The Stuff report of Transfield's shifting (and shifty) excuses  (and NBR's updates) for not paying its debts when due, plus the reported loss for last year, raise the question whether creditors could be on notice that  there are grounds to doubt its solvency If the company cannot in fact pay its debts on time, the creditors could have to disgorge to its liquidators any amounts paid while in that condition, for up to two years before the insolvency.

That would be devastating for Transfield's subbies. It could also stick in the craw of all New Zealanders because Aussie subbies to the parent company in Australia may benefit from the New Zealand claw-back without facing the same exposure. That could happen if the parent was a creditor of the New Zealand operation.

Here's how it works:

Part 16 of the Companies Act 1993 enables the liquidator of a company to recover any payments made within the previous two years if it was insolvent at the time payment was made.  Section 296 (3) provides an exception if the party which received the payment can prove  that:

1. they acted in good faith; and
2. there was no reason they should have suspected that the company was or would become insolvent; and
3. they gave value for the property or altered their position on the reasonable belief that the payment was not voidable.
4.  (all of (a) to (c) must be proved to establish the exception).

I have no inside information, but even if I did  I would not trust it in view of the culture of lying that might be acceptable in a company that has such stupid and varying excuses for not paying its debts when due.

So, here's the advice if you are a subbie to Transfield. It may be worth more than you are paying for it.

First – demand information from them to the satisfaction of your accountants to establish the current solvency of the company which is actually paying you (probably a New Zealand subsidiary).

Second – don't restart work for the scumbags till you've been paid everything due.

Third – record in writing to them that you will only work for them while there are no arrears, whatsoever.

Fourth – stick to that policy.

That could be the only practical way to get some prospect of protection from from Transfield's liquidators if they become insolvent. Under NZ law (blogged on 24 August) passed in 2007 you could have to repay everything received from them for work done before the payments, over the two years before the liquidation.

A more sure protection would be to require payment in advance. Assuming that is out of the question, there is probable protection from making it plain that you are altering your position materially looking forward, in reliance on the payment of an invoice for past supply, by restarting or continuing work on credit terms. You could need to be able to show that was in fact an alteration of position (i.e. you would previously have continued work in expectation of eventual payment, but not from now on). That is why you should record your new approach in writing.

The circumstances cry out for the subbies to form an informal association, or approach their trade association to form a sub-group to spread the costs of dealing with Transfield. The risks of cartel liability should be readily managed.

Note to NZ government – our obligation to give equal treatment to Aussie contractors in government procurement does not prevent you from having regard to any company record of (or cultural proclivity for) treating as suckers for the milking any contract counter-parties mug enough to assume that contract obligations  will be performed in good faith, in the absence of the clout to enforce.