Companies fight against claw-back law

Brayden Jack of Boss Systems was told by liquidators he should have known client Aden Electrical was insolvent. Photo / Herald on Sunday

A group of business owners is campaigning to change a law it says is unfair and impossible to live up to.

The small and medium enterprises (SMEs) are angered by a section of the Companies Act which can see firms forced to hand back payments earned from client companies that subsequently go to the wall.

Section 292 allows liquidators to claw back payments made up to two years before a company fails, on the grounds businesses trading with it should have known it was insolvent.

After recently finding themselves on the wrong side of the legislation, equipment hire chain McEntee Hire and North Shore cabling company Boss Systems have joined forces to push for a law change.

They have kicked off a lobbying and education campaign.

Boss Systems is disputing a demand from the liquidators of Aden Electrical, an electrical contractor it worked for more than a year ago. Aden was placed in liquidation in March and the liquidators say Boss must hand back $37,000 it was paid nine months earlier.

Last month, the High Court at Rotorua ordered McEntee Hire to pay back $21,000 it earned from paving business Taupo Paving and More in early 2008, several months before the company failed.

The court said McEntee Hire had issued Taupo Paving with a Stop Credit Notice because Taupo was behind with its bills, and "a reasonable person" would have suspected the company was insolvent.

Section 292 is designed to stop creditor queue-jumping, and liquidators say it is a tool they often use to get the best return for all creditors.

But Boss general manager Brayden Jack said the law was unfair.

"[It means] you have to be a 100 per cent sure everyone you deal with is solvent. The logistics of doing that are virtually impossible."

Businesses of all kinds had responded to the call to action and many had not been aware the provision existed in the law. "We've had a few people phoning up absolutely amazed," Jack said.

The group has already met the local MP, Judith Collins, in McEntee Hire's area and is due to meet Alasdair Thompson, chief executive of the Employers and Manufacturers Association (Northern).

It is working on educational material with tips on how firms could handle the existing law. Clauses could be added in to credit applications and invoices, Jack said.

Get in touch

Firms wishing to contact the campaign group can do so on: contact@fightback.co.nz