Insolvent Transactions and the Failure of the Ordinary Course of Business: A Comparison Between United States, Germany and New Zealand

Abstract

Bankruptcy and insolvency procedures may seem bewildering to unsecured trade creditors. In particular, the voidable preference regime may be a source of surprise and cause of resentment for unsecured creditors when the liquidator claws back a payment on the basis of the principle of equal distribution. In every jurisdiction with a voidable preference regime many considered it to be in conflict with the principle that commercial transactions are full and final once payment has been made. However, US preference law permits transactions in the “ordinary course of business” and trade. German preference law, which does not recognise the ordinary course of business exception, provides finality and certainty in commercial transactions with the “contemporaneous exchange” defence. New Zealand has repealed the ordinary course of business exception and in its place introduced a running account principle. This paper provides a critical comparative overview of the different preference law regimes in the United States of America, Federal Republic of Germany and New Zealand.