Plain language law

New Zealand law explained for everyone

Companies Act 1993

Liquidations - Creditors' claims

310: Mutual credit and set-off

You could also call this:

“How debts are balanced when a company is being liquidated”

When a company is being liquidated, you need to know about mutual credit and set-off. This is what happens when you and the company owe each other money or have done business together.

You need to add up what you owe each other. Then, you subtract one amount from the other. The difference is what you can claim in the liquidation, or what you need to pay the company.

If you’re not related to the company, you can only use this set-off if you didn’t know the company was in trouble when you did business with them. This applies to transactions in the six months before the liquidation started.

If you’re related to the company, like if you’re a director or a connected company, you can only use the set-off if you didn’t know the company was in trouble when you did business with them. This applies to transactions in the two years before the liquidation started.

This rule doesn’t apply to money you pay for shares in the company or when you’re answering a call on shares you own.

The exact timing of when these periods start and end can be a bit complicated, especially if the company was put into liquidation by a court order.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM322337.

Topics:
Business > Industry rules
Business > Fair trading
Money and consumer rights > Banking and loans
Previous

309: Claims relating to debts payable after commencement of liquidation, or

“How to value future debts when a company is being liquidated”

Next

310A: Definitions relating to set-off under netting agreement, or

“Explaining key terms for settling debts between companies”

Part 16 Liquidations
Creditors' claims

310Mutual credit and set-off

  1. Where there have been mutual credits, mutual debts, or other mutual dealings between a company and a person who seeks or, but for the operation of this section, would seek to have a claim admitted in the liquidation of the company,—

  2. an account must be taken of what is due from the one party to the other in respect of those credits, debts, or dealings; and
    1. an amount due from one party must be set off against an amount due from the other party; and
      1. only the balance of the account may be claimed in the liquidation, or is payable to the company, as the case may be.

        1. A person, other than a related person, is not entitled under this section to claim the benefit of a set-off arising from—

        2. a transaction made within the specified period, being a transaction by which the person gave credit to the company or the company gave credit to the person; or
          1. the assignment within the specified period to that person of a debt owed by the company to another person—
              1. unless the person proves that, at the time of the transaction or assignment, the person did not have reason to suspect that the company was unable to pay its debts as they became due.

            1. A related person is not entitled under this section to claim the benefit of a set-off arising from—

            2. a transaction made within the restricted period, being a transaction by which the related person gave credit to the company or the company gave credit to the related person; or
              1. the assignment within the restricted period to that person of a debt owed by the company to another person—
                  1. unless the related person proves that, at the time of the transaction or assignment, the related person did not have reason to suspect that the company was unable to pay its debts as they became due.

                1. This section does not apply to an amount paid or payable by a shareholder—

                2. as the consideration, or part of the consideration, for the issue of a share; or
                  1. in satisfaction of a call in respect of an outstanding liability of the shareholder made by the board of directors or by the liquidator.

                    1. In this section, related person means a related company and includes a director of the company in liquidation.

                    2. For the purposes of subsection (2), specified period means—

                    3. the period of 6 months before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and
                      1. in the case of a company that was put into liquidation by the court, the period of 6 months before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order of the court was made; and
                        1. if—
                          1. an application was made to the court to put a company into liquidation; and
                            1. after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—
                              2. the period of 6 months before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.

                            2. For the purposes of subsection (3), restricted period means—

                            3. the period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and
                              1. in the case of a company that was put into liquidation by the court, the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order of the court was made; and
                                1. if—the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.
                                  1. an application was made to the court to put a company into liquidation; and
                                    1. after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—

                                    Notes
                                    • Section 310(6)(a): replaced, on , by section 14(1) of the Companies Amendment Act 1999 (1999 No 19).
                                    • Section 310(6)(b): amended, on , by section 14(2)(a) of the Companies Amendment Act 1999 (1999 No 19).
                                    • Section 310(6)(b): amended, on , by section 16(1) of the Companies Amendment Act 1998 (1998 No 31).
                                    • Section 310(6)(c): inserted, on , by section 16(1) of the Companies Amendment Act 1998 (1998 No 31).
                                    • Section 310(6)(c): amended, on , by section 14(2)(b) of the Companies Amendment Act 1999 (1999 No 19).
                                    • Section 310(7)(a): replaced, on , by section 14(3) of the Companies Amendment Act 1999 (1999 No 19).
                                    • Section 310(7)(b): amended, on , by section 14(4)(a) of the Companies Amendment Act 1999 (1999 No 19).
                                    • Section 310(7)(b): amended, on , by section 16(2) of the Companies Amendment Act 1998 (1998 No 31).
                                    • Section 310(7)(c): inserted, on , by section 16(2) of the Companies Amendment Act 1998 (1998 No 31).
                                    • Section 310(7)(c): amended, on , by section 14(4)(b) of the Companies Amendment Act 1999 (1999 No 19).