The Court of Appeal has provided important guidance on the key question of whether a company is able to pay its “due debts”. The decision in Alpha Insurance A/S (in bankruptcy) v Johnstone [2026] NZCA 438 concerns several antecedent transactions made by CBL Insurance Ltd prior to its liquidation. The High Court initially found the transactions were voidable. The Court of Appeal has overturned the High Court’s decision.

The decision centred on whether an insurer's outstanding claims liability (OCL) should count as a “due debt” under the voidable transaction analysis required for the purposes of s 292 of the Companies Act 1993. The Court of Appeal’s key finding was that the OCL contained liabilities that were part of a “long tail”, so should not be counted in full as a “due debt” for the purposes of the cashflow insolvency test.

Why this case matters

This case provides significant and helpful guidance on the issue of where to draw the line when determining whether debts are “due” for the purposes of voidable transaction analysis. The key question to ask is whether the debts in question are certain, ascertainable and payable in the near term.

Factual background

CBL Insurance Ltd was a licensed reinsurer under Reserve Bank prudential supervision. In the fortnight before the Reserve Bank applied to liquidate it in February 2018, CBL Insurance entered into three transactions with Alpha Insurance A/S, a Danish cedant: a liability settlement agreement, and payments totalling roughly £397,000 and €25 million.

The liquidators sought to set the transactions aside under s 292. It was common ground the transactions preferred Alpha Insurance over other creditors; the only live issue was whether CBL Insurance's OCL meant it was unable to pay its due debts at the time the payments were made. Under s 292(4A) of the Companies Act, Alpha Insurance had the onus to discharge the presumption that the transaction was entered into at a time when CBL was unable to pay its due debts.

What is the OCL, and why did the case turn on it?

For the purposes of cashflow, insurance is an unusual business: premiums are collected upfront, but claims are paid out over months or, for long-tail reinsurance business, many years later. The OCL is the actuarial assessment of what those claims may be: the present value of expected future payments for all claims incurred before the reporting date, plus a risk margin.

The OCL is based on historical trends, rather than a claim-by-claim analysis, and simply produced a figure with no underlying timeline for when the underlying obligations will actually crystallise into payable amounts. That absence of a payment timeline is what was in issue in this case.

The OCL is unquestionably an accrued liability in an accounting sense, but accounting recognition and the definition of “due debt” are different questions. It was accepted CBL Insurance couldn't pay its due debts, and was cashflow insolvent, if the OCL counted as one, and could if it didn't.

High Court

In 2024, Becroft J held the entire OCL was a due debt and set the transactions aside. His reasoning included that:

1. treating the OCL as due was the only way to reliably assess a reinsurer's cash flow solvency, since stripping it out would tell you almost nothing about CBL Insurance's real position;
2. the liquidators' actuarial and accounting experts all treated the OCL as due debt as a matter of professional practice;
3. the Supreme Court's statement in David Browne Contractors Ltd v Petterson [2017] NZSC 116 that "debt can be a word of wide import" supported finding the OCL, as a present accrued liability, was "due now", or supported stretching "due" to a much longer timeframe; and
4. excluding the OCL would let an insurer claim cash flow solvency while unable to meet its actual claims exposure.

Court of Appeal

The Court of Appeal (Cooke, Campbell and Whata JJ) allowed the appeal, holding the Judge erred in treating the whole OCL as “due”.

It re-affirmed the David Browne Contractors "reasonably proximate in time" test: a debt is a "due debt" for the purposes of the Companies Act only if a reasonable and prudent business person would be satisfied there is sufficient certainty it will become legally due within a period reasonably proximate in time, having regard to the nature of the company's business. Whilst there was an expert consensus that professional practice treats the OCL as “due”, the Court placed little weight on this, as the classification of “due debts” under the Companies Act is legal not actuarial.

The Court held this applies to prospective debts (existing liabilities not presently payable, but certain to fall due later) as much as to contingent ones. Whilst reported claims were due debts, the Court rejected the idea that an accrued liability is automatically "due" regardless of timing. On the evidence, the Court held that CBL Insurance could have met claims for three to five years before exhausting cash, far beyond "reasonably proximate" in this case.

The Court also found that Parliament deliberately retained a cash-flow-only test for voidable transactions, and the balance-sheet tools (such as OCL or solvency margin) were not extended to modify s 292 for insurers. And, even though liquidation of CBL was imminent at the time the transactions were made, the Court did not find that all liabilities within the OCL should essentially be accelerated so as to be treated as due debts. The Court did accept that at least some of the OCL figure would have contained liabilities that should be counted as due debts, but on the evidence, CBL would have been able to meet those liabilities from its cash assets and would have been able to pay claims for a further three to five years.

Analysis

Inherent in the decision is the tension between whether an insurer is financially sound, which is calculated on a balance sheet basis taking into account the OCL, or whether in the voidable transactions regime a Court is limited to an assessment of the cashflow basis.

On a practical level, the decision narrows the pool of “due debts” available to found a s 292 claim against an insurer (or by analogy, any business with large long-tail provisions), and equally narrows what a defendant needs to disprove to discharge the s 292(4A) reverse onus. It also elevates the importance of expert evidence around how the facts and figures work. However, whilst the Court held that three to five years was beyond a period that is reasonably proximate in time, the Court did not rule on where the long tail might stop, which may be a live issue in future cases where liabilities may accrue prior to three years.

Key takeaways

• Cash flow, not balance sheet, remains the touchstone for s 292, even for insurers, whose actual financial viability may be better measured by the OCL and balance sheet.
• "Reasonably proximate in time" applies equally to prospective and contingent debts, but an accrued debt doesn’t make it “due”.
• The inevitability of liquidation doesn't accelerate future liabilities into due debts.
• Long-tail liabilities won't qualify as a “due debt”, whatever the debtor's business model.
• Liquidators pursuing s 292 claims involving long-tail provisions should try to isolate the amounts that will fall “due” in the near term.
• Counterparties defending such claims should invest in expert evidence on expected payment patterns, which in this case was decisive in discharging the reverse onus under s 292(4A).