Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

‘In the ordinary course of business’ in insolvency – why are we following wrong thinking New Zealanders?

The term ‘ordinary course of business’ in law is meant to describe a transaction that was within the normal operations of a particular business, it being an aspect of a defence to a liquidator’s or trustee’s challenge to that transaction.  It became so difficult to apply in particular corporate insolvency cases that it was repealed, long ago, in 1993, though it is retained in personal insolvency, in relation to preferences in s 122, by default rather than by design. 

It has now reappeared, with no real explanation, in the exposure draft of the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020.   

Not only uncertain but also confusing

Consistent with the reason for its repeal in 1993, that no-one really knew what it meant, the explanatory materials for the 2020 Bill have also got it wrong. In the ‘Toni’ example, Professor Jason Harris points out in his submission on the Bill that selling surplus plant and equipment is not outside of the ordinary course of business as long as the business remains trading, with a 1983 case cited in support.

The Australians

The phrase reminds some of us of a comment of a New Zealand Judge, Justice Fisher, in Modern Terrazzo Ltd:[1]

“It was in 1993 that the Australians abandoned the phrase `in the ordinary course of business’ as the key exception to their company voidable preference regime (formerly s 565 of the Corporations Law; see now ss 588FA-588FG). As one commentator put it[2]

`This abolition has occurred, principally, because of the judicial uncertainty in interpreting what was meant by the phrase. It is undeniable that there has not only been uncertainty, but also confusion.’

NZ chose that moment to introduce the very phrase which Australia had just discarded. One of us must have got it wrong ….

Justice Fisher went on to say that [25]:

“New Zealand chose that moment to introduce into its own companies legislation the very phrase which Australia had just discarded. One of us must have got it wrong. Although in these situations right-thinking New Zealanders would normally assume it to be Australia, Barker J. conceded in In re NZ Spraybooth Ltd that in this instance

`It is perhaps unfortunate that this phrase was included in the new companies legislation’.

He may be right”.[3]

We will see whether it stays in the final version of the Corporations Amendment (Corporate Insolvency Reforms) Bill.

As a postscript, NZ did away with the ordinary course of business test in 2006.

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[1] As paraphrased, taken from Countrywide Banking Corporation Limited v Dean [1997] NZPC 10; [1998] AC 338; [1998] 1 NZLR 385.

[2] Andrew Keay, An exposition and assessment of unfair preferences (1994) 19 MULR 545.

[3] For the full story, see Forward thinking New Zealanders — (2008) 9(1) INSLB 4, Murray.

 

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