructuring in New Zealand. Informal and out- of-court restructuring techniques include: • rescheduling debts and amending key terms of finance documents (including granting waivers and agreeing forbearance or stand - still periods; • debt trading or sub-participation arrange - ments; • distressed M&A;
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