A Word of Warning over buying items clearly undervalue
If you have purchased assets from a company which has since gone into liquidation, it is possible a liquidator could sue you. Section 297 of the Act allows liquidators to recover assets and/or money from third parties provided certain criteria are met.
Section 297 of the Companies Act provides a formula detailing where liquidators can recover money from a person, subject to limitations:
X is another person in a transaction with a company in liquidation
A is the value that X received from a company under a transaction to which the company in liquidation was or is a party.
B is the value (if any) that the company received from X under the transaction.
If A is more than B, in other words, the value received by the provider was more than the value received by the company, the liquidator may collect the difference from X.
The liquidator can only recover the difference from X provided:
- The company in liquidation was insolvent when the transaction occurred; and
- The sale occurred within two years of the date of liquidation for shareholder liquidations or two years from the date a statement of claim was filed for court liquidations
Unlike voidable transactions the purchaser does not need to know the company was insolvent.
Practical Example: transaction undervalue
The following is an example of a transaction undervalue:
Jim is browsing Facebook marketplace and spots a deal! A Toyota Landcruiser for $15,000.00; they usually go for $35,000. Jim rushes to the seller and quickly buys the Landcruiser; the seller explains he is moving overseas.
It turns out the Toyota Landcruiser was owned by a company, e.g. Generic Construction Limited; a company which had been insolvent for twelve months. Generic Construction Limited is placed into liquidation one month after the sale of the Landcruiser.
In this example, the liquidator of Generic Construction Limited may have a claim of $20,000 against Jim. This is because:
- The value of the Landcruiser was $35,000
- Jim purchased the vehicle for $15,000
In accordance with the formula above, Jim received $35,000 of value and only provided $15,000 of value.
Disclaimer
Unfortunately, with details changing all the time and at such speed, we need to add that the above content is correct at the time of writing as far as the author is aware and is very much subject to change. We have, to the best of our ability, acknowledged any shared content. All related links provided to the corresponding websites are subject to change as they are live links.
Source: Waterstone.co.nz