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FIRST INSOLVENCY WORKING GROUP (IWG) REPORT RELEASED
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The first report of the Insolvency Working Group (IWG) has been released, recommending co-regulation of insolvency practitioners and changes to voluntary liquidations.

Paul Goldsmith, the Minister of Commerce and Consumer Affairs, is seeking feedback on the report. As the Minister pointed out:

“The report states the current requirements in place to become an insolvency practitioner are very low and includes a recommendation to license and regulate insolvency practitioners: a significant policy shift. It documents several cases of practitioner dishonesty, incompetence and failures to manage conflicts of interest by insolvency practitioners.”

Submissions on the report are due by 7 October. The report is detailed and makes several recommendations. The main recommendations are:

The registration regime proposed under the Insolvency Practitioners Bill be abandoned.

  • Other provisions of the Bill, including those relating to disqualification of insolvency practitioners under section 280 of the Companies Act, be retained or modified. This would allow insolvency practitioners to act as liquidators notwithstanding the fact that they have previously acted for banks or been engaged as investigative accountants in relation to a company.
  • Co-regulation of insolvency practitioners be introduced. The proposed model would involve a government regulator accrediting a professional body (like CAANZ / RITANZ) to issue licences and regulate insolvency practitioners. There would be a register of insolvency practitioners and they would need to pass a fit and proper person test and a test to ensure that they are sufficiently skilled.
  • Foreign insolvency practitioners be licensed to take appointments in New Zealand (which is not the case at present).
  • Shareholder appointments of liquidators and administrators after service of a liquidation application be prohibited, other than with the petitioning creditor’s consent.
  • Restrictions on the transfer of a company’s assets be put in place once a liquidation application has been served.
  • All directors be allocated a publicly searchable unique identification number, to assist creditors and regulators to track directors of failed companies.

A copy of the report, and guidance on how to make a submission, can be found here.

A second report by the IWG, addressing voidable transactions (including those involving Ponzi schemes) and other potential areas of reform, will be released later this year.

Our comments

The IWG’s recommendations are sensible. As the report highlights,

“[u]nfortunately too many providers of insolvency services fall well short of the standards of integrity and skill that the New Zealand public is entitled to expect.”

New Zealand is an outlier in not having a formal occupational regulation for insolvency practitioners. We would expect the licensing system proposed by the report to be well-received by creditors and reputable insolvency practitioners, many of whom were critical of the registration system outlined in the Insolvency Practitioners Bill.

The recommendation requiring overseas practitioners to be licensed in New Zealand or by a system recognised in New Zealand will meet with approval. There has been disquiet about Australian practitioners operating in New Zealand when New Zealand practitioners cannot do so across the Tasman.

Removing the ability to appoint a liquidator up to 10 working days after service of a liquidation application will simplify the law and reduce the number of ‘debtor friendly’ liquidators. Making void the transfer of any assets after service of a liquidation application should also increase commercial confidence in the liquidation regime.

Kensington Swan will be making a submission on the report. If you would like assistance with making a submission, or would like to know more about the report, please contact us.

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