Voidable Transactions & Clawbacks: What Every Kiwi Business Should Know

September 1, 2025

Mark Mclachlan

Voidable Transactions & Clawbacks: What Every Kiwi Business Should Know

Cash flow isn’t just about getting paid. It’s about keeping it.

Imagine you’ve just nailed a big job, invoiced the client, and the money’s in your bank. Sweet as. But what if the company goes belly-up a few weeks later, and the liquidator demands you give that money back? Painful, right? That’s the reality under New Zealand’s law on “voidable transactions” (aka clawbacks).

At Debt Free, we don’t like unpleasant surprises. That’s why we’ve put together this guide: to show you how clawbacks work, when you might be vulnerable, and what you can do to avoid getting caught out. Consider it your insolvency raincoat, just in case the weather turns bad.

What is a Voidable Transaction (and Why Should You Care)?

A voidable transaction, also known as a clawback, is a payment or transfer made by an insolvent company that unfairly prefers one creditor over others. If the company ends up in liquidation, the liquidator can “unwind” that payment, demanding the funds back so the money can be shared fairly among all creditors.

When can it happen?

The payment or transfer happened within two years before liquidation (the “specified period” under the Companies Act 1993). We find transactions within the last 6 months are targeted, and anything beyond this is outside the norm.
The company was insolvent at the time and unable to pay its debts when due.
The payment or transfer gave the recipient more than they would have likely received in liquidation.

In short, if you were paid just before a company collapses, even innocently, you might end up being asked to hand that cash back.

Types of Voidable Transactions (The Usual Suspects)

The “Good Client Gone Bad” Payment

They were paying fine… until they weren’t.
Then one last payment lands.

That’s often the one the liquidator wants back.

The “Mate’s Rates” Deal

Assets sold cheap.
Invoices forgiven.
Debts magically disappear between related parties.

Liquidators hate this stuff.

The “Director Shuffle”

When money or assets start moving between related companies, shareholders, or family members, before liquidation.

Red flag?
Yes.

Also, “transaction” in this context is wide-ranging: money paid, property transferred, charges created, even some credit-note or receivable assignments. Doesn’t matter whether it’s a court order, a cash transfer, or a property swap. If the substance is a payment or transfer, it counts.

The Law Behind the Curtain — What Sections 292–296 of the Companies Act Mean

Section 292 defines when a transaction becomes “insolvent” and thus voidable.
If the transaction falls within the “specified period” (typically six months to two years before liquidation), it can be clawed back.
A key principle behind all this is the pari passu rule, the idea that all unsecured creditors should share equally in what remains. If one creditor gets preferential treatment, it can be unwound.

Can You Fight a Clawback?

If you acted in good faith, had no reasonable grounds to suspect insolvency, and gave value (or changed your position believing the payment was valid), the clawback may not succeed.

Notably, the Supreme Court ruling in Allied Concrete Ltd v Meltzer confirmed that “gave value” can refer to value given when the debt was originally incurred, not just contemporaneously with the payment. That gives creditors some protection… but being secured is a far safer and lower cost option.

But here’s the catch…

Liquidators start with “Pay it back”.
You respond with “Here’s my evidence”.
And guess who usually wins if your paperwork is not up to scratch?

Not you.

Real-World Example: When Things Go Really Pear-Shaped

Picture this: You’ve been supplying building materials to a construction company. A bit before they go under, they make a big payment to you, everything’s all good. But then, liquidation hits. The liquidator reviews transactions from the past six months and sees your big payment. Under insolvency law, that payment might be considered a preferential payment. You get a letter demanding repayment.

That’s not theory. That’s what can actually happen under the clawback regime. You might (and likely will) be expected to hand the funds back, even if you didn’t know anything about insolvency or that the company was on its last legs. That’s the reality of voidable-transaction law.

So, What Should a Business Owner Do to Protect Themselves?

Do your homework up front. Before you extend credit or supply goods, check the company’s financial health through credit checks (a credit check is never a waste of time).
Don’t over-extend credit. Limit your exposure; don’t let debts pile up without documentation or security.
Use strong Terms & Conditions. Require signed and enforceable trade terms, including retention of title, security interests (e.g. under Personal Property Securities Act 1999), and consider personal guarantees when dealing with companies.
Keep detailed records. Invoices, delivery dockets, payment history, correspondence. If things go sideways, documentation is your lifeline.
Avoid large payments just before financial trouble (if you can smell it). Paying out big balances right before red flags appear is precisely what attracts clawback claims.
If you receive a clawback notice, act fast. You typically have only 20 working days to respond before the payment becomes automatically voidable. Seek advice, gather evidence, respond with your defences (good faith, value given, running account).

Why Debt Free Ltd Thinks About This So You Don’t Have To

At Debt Free Ltd, we don’t just help recover debts; we help you stay protected before you even issue an invoice.

Because once liquidation happens, the liquidator doesn’t care whether you were a friendly creditor or a trading partner who gave the benefit of the doubt. If the money was paid within six months and the company was insolvent, it’s game on, and you might get a clawback notice.

We help you: