Insolvency Law Reform Bill — In Committee 
Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6037] 
Insolvency Law Reform Bill 
In Committee 
Debate resumed from 12 October. 
Part 3 Dealing with bankrupt and bankrupt’s property 
PANSY WONG (National) 
: 
 Part 3 concentrates on the very detailed technical procedures of the duties and responsibilities of the assignee and how the assignee will supervise where an organisation has gone into liquidation. Part 3 also lays out whom the preferential creditors are. I will concentrate on two aspects of those provisions. I know that the Minister in the chair Lianne Dalziel is well known for her willingness to answer queries and address issues and I look forward to that. A lot of the people who raised the issue who are actually unsecured creditors rightly will be quite cynical about legislation that has so many detailed provisions about what an assignee can do etc. Will the end result be beneficial? Is there anything left for the unsecured creditor after a bankruptcy? 
I will share with members a very high-profile case which is one of the many bankruptcies that happen in a year. This high-profile bankruptcy happened in Wellington to a restaurant called Kopi. What happened is quite interesting. The proprietors owed the Inland Revenue Department $1.2 million in unpaid PAYE and income tax and also related penalties and interest. The  
Dominion Post 
 article on this high-profile bankruptcy included an interview with an unsecured creditor a Richard Young of Molesworth Fruit Supply. He wrote off $28000 that was owed by the restaurant proprietor and he reckoned that his chances of winning first division Lotto are higher than getting his money back. I am sure that Richard Young’s statement would be echoed quite frequently by unsecured creditors. 
I think maybe the Minister might like to take a call to say that we have gone through all the deliberation stages and whether there was anything that she felt has been seen as a significant improvement to the legislation whereby the assignee would be better able to look after the interests of unsecured creditors. They are not the only ones who mentioned that winning first division Lotto would be easier than getting any residual money from a bankruptcy. 
The other issue I want to return to is the $1.2 million owed by the couple to the Inland Revenue Department in unpaid PAYE income tax and penalties. The bankruptcy record shows that the liquidators were appointed on 20 February 2005 but apparently the proprietors stopped paying PAYE deductions from their employees’ pay packets in 1998. They had stopped payment for 3 years. Then in the tax years ended March 2002 and 2003 they paid only a fraction of their personal income tax and one of them paid nothing at all in 2002. We all know that failing to pay PAYE is an offence as is the persistent non-payment of personal tax. I wonder why the Inland Revenue Department had not instigated any action against this couple for the non-payment of taxes for 3 years from 1998. 
Part 3 continues to protect the Inland Revenue Department’s secured preferential creditor status and I think the Minister might like to take a call and say why an entity such as the Inland Revenue Department is so lax in terms of compliance action. We are being asked today in this Committee of the whole House to approve this part that includes a provision to continue to protect the Inland Revenue Department’s position as a secured creditor. I emphasise that this is not a single example. A powerful department like the Inland Revenue Department has all the tools at its disposal. If it had taken action to liquidate the company earlier it might be that the unsecured creditors and other creditors would have benefited from it. 
That is not an isolated case. Let me share another case with the public. I am sure that my very good hard-working colleague from the West Coast Chris Auchinvole would join me in citing this case. This is a company on the West Coast that went into liquidation. During the hearing in the High Court at Greymouth the very very good mining town Justice Christiansen described the Inland Revenue Department as lurking in the background like a shark waiting to consume failing companies. Why did he say that? He said that because this was an attempt by the department to liquidate a possum skin company called Gray Fur Trading. 
Justice Christiansen said that the company owed almost $200000 in overdue income tax and GST. That is fair enough. But the court was told that almost half of that amount $100000 was added on in penalties. The initial debt was closer to $90000 but it had ballooned since 2003 and the department did not take any action or correspond with that company until October 2004. A powerful Government department did not take action that could have benefited unsecured creditors and then on the initial debt of $90000 it charged $110000 more to liquidate the company. In the event nobody benefited. We on this side of the Chamber need to be convinced why the department’s preferential creditor status needs to continue to be protected. 
Then of course recently the department released a discussion document and said it was going to waive some penalty tax. If a company can prove that it has taken reasonable steps to address or reassess its tax position the department might be a bit lenient in terms of the penalty test. I do not think it is good enough. I think the fact that National members on the Commerce Committee put up a very strong case for questioning the department’s continued protected preferential creditor status has somehow led the department now to issue a discussion document about being a bit lenient on certain penalties incurred by those companies. 
Those two very high-profile examples are not untypical. In fact they are quite representative of the position because liquidators the people involved in the insolvency petitions have come before our committee and said that lots of times they have felt for the unsecured creditor. They said that the position of companies was aggravated largely because for example the department failed to take early action or alternatively the department’s preferential creditor position has made sure that it does not take very quick action to recover some of those payments which do not even belong to the department or to the company because the company is simply a collecting agent. 
CHRISTOPHER FINLAYSON (National) 
: 
 Part 3 is made up of 10 subparts but really does not contain a great deal that is new to the Insolvency Act 1967 which this bill is designed to replace. If one looks at the various clauses of all 10 subparts one finds that most of those clauses simply re-establish the position that was quite clear under the Insolvency Act. So there is not a great deal that I really want to say about this part and I will just make a couple of brief comments about some of the newer provisions. The first concerns clauses 117 to 121 which provide for various provisions relating to disclaimers of onerous property. I will just pause on those for a couple of minutes and explain what onerous property is about. When an official assignee takes over the affairs of a bankrupt he or she may make a decision to disclaim onerous property. In other words the assignee may decide not to take certain steps in relation to an unprofitable contract or in relation to the property of a bankrupt that is unsaleable if to take on those obligations would create a burden on the official assignee that would be regarded as onerous. 
Those provisions are brought across from certain provisions of the Companies Act 1993 particularly sections 269 and 270 about the power to disclaim onerous property. There are a couple of minor changes to clause 117(4). In particular the definition of onerous property can include: “a litigation right that in the opinion of the Assignee has no reasonable prospect of success or cannot reasonably be funded from the assets of the bankrupt’s estate;”. All that means is that if the bankrupt was party to litigation in which he or she was seeking damages or a declaration or whatever the official assignee could decide that the proceeding did not have a reasonable prospect of success so there was no real point in taking it over. 
That is really the only thing I want to say about the first subpart of Part 3. I think the provisions are brought together reasonably well although for the reasons that my colleagues have advanced because of major flaws that we see in other parts we will not be supporting the bill. 
Subpart 2 sets out the duties of the bankrupt and as I say largely re-enacts what is already in the Insolvency Act 1967. Subpart 3 outlines importantly those provisions that deal with control over the bankrupt during a bankruptcy. There are very real limitations on what the bankrupt can do once he or she becomes bankrupt and those provisions include if necessary prohibiting the bankrupt from entering or continuing on in business and seizing the bankrupt’s property—indeed the bankrupt must vacate land or buildings if required to do so. 
Subpart 4 deals with the provision for the bankrupt during bankruptcy. Obviously the fact that a person is bankrupt does not necessarily mean he or she shall be reduced to being a beggar; the bankrupt may retain certain assets within reason. That is all dealt with perfectly rationally in that subpart. 
Subpart 5—again nothing new here—deals with the powers of the assignee and the court to examine the bankrupt and others. Clause 182 brings across a provision relating to the privilege against self-incrimination that states: “A person is not excused from answering a question because the question may incriminate or tend to incriminate that person.” Subpart 6 is a very important subpart that deals with the status of a bankrupt’s contracts. It re-enacts those provisions reasonably clearly explaining what exactly can happen to contracts that may have been entered into by the bankrupt. 
Subpart 7 “Irregular transactions before adjudication” contains one or two new provisions and the only area I want to pay any attention to is clauses 202 and 203 which deal with insolvent gifts. If a bankrupt gifts something to another person that gift may be cancelled on the assignee’s initiative if the bankrupt made the gift within the 5 years immediately before adjudication and the bankrupt was unable to pay his or her debts immediately after making the gifts. Those are important provisions designed to get around the prospect of gifting in order to avoid the consequences of bankruptcy. 
That is really all I wanted to say. Perhaps I should just briefly say that subpart 8 sets out the very great powers of the assignee once he or she assumes responsibility for the property of a bankrupt. Subpart 9 simply deals with creditors’ claims. I think there is virtually nothing new there; some provisions are brought across from equivalent sections in the Companies Act 1993. Finally perhaps I should refer to subpart 10 of Part 3 which deals with the powers of the court. 
 So really there is nothing very important in this part that has not been brought across either from the Insolvency Act 1967 or the Companies Act 1993. It is all fairly routine stuff. As I said earlier we have major issues of principle with Part 5 and Part 8—which seeks to deal with the new concept of voluntary administration—for reasons that will be developed when we deal with those parts. That is why we are opposing the bill. 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to Part 3 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 3 as amended be agreed to. 
Ayes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Part 3 as amended agreed to. 
Part 4 agreed to.  
Part 5 Compositions proposals summary instalment orders and no asset procedure 
PANSY WONG (National) 
: 
 Part 5 is quite a substantial part so we will take quite a few calls. I will start off by raising the concerns of the National Party which does not support Part 5. 
One of the major issues of concern to us is the introduction of a provision called the no-asset procedure. We were told by the officials that the reason for introducing the no-asset register is to allow a person who has no previous bankruptcy experience and no assets etc. to simply enter into the register for a period of 12 months and at the end of that period to be discharged of his or her debts. The debt can range up to $40000. They claimed that that was proposed for two reasons. First nothing positive is achieved by placing people who have no income or assets into bankruptcy and it does not help the creditors to get their money back. Secondly it will reduce administration costs. 
We certainly have a problem with the concept that if a person who has incurred a debt agrees to enter into the no-asset register the creditor will end up with nothing. The indebted person has no obligation to try to repay his or her debt. I can just see that a lot of students will be eligible. In fact my very hard-working intelligent colleague Chris Tremain as soon as he heard about this provision said that it could become known as the student loan write-off provision. When one thinks about it one realises that tertiary students are very well qualified under this provision. First of all they are encouraged to incur debt because there is no interest on it. Then they are encouraged to enter into the no-asset register because if they enter themselves in the register after 12 months their debts will be written off. Presumably if it is good enough for the Government to write off debts owed to businesses it will be good enough for the Government to apply the same principle to itself. 
But the concern about that concept is that it undermines once again personal responsibility. I believe that a person who incurs a debt incurs an obligation to pay that debt. The fact that the Government endorses the concept that a person can incur debt of up to $40000 enter on to a register for 12 months say “That’s it; it’s a clean slate.” and start from the beginning is certainly not a good thing. We were told that some retailers endorse that but I am not sure that all retailers would like that measure. Some retailers—maybe those of a smaller size—may find it more difficult to do business once they get a credit assessment of certain individuals decide to extend credit to them then find themselves at the stage where those individuals may not have to repay their debt. We certainly find that the Government should not send the message to individuals that it is OK to incur debts because they could at the end of the process have no obligation to repay them. There are a lot of small businesses in New Zealand; we all know that small to medium-sized businesses make up 92 percent of businesses in New Zealand. In fact for a lot of them their annual profit may only come to about $30000 to $40000 and to write off a significant debt is certainly not of comfort to our small businesses. 
We are flabbergasted that the no-asset procedure is being introduced. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I will respond to a couple of points that Pansy Wong has made. She has referred to students. Because students will not be adjudged bankrupt because of non-payment of their student debts it has been decided student debt should not be provable or dischargeable within the no-asset procedure. Therefore it is not an issue as the member has indicated. I think the member should refer to the fact that summary instalment orders are now being made far more accessible in terms of the cap being raised from $12000 to $40000 total unsecured debt and I think a lot more individuals will take the summary instalment order option rather than go to the no-asset procedure. 
I am interested that the National Party opposes an alternative to bankruptcy for individuals with minimal debt and few assets who have no means to repay the debt. This measure acknowledges that individuals cannot avoid bankruptcy and that the punitive deterrent element is disproportionate and totally irrelevant to these individuals. It gives debtors a fresh start it provides safeguards against abuse of the procedure and it minimises the cost to the State. I think this is a win-win. 
The other point the member has made that I think does not stand up to any scrutiny is that this will encourage those who offer credit to people who cannot afford to pay back the amount of credit they have been offered. It will make them think twice. They will have to think very carefully about extending a person’s credit card limit without a request even having come from the individual. Pansy Wong does not have constituents so she does not understand this. But I have constituents who come into my office and show me letters from their banks stating that their credit card limit has been extended without an application having come from the individual. I do not think it is right and proper that we have people offering credit left right and centre without any realistic prospect that people will be able to pay it. I think this will make creditors a lot more careful about offering credit to people who cannot afford to pay. 
KATHERINE RICH (National) 
: 
 The points made by the Minister Lianne Dalziel are very interesting but they are quite wrong. I will start by taking issue with her phrase that a “fresh start” is being offered people who become bankrupt. That is nothing more than a euphemism because quite often a number of Kiwis rack up debts through recklessly taking out loans even though they have no ability to repay them. This Government is saying it is OK to write off 40 grand of debt. 
The second point—and I think it shows a difference between National and Labour—is that the Minister is indicating a total disregard for business. Ninety-five percent of New Zealand businesses are small businesses many of them are mum and dad operations and some of them in good faith sell products to people who on the surface look like they can pay for them and have a good credit history. These are the operators and business people who will be in the gun for selling products to people who cannot repay them—up to $40000. I do not think that is fair. I think allowing someone to recklessly rack up debts then be let off the hook to the tune of $40000 shows a total disregard for what it is like to be in business to carry risk and to lie awake at night worrying about whether the bills can be paid. That is a serious sum if one is a plumber or runs the local dairy or runs the local furniture shop. 
The final point where I think the Minister has it quite wrong is the little barbed comment she made about Pansy Wong doing no constituency work. That member looks after most of the Asian community from Kaitaia to Bluff and deals with a wide range of issues—from immigration to welfare to business—and it is kind of smug and insulting to say she does not do that kind of work. 
This bill was probably at least worth putting on the agenda because personal bankruptcy laws have not been looked at since the early 1960s. We saw that some work done in the 1960s culminated in the Insolvency Act of 1967 but there has not really been a good look at it since that time. The number of bankruptcies we see in this country has changed dramatically. In the 1980s there were about 800 personal bankruptcies and we have seen that increase dramatically to about 3000 per year—that was the 2005 figure but it is probably more now. The type of bankruptcy we are seeing has also changed. It used to be bankruptcy as a result of a small business falling over; today many bankruptcies are the result of people racking up too much debt on the credit card. 
The no-asset procedure aims to deal with people who have no money no assets and no prospect of paying a debt off. It might seem a cute tidy way of dealing with those people but members on this side of the Chamber are worried about the messages it sends to other New Zealanders—that it is OK for people not to be responsible for the debts they incur that it is OK for people to take out goods on hire purchase with no prospect of paying for them that it is OK for people not to deal with issues of personal responsibility because the Government will let them off for up to $40000. 
 That is a serious amount of money for most New Zealanders. I feel for some of the creditors who have sold products to these people because there is no prospect of their getting back any of the money. The Minister Lianne Dalziel might say: “Oh well it will make those businesses think twice.” but I think that indicates a total lack of interest in the day-to-day workings of small businesses and a lack of realisation of what it is like to have a customer standing opposite who wants to buy a lounge suite and who looks like he or she stacks up but who when things turn to custard cannot pay his or her bill. Most small-business operators have children. They want to put bread and butter on the family table just like anybody else. This Government is giving up on these debtors. It is forgiving debts of up to $40000. It is basically setting up a training programme for people to move on to the big game of proper bankruptcy after they have had their first warning by entering this 12-month no-asset procedure. 
Luckily the Commerce Committee did tighten up a few things. The committee members felt that there were no penalties for people who give misinformation or do not keep their part of the bargain. At least that change was made even though we were concerned about some other aspects. But I think ultimately Part 5 is really about what message we are sending to Kiwis. We are saying it is OK for them to incur debts of up to $40000. They will be forgiven that they will be told it is OK and they can have another go. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to Part 5 of the Insolvency Law Reform Bill and to the different means within this bill that can be put forward to deal with people—companies in a range of different corporate and individual structures—who get themselves into the position of being unable to pay their bills. I must say that over the course of the last 15 years I have had some personal experience with a number of individuals and companies that have unfortunately got themselves into that position. They have got into a situation where they have owed my own business money and we have been faced with having to deal with their bankruptcy and trying to recover money from either an individual or a company we have put our trust in and have done business with over a period of many years—in some cases for decades. In one instance in one of our travel businesses we had dealt with the person concerned for decades. 
It is a very difficult situation when one of the businesses in a relationship like that goes into bankruptcy. I can assure members that not all companies deal with bankruptcy in a draconian way and look to bedevil the poor guy who has got himself into that situation. In fact many companies look for alternative ways to help those people because bankruptcy as we know is not just about the financial impact of that situation on people but also about the mental and psychological impact on them on their family on their friends and on their whanau. I think one does need to take that into account. There are those who go bankrupt and break the law in doing that—they actually go out of their way to put themselves into a difficult position. But I am talking about guys who have been in business for a long time and who through no fault of their own get themselves into a difficult situation. 
One example we were involved with concerned a building company that put up the AMP building in Napier. Because the head contractor for that building project had gone bankrupt Linnell Building and Joinery in Hastings unfortunately got itself into a position where its head contractor did not pay the bills. It was such a major contract that that company then got itself into a situation where it turned bankrupt. Really Linnell Building and Joinery had done nothing wrong but it found itself in a difficult situation with many companies in Hastings including my own at that point—I think we had just sold a property for that individual and he could not pay the commission. In that case we sat down and used the proposals situation referred to in Part 5 of this bill to help the company out. I am pleased to say that the firm is now back on its feet again and is one of the best building companies in Hastings not only in residential joinery but also in a whole range of building products. That firm does homes and commercial properties and it is back on its feet again. I think it was helped by the proposals situation and by everyone getting on board on that. The company also does a lot of work in my own constituency of Napier which is good to see. 
Part 5 deals with four different types of procedure that can be undertaken in a bankruptcy situation. I will make a few comments about each. The first is composition. In that situation creditors put forward a resolution to help the individual person or company out. That in many cases works well. Often creditors accept a lesser amount than is due to them. That can help people to get out of difficulty as was the case with my friends in Hawke’s Bay in their particular situation. The very few changes made to Part 5 in the Commerce Committee were small ones. The second procedure is proposals. That is the situation where instead of the creditors putting forward a solution the bankrupt company is able to put forward its own proposal for getting itself out of that situation. Another situation with which I was involved in the Napier electorate concerned a business called Linden Estate Winery and Vineyard a company that got itself into a difficult situation and overcommitted itself by taking on a number of vineyard leases. 
KATE WILKINSON (National) 
: 
 In rising to speak to Part 5 of the Insolvency Law Reform Bill I point out that it is in four subparts—as we know. 
The first three subparts are mostly relatively straightforward machinery-type provisions with which I do not have any issue. Subpart 1 as Mr Tremain stated deals with composition during bankruptcy the passing of resolutions the fact that compositions must be approved by the court the procedure for court approval the deed of composition etc. Subpart 2 deals with the proposals. It includes a definition of “debt” and the allowance for an insolvent to make a proposal whether that be by way of a compromise a time payment assignment or other. Again that proposal must be filed in and approved by the court. The subpart continues with the various duties of the insolvent and the trustee. Subpart 3 deals with the summary instalment orders and includes the time payment who can apply for an order the supervising of such an order the role of the supervisor and rules for summary instalment orders. National does not take too much issue with most of those provisions. 
The provision that causes us the most angst as National members have already mentioned is subpart 4 relating to the no-asset procedure. It sounds good in practice. An individual can choose to enter into the scheme for 12 months in return for a write-off of up to $40000—unfortunately at the expense of creditors. Although this may have some practical advantages it sends a very clear message that individual responsibility is not important. Basically it says that people can do what they like and take no responsibility because never mind someone else will pay for their mistakes. 
We all know that insolvency laws should always provide a balance. They do by their very nature allow for mistakes but they should also require responsibility to be taken for those mistakes so that debtors can learn from them get over them then start again; it should not be that the mistakes can just be swept under the carpet and 12 months later the debtor can start again. But it seems that under subpart 4 of Part 5 there are no such words as “mistake” and “responsibility”. It is a bit like pretending that failure does not exist when we all know that it does. 
 Insolvency laws should balance the responsibility for failure and the opportunity to start again. But they should also never forget the creditors who are not always the Inland Revenue Department and who are not always the Government. It could be the creditors who stand to lose. This measure punishes the small-business owners—the self-employed—who are owed this money. It makes it too easy for the debtor to give up rather than try to trade through those difficulties. The debtor can give up and in 12 months’ time just start again and the poor small-business owner the self-employed creditor has no recourse whatsoever. 
The criteria for the no-asset procedure as set out in clause 359 are not particularly complicated. The assignee must be satisfied on reasonable grounds that the debtor has no realisable assets; the debtor has not previously been admitted to the no-asset procedure so this is one strike and you are out; the debtor has not previously been adjudicated bankrupt; the total debts are between $1000 and $40000; and under a prescribed means test the debtor does not have the means of repaying any amount towards those debts. 
Throughout the no-asset procedure the debtor must not obtain any further credit—which seems to make sense—including hire purchase whether it is jointly or by himself or herself. But it does not seem actually to describe what the debtor can do in that 12-month period. Does the debtor just sit on his seat and do nothing? Can the debtor actually continue with employment? Can the debtor if jointly in business with say his or her spouse continue that business with the assignee’s consent? This part of the bill does seem to be a wee bit silent as to what the debtor can actually do during that 12-month no-asset period. 
CHRIS AUCHINVOLE (National) 
: 
 I rise to speak to Part 5 of the Insolvency Law Reform Bill. National members are opposed to the bill which in some ways I think is unfortunate because we feel it could have been quite good in so many aspects. But as in so many aspects of the term of office of the current Government it has failed to come up with the momentum necessary to carry through the better parts of the bill. In Part 5 there is again the feature of the Government not being able to carry through the original intention of this borrowed legislation. I say “borrowed” because in its original form it came from Australia. In its original form it concentrated heavily on improving the situation of bankruptcies on helping debtors to recover their situation and in all aspects was quite a solid piece of legislation. But it has been chopped and changed to suit I would suggest the social agenda of this particular Government. 
The problem of major proportions that we have here is the no-asset procedure. Why on earth is the Government even entertaining such a move? There seems to be some suggestion that this is State-assisted debt avoidance. Subclause (2) of clause 367 states: “The debtor must notify the Assignee as soon as practicable of any change in the debtor’s circumstances that would allow the debtor to repay an amount towards the debts referred to in section 366(1).” I cannot find in any parts or subparts of the bill the compulsion that goes with this requirement. 
I do not think it is quite right for the Minister who was previously in the chair the Hon Lianne Dalziel to blame outright the creditor for the person being in debt as she did earlier. Sure I share the Government’s concern that there is an easy extension of credit to people which for the poorly organised could entice them towards debt. But by the same token here it is providing an opportunity for people to walk away from the responsibility they willingly undertook. I also think it is a bit rich that on the one hand the Government extends credit to students through the student loan scheme but then denies them entry on to the register. They cannot get off without paying the Government back—oh no! 
Pansy Wong 
: Double standards. 
CHRIS AUCHINVOLE 
: But small businesses will have the debtors strolling off from the debt through this particular clause. As my colleague and mentor in many ways Pansy Wong says there are double standards operating here. In other words the Government is not prepared to extend the same level of protection to retailers that it extends to itself but by gosh it will put them at risk in a way that it is not prepared to put itself at risk. 
Pansy Wong 
: It does not care about retailers. 
CHRIS AUCHINVOLE 
: It does not care about retailers. Small business in New Zealand though is New Zealand’s major business and there are plenty of statistics to emphasise that. To allow a shrug of the shoulders towards personal debt is an odd thing for any Government to do but particularly this one. We understand—and I am not an economist and I do not pretend to be one—that the present level of household debt is higher than ever before in this country’s economic history. 
Pansy Wong 
: Why? 
CHRIS AUCHINVOLE 
: I do not know. Why is it? Does this legislation help? 
Pansy Wong 
: No personal responsibility. 
CHRIS AUCHINVOLE 
: Looking at the lack of personal responsibility is a good start when addressing why. 
Ron Mark 
: Credit cards and hire purchase. 
CHRIS AUCHINVOLE 
: Credit cards and hire purchase—access to easily available credit. A constituent came to see me the other day in my little blue office in Greymouth. He explained just how easy it is to get credit nowadays. He said that all people have to do is keep refusing to take it from the companies that keep offering it and they offer them more and they offer to make it easier. He did not have a problem with that. What he did have a problem with was a weak-willed relative who took advantage of those opportunities then sought exactly as we are saying here to walk away from the responsibilities. That is the danger that is faced here. I notice that Mr Mark of New Zealand First is agreeing with that and I am delighted to think we have reached one point of agreement in our mutual interest. 
We understand that the level of household debt is higher than ever before. Is the Government blind to the reality of this? It has been quick enough to crow repeatedly about how the Government’s debts—and I have heard Dr Cullen give a speech on this particular subject—have been cleared and reduced almost as if the taxpayer had not actually contributed to that being possible. 
DAVID BENNETT (National—Hamilton East) 
: 
 As we have been talking about Part 5 of the Insolvency Law Reform Bill the National Party does have some major concerns about the no-asset procedure. I think it is important that as a country we look at the time of year we are entering. The next couple of months is a very important time for New Zealanders and their families as we come into Christmas. Just on Monday we had Labour Day and there were a number of sales in Hamilton for example. Major discounts were offered on appliances and other household goods. Consumers were lining up to buy such goods and they will line up over the next couple of months because they have families they have to buy Christmas presents for. They will increase their household debt to huge levels over the next couple of months. What will happen at the end of that time? People will have to make some payback in the early New Year. That is when the hampers come to fruition. That is when people pay for their families to go away on holidays. 
And what are we doing as a Parliament in this country? We are setting up an institution that encourages greater debt that tells people not to worry about it and that after Christmas they can write it off. Why would we be putting that message out? Well I guess it is the lesson we learnt last week is it not? If it is good enough for this Government to take that attitude it certainly signals that it is good enough for New Zealanders to have the same attitude. 
Let us look at some of the reasoning behind the legislation. When it was first put together by the Minister of Commerce it was disclosed: “The Bill proposes a NAP be introduced as an alternative to personal bankruptcy which is less punitive to individuals and may prove to have less social stigma attached to it. This would apply to first time debtors who have no assets and could not repay the debt. The proposal to introduce a NAP is the most significant change that the bill proposes in the area of personal bankruptcy.” Well certainly that is what the Minister was intending to bring about through this legislation. It has also been said in a press release from the Minister: “The No Asset Procedure is a one-off opportunity for an individual with no assets to be subject to the procedure for 12 months as opposed to 3 years as in cases of personal bankruptcy.” 
 Well those may be fine ideological things to put forward in a bill but they deny the reality that there is another side to any credit engagement and that is the institution that sells the product. In New Zealand that is generally a small business. This country is based on small businesses. Hundreds and hundreds of thousands of us rely on small businesses for jobs for income and for the support that is the integral part of the New Zealand economy and community. We as a country rely on small business yet at the same time we are about to give small business a decent whack. In this Chamber of representatives $40000 may not seem much but to a small business $40000 is the difference between a profit or a loss for a year. It is the difference between that small business retaining its staff. It is the difference between that small business still having a shop on the corner so that we can go down and get our newspaper on a Sunday morning. It is the difference between a small business actually paying the taxes that build up to pay the salaries of Government. 
Those small businesses cannot be kicked in the guts forever and a day. At some point in time they will either go out of business or go to Australia. They will do that; they will walk with their feet as we have seen in the last year. We cannot do that to a country built on small business. 
Chris Auchinvole 
: But they will. 
DAVID BENNETT 
: Members opposite certainly will and at the same time they are sending the wrong signals to all New Zealanders about the need for debt. We have a country whose economy has been strangled over the last 7 years. It is an economy that is now going into low-growth mode. On the world scale we need to be growing at 9 or 10 percent to keep up with our Asian neighbours. But what will we grow at? Probably at a rate of 1 to 2 percent. That is simply not enough to pay for the debt levels New Zealanders are incurring. New Zealanders borrow to the hilt. That is fine they can borrow to the hilt but they have to pay the mortgage and they are not going to pay the mortgage if New Zealand does not have growth. We live in a country governed by a Government that does not understand that that is willing to strangle growth and at the same time is willing to forgive debts to the extent of $40000. It does not have any concept of reality or safeness for small business. 
RUSSELL FAIRBROTHER (Labour) 
: 
 There is nothing worse for a small business than to have the expectation of a debt being repaid that will not be repaid. It leads to borrowing from the bank in order to cover assets that will never be realised—namely unpaid debts. The no-asset procedure is an enlightened piece of legislation in the debt recovery regime. In fact it is a natural extension from the present provisions of the Insolvency Act because bankruptcy is not an automatic consequence of filing to put someone in bankruptcy. The judge always retains the discretion to make a bankruptcy order because the underlying thesis of granting that discretion is a protection to the commercial community from a continually bad debtor. 
The no-asset procedure has high qualifying standards. Clause 359 has five prerequisites two of which are important in rebuttal of the matters raised by previous speakers. First clause 359(1)(a) states: “the debtor has no realisable assets;”. Of course an income that will enable payment of the debt over a 12-month period is a realisable asset so any person with such an income would not qualify for a no-asset procedure. Under clause 359(1)(e) a debtor must meet a prescribed means test to prove that he or she “does not have the means of repaying any amount towards those debts.” So a person who applies for a no-asset procedure will not be granted that status if there is any ability within the 12-month period to repay the debt. But more important we find in clause 360(c) that a debtor who has incurred debt knowing that he or she does not have the means to repay it will not be allowed into a no-asset procedure. So a debtor who is careless and reckless is precluded from entering the no-asset procedure. That provision underscores the basic tenet of the present bankruptcy laws that that is a discretion designed to protect the commercial community. 
If a person is not a threat to the commercial community but is in a circumstance where he or she having acted in good faith comes to a stage where he or she cannot pay his or her debts then all creditors are entitled to know that in order to clear what would otherwise be an asset from their books and get on with planning their businesses accordingly. So a debtor who is in the unfortunate position of being in good faith but of having no realisable assets which would include a good income over the next 12 months can apply for a no-asset procedure because it cancels out the share of unmeritorious assets in a creditor’s book based on the assumption that maybe that debtor will one day pay. Of course if the circumstances of the debtor do change in a 12-month period then clause 367 applies because in the event of such a change the official assignee must be notified of that and of course the next step would be for the person to go either straight into bankruptcy or into the insolvency provisions. 
The no-asset procedure will not be used in a widespread way. It is a simple cut-off sanitising process for a person who cannot repay debts that have been incurred in good faith. It is an asset to the business community because it gives everybody a standard for assessing which debts will be repaid and which people are worth lingering with in the hope that they will repay debt. But of course a creditor also has a say in this procedure. Under clause 362 a creditor has time to object to a debtor being placed into a no-asset provision situation. The final underscoring of the good-faith provisions that underlie the no-asset procedure is that a debtor may be placed into a no-asset procedure on only one occasion. One mistake is OK in the commercial world but two are a bad habit and people cannot be placed in a no-asset procedure again. 
So instead of the misrepresentation we have heard from the speakers on the Opposition side of the debate I can tell the Committee that the no-asset procedure is a logical extension of the discretion the court has under the present insolvency laws. It is a low-expense provision that enables creditors to truly appraise what are good debts and what are bad debts because it has the measuring stick of the official assignee who has to apply stringent test criteria before admitting someone to a no-asset procedure. There is the out of the creditor having a chance to object and there is the opportunity should the debtor’s position improve for the debtor to move from a no-asset procedure to an insolvency or even bankruptcy basis or to repay his or her bills. 
NATHAN GUY (National) 
: 
 I thought I would even the slate with our colleagues on the other side because what a lot of diatribe we have just heard from Russell Fairbrother the former member for Napier. I think the people out there who may have been listening to that speech would be completely confused so I will take the few moments I have to even the slate and talk about why we are so uptight about supporting Part 5. 
The no-asset procedure seems complete stupidity to me when I read it. This procedure will allow people 12 months in which they can write off their debt and be discharged from it. Up to $40000 can be written off. We heard from the hard-working member for Hamilton East Mr Bennett about the importance of small business and how it is often those people who are waiting for the cheque to come on the 20th of the month and hoping that it will come. They know full well that if the cheque is late it may mean bad news for them. Let us think about the creditors out there—the small-business people who are the heart of our economy. Somewhere between 90 and 95 percent of the small businesses in New Zealand actually drive the economy. 
We need to be mindful of the signal we are sending to the rest of society when someone can come in with a clean slate and write off $40000 of debt. When we think about the culture of savings in this country we are pretty poor. There is hire purchase the credit card debt that people rack up traffic offences and parking fines that are not paid and now in Part 5 we are signalling to those people that they can write off $40000 and live happily ever after. 
 So there is a lot of stupidity around Part 5. It is fair enough that we give debtors a second chance so they can start again but I think it is too easy to allow those people to just chuck everything in and not to take into account the real importance of those creditors that I have spoken about. The creditors—the last cab off the rank when a company goes into insolvency—are left high and dry under this proposal. 
I think it is important that we have a look at the no-asset procedure in clause 359(1). It states: “(a) the debtor has no realisable assets; and (b) the debtor has not previously been admitted to the no asset procedure; and (c) the debtor has not previously been adjudicated bankrupt; and (d) the debtor has total debts that are not less than $1000 and not more than $40000;”. Clause 359(2) refers to section 156 and states: “In this section realisable assets does not include the assets that a bankrupt is allowed to retain under section 156.” I refer to that because it is pretty important and I would appreciate the Minister in the chair Pete Hodgson taking a call. Clause 156(1) states: “The bankrupt may choose and retain as the bankrupt’s own property certain assets up to a maximum value.” I would appreciate the Minister taking a call on that. I ask him to let us all in the Committee this evening know what is a certain asset up to the maximum value. I look forward to him taking a call on that. 
Clause 156(3) states: “The assets and their maximum value are—(a) the bankrupt’s necessary tools of trade—”. I think it is important to realise that for those people their tools of trade are extremely important. The examples given in clause 156(3)(b) are: “necessary household furniture and effects including clothing for the bankrupt and his or her relatives and dependants—the maximum value is fixed in the Assignee’s discretion:”. It is interesting to see that a motor vehicle is valued at $5000. When the Minister takes a call about my previous question I would really appreciate it if he could tell us how he has come to the value of a motor vehicle at $5000. For a lot of small businesses $5000 is a very small amount for a vehicle. 
CHRISTOPHER FINLAYSON (National) 
: 
 I want to take a very brief call on Part 5. I certainly do not intend to speak about subparts 1 to 3 which as Mr Tremain said largely re-enact equivalent provisions in the 1967 Insolvency Act. But I do raise a couple of questions about the no-asset procedure in subpart 4 and I would be most grateful if the Minister in the chair the Hon Pete Hodgson could condescend to answer them. They are not so much on the morality of the no-asset procedure but on the necessity for it. 
Let me explain it this way from the point of view of the debtor. The debtor finds himself or herself in trouble and prima facie would appear to qualify for entry into the no-asset procedure. Clause 358 states: “(1) A debtor who meets the criteria set out in section 359 may apply to the Assignee for entry …” and the assignee as other speakers have said may admit that debtor to the no-asset procedure if the assignee is satisfied on reasonable grounds as to the criteria set out in clause 359(1). So it is very much at the discretion of the assignee. 
The Minister Lianne Dalziel said when she was in the chair that this procedure is an alternative to bankruptcy. But I wonder whether that is right—for the reasons that Mr Fairbrother explained when he gave his speech—because under clause 11 adjudication by the court is discretionary and the court may refuse to adjudicate in the circumstances set out in clause 37 which largely re-enacts section 26(2) of the Insolvency Act. The four criteria in clause 37 are: “… if—(a) the applicant creditor has not established the requirements set out in section 13; or (b) the debtor is able to pay his or her debts; or (c) it is just and equitable that the Court does not make an order of adjudication; or (d) for any other reason an order of adjudication should not be made.” 
There are numerous examples where the court has declined to exercise its discretion under the existing section 26(2). One of the principles that is set out is that a lack of assets is no bar. A lack of assets is a factor that the court should take into account in the exercise of its discretion but it is not a bar to the making of an order that is otherwise appropriate. As the commentaries have said a lack of assets is not to be found lightly. At the time of the hearing of the petition—or of what will become an application under the new legislation—the court would generally not have sufficient material before it to decide the question and the public examination of the debtor may have the effect of bringing assets to light. 
The point I am making—from the debtor’s point of view—is that rather than bother to go into the no-asset procedure set out in Part 5 he or she may decide simply to oppose the application for bankruptcy on the grounds that to bankrupt that person would be largely a pointless exercise. So there is the discretionary element in the clause that re-enacts section 26(2) of the Insolvency Act. If that is the case then I fail to see why the no-asset procedure provision is really necessary. It seems to me that there are sufficient tools under Part 5 to enable compositions with creditors or summary instalment orders or compositions during bankruptcy. If one adds to that the ability to oppose an application for bankruptcy which as I have said is a discretionary remedy for the court then one wonders where the no-asset procedure really takes us. 
So for those reasons quite apart from the business morality reasons that my friends on this side of the Committee have mentioned I really doubt the usefulness of this provision. I think that the way I have approached it either by opposing the application for bankruptcy on the grounds set out in the clause that now replaces section 26(2) of the Insolvency Act or by relying on the other tools set out in Part 5 would tend to render the no-asset procedure superfluous. 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to Part 5 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 5 as amended be agreed to. 
Ayes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Part 5 as amended agreed to. 
Part 6 agreed to.  
Part 7 Offences and miscellaneous provisions 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to Part 7 be agreed to. 
Amendments agreed to. 
Part 7 as amended agreed to. 
Part 8 Companies Act 1993 
The CHAIRPERSON (Ann Hartley) 
: The debate on Part 8 includes debate on schedules 3 and 4. 
PANSY WONG (National) 
: 
 The substantial issue in Part 8 is the introduction of a very positive move known as voluntary administration. The voluntary administration scheme was introduced in Australia in the early 1990s. Since then many different jurisdictions such as Britain have introduced similar business recovery procedure schemes. The voluntary administration scheme’s advantage is that it allows an insolvent company the court and secured creditors to put a company into voluntary administration and to appoint an administrator. While the company is in voluntary administration the creditors agree not to enforce repayment which allows time for the company to work itself back into a solvent state. 
All the submitters who came before the Commerce Committee felt very positive about that step because currently in New Zealand we do not have a voluntary administration procedure. This means that the director of a company that is not doing well can only either request the bank to appoint a receiver which usually means that the receiver sells the business and in many cases the bank calls on the director’s personal guarantee—there is no prospect of maintaining shareholders’ value and the creditors lose a customer—or a liquidator can be appointed where usually once again trade creditors lose a consumer and the shareholders’ value is not maintained or there is out-of-court restructuring. This is difficult because out-of-court restructuring requires all the creditors to agree on a position and if even one creditor is opposed then the whole thing will not fly. The last option is rarely used and is termed a creditors’ compromise because of the fact that there is no provision that while creditors agree to compromise all of them would agree not to call back their loan. 
So the advantage of the voluntary administration scheme is that it allows all these people to work together in order to make sure a company that might be in a difficult situation temporarily can work itself out of it. The reason it is successful in Australia is that where creditors agree to go into this voluntary administration they all have to agree to be treated equally. Nobody has a preferential status. That is where things went very wrong in New Zealand. 
The Inland Revenue Department will retain its preferential creditor status which it has under the current legislation. One hundred percent of the submitters who came before the select committee said that it would not work for several reasons. The first was that they reckoned that a lot of companies got so far into an insolvent state because the Inland Revenue Department did not call on them to pay for example PAYE GST or the liable-parents’ payment. That money does not belong to the company or to the Inland Revenue Department; it is actually trust money that the company collects and is supposed to pass on to the department. In one of the cases that I have just shared with the public one company failed to pay PAYE for 3 years and it took the department 3 years to take action. In the meantime the company was using trust money basically for its cash flow. The other reason submitters say the scheme will not work is that if the department enjoys preferential creditor status why would it agree to voluntary administration where it would not enjoy that status? Officials from the Inland Revenue Department made a submission to the Commerce Committee and told us that under this preferential creditor status that the department enjoys it collects only about $5 million a year. So if this Labour Government is serious about making it work it should remove the department’s preferential creditor status. 
KATHERINE RICH (National) 
: 
 I rise to speak to Part 8 and I would like to touch on an amendment that I have put on the Table. It arose out of the select committee process but was ignored at that stage. Although I totally agree with the role of business rehabilitation and the aim of voluntary administration one of the concerns raised by one of the leading accountancy firms was that one of the definitions we have of who can and cannot be a liquidator is far too wide. As a result I have spoken with representatives from PricewaterhouseCoopers and they continue to hold the view that one of the provisions new section 280(1)(cb) which is to be inserted by clause 471(1) is written so widely that some of the major accountancy firms could actually be blocked from doing some of the larger and more complex liquidations in this country. 
We are a small country we have only 4 million people and our major firms will have established often continuing business relationships with a number of clients. I totally understand the aim of defining who can be appointed to be a liquidator because we do not want some cowboy or someone who has a super-friendly relationship with the company directors and who can as a result of good relationships push things through for the benefit of the failed company but we do need to be able to ensure that our major accountancy firms are able to conduct their work. 
New paragraph (cb) of section 280(1) states: “(cb) a person who has or whose firm has within 2 years immediately before the commencement of the liquidation had a continuing business relationship (other than through the provision of banking or financial services) with the company its majority shareholder any of its directors”—and this is the main bit—“or any of its secured creditors unless within 20 working days before the appointment of a liquidator the board of the company resolves that the company will on the appointment of the liquidator …”. The concern is that our major accountancy firms may or may not have a continuing business relationship with some of the other creditors involved in the liquidation but they do have an ongoing business relationship with the main banks. For example the liquidation arm of PricewaterhouseCoopers may be involved in a liquidation but that firm may be providing to one of the major banks ongoing business services advice or some kind of service that means the firm has a continuing relationship with the bank which is of course one of the secured creditors. 
We have only a certain number of major firms in this country that can do the kinds of liquidations that are more complex and take more time—not the small mum and dad liquidations—and we have only a handful of banks. So if we look at all the major firms the chances are that they will have an ongoing business relationship with a bank that is likely to be one of the secured creditors in many of these situations. The last thing we want to do is limit the pool of skilled and experienced professionals who are able to undertake the medium to large complex liquidations in this country. 
This clause may have the unintended consequence of locking out those firms that have the expertise to deal with the big liquidations—the Feltex liquidation and the other liquidations that we have seen in this country. We are not so concerned about the small mum and dad operations which can be dealt with at arm’s length. It is the more complex ones where we rely on the skills and expertise of our top firms that are at issue. 
As we know there are only a handful of banks in this country and they will have continuing business relationships with the top firms—PricewaterhouseCoopers Deloitte Anderson Lloyd Caudwell—and I am sure that the Minister in the chair Pete Hodgson knows their names. This is a serious concern that was put forward by those firms during the select committee process and I am unsure as to why this matter was ignored during that process. 
CHRIS TREMAIN (National—Napier) 
: 
 Thank you Mr Chairperson for the opportunity to speak on Part 8 and to talk specifically about voluntary administration which is at the heart of this legislation. Voluntary administration provides a company that is experiencing difficulty with a new means to trade out of that position. Indeed it is a means of encouraging that company to move on. In that regard I echo the thoughts of both Pansy Wong and Katherine Rich. National supports the intent of voluntary administration and acknowledges that it has worked in other countries. But—and I say a big “but” in this regard—it has worked only under certain conditions. 
The key condition which is where National finds itself voting against Part 8 is the priority status of the Inland Revenue Department. In all other countries where voluntary administration has been implemented the priority status of the Inland Revenue Department has been reduced to that of ordinary unsecured creditors. In fact this information was clearly disclosed to us at the submission process in no uncertain terms. A piece from the Chapman Tripp council newsletter states: “The recent submissions to the Commerce Select Committee on the Insolvency Law Reform Bill almost uniformly sought amendment of Inland Revenue’s preferred creditor status on insolvency.” So the submissions almost uniformly sought amendment of the Inland Revenue Department’s priority status. That point goes to the very heart of National’s position which is to vote against Part 8. 
Let me explain exactly why that is. Another Act the Tax Administration Act gives the Inland Revenue Department a clear sense of its responsibility to the New Zealand taxpayer. In particular I refer to section 6A(3) of that Act which makes it clear that it is the statutory duty of the Commissioner of Inland Revenue to “collect over time the highest net revenue that is practicable within the law…”. It is the responsibility of the Commissioner of Inland Revenue to implement that policy. So we have a situation whereby in one Act it is the responsibility of the Inland Revenue Department to collect under all circumstances the highest amount possible yet in another breath this legislation tries to implement voluntary administration where the Inland Revenue Department needs to be a partner in that situation. In our opinion that creates a very difficult situation indeed. 
Voluntary administration lies at the very heart of the Insolvency Law Reform Bill. In fact voluntary administration has been introduced under the bill in accordance with New Zealand’s obligations under the Memorandum of Understanding on Coordination of Business Law of 2000. I would be interested if the Minister took a call later on and gave us a little bit more information on that memorandum. 
In a nutshell National believes that voluntary administration has significant merit but as I have said only under the right circumstances. National believes that the retention of the Inland Revenue Department’s priority above unsecured creditors coupled with the responsibility to collect over time the highest net revenue that is practicable within the law will ensure that the Inland Revenue Department votes in favour of liquidation and recovery for itself as opposed to supporting voluntary administration. Therein lies the problem. We believe that without the Inland Revenue Department’s support voluntary administration is doomed from the start and that is why we do not support the bill. 
The minority view from National reads as follows: “All the submitters on this provision were unanimous in their view that unless the Government addresses the issue of the priority status for IRD the voluntary administration scheme will be severely compromised.” That view echoes the Chapman Tripp newsletter that I mentioned before. The minority view goes on to state: “We do not believe that Parliament should pass another piece of redundant legislation when there is a groundswell of opinion from practitioners who believe that it will not work without the removal of Inland Revenue’s priority status.” 
Let me just cover a little information on voluntary administration. It was introduced under the 2000 Memorandum of Understanding on Coordination of Business Law. [ 
Interruption 
] I am pleased to hear that the Minister will take a call on that later on and speak with a little bit more depth on that particular memorandum. It aims to replace the seldom-used compromise scheme already available to companies that are in financial stress. A lack of incentives to get a majority of creditors to consent to compromise has been the reason for the lack of use of that part of the older legislation. Voluntary administration was introduced into Australia in the early 1990s and it has had a degree of success there. But I must say as I have said earlier that that success came with the priority status of the Australian office of taxation being reduced. 
Voluntary administration allows an insolvent company the court or secured creditors to put a company into voluntary administration and to appoint a voluntary administrator. While the company is under voluntary administration there is a stay on creditor enforcement which is the means with which a company can trade itself out of a difficult situation. It stops that ongoing situation of creditors ringing day after day to hound people into paying their bills. That is indeed a difficult situation to get into. In the voluntary administration situation the administrator manages the company calls meetings of creditors and develops a restructuring plan on which creditors are able to vote. A majority of creditors determines whether the company is to be restructured or put into liquidation. Like I said this system has proven very popular in Australia. 
The opportunities directors in New Zealand have without voluntary administration are pretty unappealing at this point in time. They are to request that the bank appoint a liquidator to appoint a liquidator and to attempt an out-of-court restructuring. I spoke to some of these issues in the debate on Part 5 tonight when my learned colleagues spoke about compositions proposals no-asset procedures and summary instalment orders which we covered off in some depth earlier on. In the main there is no prospect of retaining any level of shareholder value. If one looks at the balance sheet of a company that is bankrupt one sees that in most cases there are a heck of a lot more creditors than assets. When one goes out to try to sell one has to move the stock to move the debtors. If people are able to get 25 percent of their stock value they are lucky. Debtors use this situation as a means to evade paying their bills under the guise that there was a problem with the service in the first place. 
In contrast voluntary administration provides directors shareholders and creditors with a process that protects a company from enforcing remedies during a reasonably short period. It provides breathing space. During that period the administrator develops a restructuring plan that potentially allows the business to maintain enterprise value and to deliver a better outcome for creditors employees directors and shareholders. I have to say that employees have to come into this whole thing in a big way because they are often the unsung heroes in this situation. Having worked for a company for years and years they can find themselves at the end of the line in terms of getting paid. 
On the face of it voluntary administration seems to have merit but as I have previously mentioned the Inland Revenue Department becomes a critical factor in its success or failure. In any voluntary administration the Inland Revenue Department is likely to be a significant creditor. If we look at some of the situations that Pansy Wong alluded to earlier we find an example where the Inland Revenue Department was the main creditor. In this situation which was written about by Keri Welham the Inland Revenue Department was a creditor to the tune of $1.2 million but to other creditors the total was $160000. If people think the Inland Revenue Department will not take preferential status fairly seriously in that example they have to be joking. As I say the department is likely to be the main creditor. 
A person could continue to run a business for some time without paying GST PAYE and fringe benefit tax but could not run a business for very long without power telephone and other core operational products. If the Inland Revenue Department’s priority status is retained as it has been in this bill then it will be compelled to evaluate its recovery from entering into the voluntary administration scheme versus entering into liquidation. As I said earlier the Taxation Administration Act makes it clear that the Commissioner of Inland Revenue has a statutory duty to collect over time the highest net revenue that is practicable within the law. We must remember that if a company is put into liquidation the Inland Revenue Department has priority status. 
NICKY WAGNER (National) 
: 
 It was Charles Dickens in  
David Copperfield 
 who stated: “Annual income twenty pounds annual expenditure nineteen nineteen six result happiness. Annual income twenty pounds annual expenditure twenty pounds ought and six result misery.” That is absolutely true of the 3000-plus people or companies who file for bankruptcy in New Zealand every year. It does not matter what has driven them to bankruptcy—although the public tends to have more sympathy for those who have poor health or unemployment than those who have got there through extravagance or gambling—it all ends in misery. 
This legislation covers both company and personal insolvency. I will consider Part 8 from the point of view of small business and the voluntary administration regime. New Zealand is a country of small businesses; over 300000 New Zealanders are sole traders or owner-operators. We rely on those businesses for much of the economic health of this country but by its very nature small business is risky. It is risky because resources are limited. It is risky because profits are small. It is risky because the business environment is very volatile for small companies. Small businesses are particularly vulnerable because it takes only a small hiccup to go from being profitable to making a loss; and going from a loss to bankruptcy can be frighteningly quick. 
One of the biggest vulnerabilities of small businesses is their tendency to trade with other small companies. A case of insolvency in one business can trigger a domino effect and a series of small businesses can be unwittingly drawn into a financial disaster. Sole traders and small owner-operators are often undercapitalised. To finance business growth they often borrow against personal assets—more often than not the family home. They also perhaps unwisely offer personal guarantees to secure business lending. It is a risk that big business and corporates would never countenance but one that small-business owners are forced to accept and take for granted. Mostly of course there is no problem but occasionally things turn sour and that is where this legislation comes into play. 
To help small businesses survive difficult times National supports a voluntary administration regime for companies with financial problems similar to a scheme being used very successfully in Australia. It makes sense to allow administrators to assess the viability of a company and if possible allow it to have a voluntary plan to trade its way out of trouble while managing its debts. This seems a sensible and mature approach to company difficulties and any way to avoid a bankruptcy and all its destructive side effects should be considered very seriously. 
As noted by Chris Tremain the system is working well in Australia but we have already heard that the major difference between Australia’s legislation and the bill we are debating tonight is that Australia’s tax department waits in line along with other creditors involved in liquidation. The Labour Government is not prepared to accept this as a reasonable option and I understand all its arguments but it seems to me that a voluntary administration will come into being only if there is a good chance of that company trading out of its problems. If it is good enough for creditors to be prepared to take the risk then it should be good enough for the Inland Revenue Department to take that risk too particularly in light of the difficulties that small businesses face and the domino effect within companies that trade with each other. 
It is a reality that from time to time businesses falter and stumble into failure. Small businesses are especially vulnerable. It would be good if the House could introduce legislation that would support innovation and responsible risk-taking and entrepreneurialism by giving a viable company a second chance and with time the opportunity to make good. 
CHRIS AUCHINVOLE (National) 
: 
 The Government is showing again its double-handedness as it comes to light in Part 8. There was a glimmer of this as we were discussing Part 5 in relation to the no-asset register. Then we spoke of the Government seeming to have a double standard in that it will not extend the opportunity of joining a no-asset register to those with a student loan but any old debtor to a small business who qualifies can join up. The Government seems to be in the business of forgiving the debts of those who owe to commerce but not to the Government. 
Part 8 is a case of “here we go again”. The Government will not relinquish the Inland Revenue Department’s pre-emptive or priority status for the Inland Revenue Department. That will severely compromise in our view the effectiveness of the voluntary administration scheme. Let us remember it is a voluntary administration scheme. I felt compelled during one of the Commerce Committee meetings to say that the difficulty that the Government seems to have with “voluntary” is that everything is voluntary until such time as one does not want to do it then it becomes compulsory. If we are going to have voluntary then the “voluntary” bit has to go right through to the very end otherwise it becomes a bitter end. 
No one could have doubted the sincerity of the submitters who came before the Commerce Committee. These people for the most part insolvency practitioners are people with a tough job. They are constantly being exposed to the stress of others and I would guess in every case having to deal with something that is in every way a mess. For about a decade I worked in a little office in Albert Street in Auckland. It was in the same building as I think two or three insolvency practitioners. I used to see their clients going up in the lift and I used to see their clients going down in the lift. The difference in the journeys was that they clearly looked relieved—and in many ways saddened but none the less relieved—that their immediate responsibility had been handed over to the insolvency practitioners. 
From my memory of it at the select committee every insolvency practitioner who appeared before it insisted beseeched asked the committee to ensure that the reduction in the Inland Revenue Department’s priority in insolvency matters be adopted as part of the bill as it is in Australia. I wonder whether that is the memory of other members of the committee. I can see them nodding in agreement. It was. They did not do this on the basis of not liking the Inland Revenue Department. These are real people and they are in the commercial financial world. It is that by having the priority—and most creditors are not aware very often that there is a problem—when the problem begins the department can be aware of it and it is not seen as being overly energetic in taking a company into insolvency. I am not suggesting that is a good thing or a bad thing but the reality is the department is the creditor that takes people into insolvency eventually and this allows poorly organised businesses to use moneys that should be paid to the department to extend their commercial credit extension beyond redemption and recovery. That is one of the key practical bits. 
 The purpose of voluntary administration is at the heart of the bill. We hear of the early failure of new businesses in New Zealand. It is an oft-repeated statistic. New business has a very high rate of failure. But the reality is that while the individual business might fail the activity that it started with often continues. 
This has been a fascinating bill to be part of in the discussion process because I personally believe in it. In my own commercial experience I have engaged in this sort of thing without it being part of the legislation. The creditors got together and worked with a debtor to see whether we could put something together because we knew that if we did not we were not going to get much out of it. The voluntary system of administration is a good one in my mind. It works but it works only if there is an incentive for all. The object is to save companies but by being weak-kneed I think the Government has lost the opportunity. 
KATE WILKINSON (National) 
: 
 I hate to interrupt my learned colleague because I am sure the quality of his speech was a lot better than the quality of mine will be but none the less I rise to speak to Part 8 which deals with voluntary administration. This should have been very good legislation and Part 8 should have been a very good part of it. But unfortunately it is flawed because the Inland Revenue Department is retaining and clinging to its priority status. This means we do not have a level playing field which is unfair and means that this legislation is flawed. 
I am somewhat surprised that despite all the submissions to the contrary this Government has still insisted on retaining the spurious Inland Revenue Department priority. A Government that values the opinion of Chapman Tripp so very very highly in other matters has disregarded its opinion in regard to Part 8 and in relation to the Inland Revenue Department’s priority. Way back as early as April 2006 it said in its  
Counsel 
 brochure which we all received a copy of: “We consider the likely effectiveness of this procedure given the policy decision to retain Inland Revenue’s priority in liquidation. We conclude that by retaining this priority there is a significant statutory incentive for Inland Revenue to vote against voluntary administration and in favour of liquidation in order to make a better recovery. It is our concern that if the first wave of voluntary administrations are undone by Inland Revenue voting against restructuring and rehabilitation plans then the new voluntary administration regime may well lose the confidence of the market.” 
I have a fear that that will indeed happen. In its  
Counsel 
 magazine Chapman Tripp went on to say: “In any voluntary administration Inland Revenue will be a significant creditor. If the Inland Revenue priority is retained Inland Revenue will be compelled to evaluate its recovery out of voluntary administration against its recovery out of a liquidation. If a company is in liquidation the Inland Revenue priority debt ranks ahead of all other unsecured creditors. In voluntary administration unsecured creditors will expect to be treated equally with Inland Revenue in accordance with the pari passu principle (which provides that all creditors in a class are treated equally).” By retaining Inland Revenue priority there is a statutory incentive for Inland Revenue to vote against a voluntary administration and in favour of liquidation to make a better recovery. It may even be that Inland Revenue decides that notwithstanding the general merits of a voluntary administration restructuring plan … it has a statutory duty to vote in favour of liquidation and priority recovery because”—as Mr Tremain has already pointed out—“the Commissioner’s statutory duty is ‘to collect over time the highest net revenue that is practicable within the law’ (section 6A Tax Administration Act 1994). If Inland Revenue is compelled to vote against voluntary administration restructuring plans then the prospects of New Zealand’s voluntary administration regime achieving the success of its Australian counterpart are slim. The opportunities that voluntary administration provides to maintain value for all stakeholders may be lost to the commercial community.” 
The fatal flaw in this bill and in this part of the bill is the clinging to the Inland Revenue Department’s priority status. If the department becomes the preferred creditor it will receive the proceeds of liquidation before other unsecured creditors. Why would it vote for a voluntary administration that would then put it pari passu with other creditors when it can easily outvote the other creditors and easily have its preferred status? 
Can I repeat some of our minority view in the commentary on the bill. Yes we agree that the centrepiece of the bill is the voluntary administration scheme which replaces the seldom used compromise scheme. I can vouch as a practitioner of 29 years standing that the compromise was seldom used. 
DAVID BENNETT (National—Hamilton East) 
: 
 As we have heard in a number of great speeches from the National side the voluntary administration regime has not exactly been a real problem. It is just part of the implications of it that we find quite difficult to contest. I think Nicky Wagner summed it up very well when she said it was good enough for creditors but not good enough for the Inland Revenue Department. That makes us think: “Well why is there a different rule for the IRD?”. The reason must be that this Government feels that the Government is in a higher position than the ordinary New Zealander. The Government sees that it has a greater role than New Zealanders do on the street. It has always been a historical fact that Governments can tax and they can willingly impose taxes and people have to pay them. We cannot get out of paying our taxes and Governments have the ability to implicate people and make them pay a tax. 
It does the same with local government. It pushes services on to local government which then in turn has to rate ordinary New Zealanders to pay for those services. We do not have a choice in our taxation system. We have to pay the taxes that are imposed upon us. That is something that has occurred throughout history and it is why we have Governments. It is how Governments are funded. But then why does the Government also want to have priority on the other side of the ledger? It is not good enough for the Government just to have the ability to tax; it is also good enough for the Government to have the ability to take money on the other side through the Inland Revenue Department and preferential claims when a business may go under. Why cannot the Government sit there like any other business or creditor when it has the ability to tax over and above an ordinary creditor? 
This is something I think this Government needs to look at very closely in its legislation. I look at the reasons why this was put forward in the office of the Minister of Commerce. It said it was “to ensure that the current business rehabilitation regime will enhance business confidence.” Well it will not enhance business confidence if we are giving a priority to the Government over ordinary creditors. 
Another big thing this legislation was supposed to do was to ensure that overseas investors were not deterred from investing in New Zealand. Well they will certainly be deterred if they know that the Government has a higher priority than their creditor ranking would have. It also said that it is “to ensure that New Zealand adopts an international best practice for business rehabilitation.” Certainly there are aspects of the voluntary administration regime that we do favour. But that regime needs to be one that is consistent with overseas practice and this is not. 
The press release from the Minister says that “the voluntary procedure will bring New Zealand into line with other OECD countries.” It would be great if we could do that with a few other things like employment law and have a probationary period. But it said that it “has been adopted from the Australian voluntary administration regime which has had the advantage of benefiting business rehabilitation involving trans-Tasman organisations.” That is all very good rhetoric but will it be followed up? The reality is that this legislation is different from Australia’s. How can the Minister say in her press release that we are doing what Australia and the other OECD countries want and do when we are doing the opposite? 
For example Australia abolished the priority status of the Australian tax office in the early 1990s while the UK followed suit in 2002. This is not consistent with the Minister’s press releases. The Minister says we will be following OECD best practice in doing what we are doing. The reality is we are not following OECD best practice; we are just feathering the caps of a Government that wants to have the ability not only to tax but also to have priority status when a business goes under. Why would the Government want to do that when it has an $11.5 billion surplus? How much money do Government members actually need to be sitting on to make them happy? How many big buildings in Wellington do they need? How many statues to their Government do they need to erect to be happy? They need to keep on going because they need to build up their war chests for an election campaign to buy off New Zealanders. 
That is the reality of why they want to have preferential status. They are not looking after New Zealand business people; they just want to build up the money so they can go out there and bribe at the next election. Or maybe they want the money to pay off a few debts they have carried over from this election by way of a few payments to certain organisations that will in turn repay them through financial assistance. It is all part of this Government knowing what is best for ordinary New Zealanders. It believes that it knows what to do. 
CHRISTOPHER FINLAYSON (National) 
: 
 I will briefly address the Committee on Part 8 and say as has been said by some of my colleagues on this side of the Chamber that this part really is the centre point of the insolvency law reform package that we have been dealing with tonight. It is the most significant reform in this bill. The policy decision of the Government that underpins it is that the voluntary administration regime should be aligned as closely as possible with the Australian provisions unless there is a very very good reason to depart from them. As I understand it this policy decision was made in accordance with New Zealand’s obligations under the 2000 Australia - New Zealand Memorandum of Understanding on Coordination of Business Law. 
The real issue for determination tonight—and I would be grateful if one of the Government members said something about it—is that although we are purporting to introduce basically the Australian procedure we have left one major element out. That element concerns the priority of the Inland Revenue Departmentm which will have the effect of messing up the entire procedure. 
The objects of voluntary administration that are set out in new section 239A of Part 15A which will be inserted into the Companies Act by clause 454 are laudable. They propose that voluntary administration will maximise “the chances of the company or as much as possible of its business continuing in existence;” and if that is not possible then voluntary administration will manage matters in such a way as to ensure that there is “a better return for the company’s creditors and shareholders…”. The procedures are all reasonably straightforward and I have no real objection to them culminating in what Subpart 8 refers to as the “watershed meeting” which is the crunch meeting when the company’s creditors must determine what will be the future of the company. 
As my colleagues have said when one is dealing with a voluntary administration one finds that nine times out of 10 the Inland Revenue Department will be a major creditor if not the most important creditor. I am sure that the Inland Revenue Department armed with its priority for revenue debt will be compelled to evaluate its recovery out of the voluntary administration regime as opposed to its recovery out of a liquidation. I refer members to Subpart 10 of Part 3 which deals with the distribution of assets and in particular to clause 272 on priority of payments. The Inland Revenue Department is compelled to evaluate its recovery because as we well know if a company is in liquidation the department debt will rank ahead of all other secured creditors. In a voluntary administration the department debt will rank equally in accordance with all unsecured creditors. So the Inland Revenue Department will have to decide whether it is content with that state of affairs or whether it is better to place the company in liquidation. 
I refer very briefly to what the distinguished law firm Chapman Tripp said about this issue. We all know that the Government pays a lot of attention to Chapman Tripp as it did last week. Chapman Tripp said: “If the first wave of voluntary administrations are undone by the Inland Revenue voting against restructuring and rehabilitation plans then voluntary administration will lose the confidence of the market. Australian businesses involved in New Zealand voluntary administrations will be incredulous that our procedure departs so markedly from theirs. However what is most disappointing and ironic is that the most significant risk to the government ambition of introducing and implementing a successful rehabilitation procedure will be the government itself.” I particularly refer to the fact that Chapman Tripp says that Australian businesses “will be incredulous that our procedure departs so markedly from theirs.” 
So the only question I have for the Minister—or for any Government member who is prepared to take a call—is why the Government when introducing this mechanism that is adopted from the Corporations (Investigation and Management) Act 2000 and the Australian Corporations Act 2001 has chosen to treat the Inland Revenue Department in the way it has. It will undermine the effectiveness of the new regime. 
NATHAN GUY (National) 
: 
 Following on from Mr Finlayson it is good to take a call on Part 8. I think everyone would fundamentally agree that something such as this Insolvency Law Reform Bill needs to happen as there have not been any substantial changes to the insolvency legislation since 1967. But the reality is that Part 8 is the fundamental part in this whole bill that will turn things upside down. 
 Those people who were fortunate enough to sit on the Commerce Committee know that most of the submitters—I think close to 100 percent of those who submitted—had concerns about the priority status of the Inland Revenue Department. What I cannot understand is why the Government has not addressed that in Part 8. That is the biggest concern to me with this part. All creditors should be treated equally. That is fundamentally I would have thought a common-sense principle but no under this part the Inland Revenue Department gets its dibs on its loot no matter what. The Inland Revenue Department can vote to put someone into liquidation and it seems to me that that is fundamentally flawed and unfair. It seems to me that it is very like bully-boy tactics. 
We heard earlier from Mr Bennett about high taxation being used to build up a big war chest for the next election about how this Government is very much about big tax and about how there will be a big lolly scramble in 2008. But in essence we do not want to see in Part 8 the Inland Revenue Department being the first cab off the rank and having the ability to force people into liquidation. 
I refer to the National Party’s minority view in the select committee report because I think it is really important. Following on from the point I made earlier all the submitters on this provision—I am talking about voluntary administration—were unanimous in their view that unless the Government addresses the issue of the priority status of the Inland Revenue Department the voluntary administration scheme will be severely compromised. That should send alarm bells around this Chamber. The minority view states: “The select committee did not pursue in-depth ways to ensure that the centre-piece of the bill will be effective to the satisfaction of New Zealand National members.”—in other words we were unheard; the committee did not listen. “We do not believe that Parliament should pass another piece of redundant legislation when there is a groundswell of opinion from practitioners who believe that it will not work without the removal of Inland Revenue’s priority status.” In other words the committee has not listened to National’s minority view. 
I think it is important to look across the Tasman to our Australian counterpart. It has abolished the priority status. When we look across to the UK we see that it has ditched priority status. We do not seem to be following the OECD’s best practice. We seem to be out on a limb with Part 8. Fundamentally parts of this bill are necessary but Part 8 is of great concern to me and should be to many of us in the Chamber. That is why National cannot support Part 8. 
CHRIS TREMAIN (National—Napier) 
: 
 I wish to round out my arguments earlier on this evening on Part 8 of the Insolvency Law Reform Bill. I spoke at length about voluntary administration and how it does appear to have merit—in fact we have seen that it does have merit overseas. I spoke in depth again about the level of priority status and I think it would be inept of me not to discuss the full consideration that the Commerce Committee had—particularly given that Maryan Street who was at those meetings is here in the Chamber with us tonight. In terms of the points that Shane Jones made regarding why priority status was left where it was I will cover those off in some detail. 
As I have said on the face of it the idea of voluntary administration appears to have merit but as I have previously mentioned the Inland Revenue Department becomes a critical factor in its success or failure. In any voluntary administration the Inland Revenue Department is likely to be the significant creditor. Why? Well a person can run a small business by putting off paying the PAYE by putting off paying the GST and by putting off paying the fringe benefit tax but a person cannot keep his or her business going by putting off paying the power the telephone and all those items for which if he or she stopped paying the bills it would unfortunately mean he or she would not have a business. So what tends to happen is that the department ends up being a significant creditor in many of the situations we are talking about. 
If the department’s priority is retained as it has been in the bill the department will be compelled to evaluate its recovery from entering voluntary administration versus entering liquidation. As I have said previously section 6A of the Tax Administration Act ensures that the commissioner is required to collect tax over anything else—that is his or her priority. By retaining the department’s priority there is a statutory incentive to vote against voluntary administration in favour of liquidation to ensure the department gets better recovery. If the department is compelled to vote against voluntary administration I cannot see how it will have the success it has been able to achieve overseas. 
How did voluntary administration have success overseas? In Australia the Australian Taxation Office priority was amended but at the same time director responsibility was increased. We did discuss that point in the select committee but we have not rounded it out tonight. Here is how it works. If a company has failed to pay tax that it is required to collect then the Australian Taxation Office can issue the directors with a notice requiring the directors to firstly comply with its remittance obligations; secondly make an agreement with the Australian Taxation Office; thirdly appoint an administrator; or lastly appoint a liquidator. The key point is that if the company does not take one of those steps within a 14-day period each director can be personally liable for the unpaid amount of tax the company is required to collect. 
Shane Jones argued vociferously in defence of the corporate veil. He argued—and I understood his point on this—that if we actually increased the directors’ liability then we would discourage more directors and more entrepreneurs from getting into business. He made the point that if we are to have economic transformation in this country we do not want to increase the barriers to and risks of directorship. Shane Jones did not want to increase director liability so he voted in favour of retaining the department’s priority status. I argued that we did not need to follow the Australian model and that we could have removed the department’s priority status and kept director responsibility unchanged. The select committee seemed unable to cover that—why we could lower the department’s responsibility and not increase director responsibility. One can bet that in this instance the department would be far more vigilant with regard to late PAYE and GST remittances and that as a result companies would not be allowed to get to the point where liquidation was the only option. 
Other alternatives that were not fully debated included firstly reducing the department’s priority to a limited period only—say a specific period of 3 to 6 months prior to liquidation or receivership—and secondly the English approach which eliminated the Crown priority completely in 2002 on the basis that the fiscal cost to Treasury was insignificant. This is a key quote that I think we will end this part of the debate on: “The state could not maintain the priority because the government could not get any sympathy from the private sector over its long delay in collecting back taxes … such rank inefficiency merely confirmed to private creditors that government needed stronger incentives to keep abreast of creditor delinquency…”. That was the point. 
So in summary National believes that for voluntary administration to work effectively the department’s priority needs to be removed or limited. We believe that the retention of the department’s priority will lead to difficulties in implementing the key component of the bill. We believe that we did not explore other alternatives enough. Thank you. 
The question was put that the following amendment in the name of Katherine Rich to clause 471(1) be agreed to: 
to omit from paragraph (cb) of section 280(1) the words “or any of its secured creditors”. 
A party vote was called for on the question  
That the amendment be agreed to 
. 
Ayes 48 
New Zealand National 48. 
Noes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to Part 8 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 8 as amended be agreed to. 
Ayes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Part 8 as amended agreed to. 
Part 9 Cross-border insolvency 
The CHAIRPERSON (Hon Clem Simich) 
: The debate on this part includes debate on schedules 5 and 6. 
PANSY WONG (National) 
: 
 Part 9 is about cross-border insolvency and the National Party is in favour of these provisions. Quite interestingly the commencement date for this part is a date to be appointed by the Governor-General by Order in Council. We were told that the reason for the flexibility through the Order in Council process was that we were waiting for Australia to enact similar legislation. 
National sees that in the current environment businesses have become increasingly global. More than that the mobility of businesspeople etc. throughout the world has become such a frequent and accepted pattern that New Zealand should implement the model law of cross-border insolvency adopted by the United Nations Commission on International Trade Law on 30 May 1997. The law was also ratified and approved by the United Nations and we accept that this is a very sensible and forward-looking move. 
We support this part but I wonder whether there will be vigilant implementation of it. Although Parliament may pass legislation at times one wonders whether the application of that law will be as effective as politicians may think. 
I have an example of a recent case in point involving a sad occurrence. Last Monday in the pouring rain in Auckland a group of protestors gathered outside the Auckland Central Police Station. Those people unfortunately are a group of unsecured creditors who utilised a finance entity known as An Ying which has many subsidiaries and owns different companies under similar names. An Ying International Financial Ltd has gone into bankruptcy and a lot of the individuals involved used that organisation for transmitting money from China to New Zealand. Some have used the company for foreign currency exchanges. 
One person in the group told me that he had just transmitted money but was informed that because of the large sum involved the transfer would take about 3 to 5 days. Of course 5 days later he suddenly found out that the entity was no longer operating. A group of creditors applied to put An Ying International Financial Ltd into bankruptcy. The liquidator put out a statement that the repayment of money involved the ability to find out what overseas assets that company or the people responsible for the company might have. One can only live in hope that an international arrangement of this nature can be enforced effectively. 
As I said because nowadays there are so many transnational businesses our people can be quite vulnerable when individuals or businesses move to New Zealand and start businesses here. Do we actually know their reputation? That is the first challenge. The second one is whether we can believe that they are being upfront when they have insolvency problems as to whether they have assets overseas. 
KATHERINE RICH (National) 
: 
 This will be the last call I will take for the evening. I would like to make a few comments about schedule 5 which contains the provisions relating to model law on cross-border insolvency. This was an issue that I had not considered prior to being part of the Commerce Committee and I would like to acknowledge the officials here today. The work they did in communicating some quite technical concepts and principles to a table full of select committee members who initially were not au fait with insolvency law is to be commended. So we were very thankful that they were able to take some very difficult concepts and explain them to us and cross-border insolvency was one of those issues. 
Cross-border insolvency arises when an insolvent entity is placed in a form of insolvency administration in one country but has assets or debts in another country or countries. So a Kiwi firm might have been dealing with an Australian firm as just one example or a firm in the United States. Its bill is not paid and it has to make a decision about where to go to from there. So of course one needs laws in common to be able to have some kind of framework to allow some kind of justice on both sides. 
So it is timely that we look at this area. As members will be aware some of this law has not been considered since the 1960s and other parts have not been considered since the enactment of the Companies Act in 1993. The world has changed a lot since then so it is time for New Zealand to adopt the provisions of the model law on cross-border insolvency adopted by the United Nations Commission on International Trade Law. The area is often also referred to as UNCITRAL which sounds like one of those acronyms that do not really roll off the tongue very well. 
I have a couple of questions I would like to put to the Minister. During the select committee process members were told that banks that were subject to statutory management and were under the Reserve Bank of New Zealand Act 1989 were expressly excluded from the operation of the model law on cross-border insolvency. There may be a very simple reason for this and as I did not have an opportunity during the select committee process to ask about this I would like to put it to the Minister now. 
The second question I ask is why we are embracing this model law only after Australia has done so. The aim of having embracing model law is to ensure that we take part in the international framework so that Kiwi companies are dealing with the United States the UK or wherever and obviously Australia being our closest neighbour. Why are we waiting for Australia to take on board the law before we do? Once again there might be a pretty simple reason for that and I would be interested in hearing an explanation tonight. 
So the aim is to facilitate cross-border insolvencies. It is not easy when firms have to deal with companies that go bust at home. It makes it so much harder when one is dealing with a firm that is offshore. We need to have consistent rules so that Kiwi firms can have greater certainty. Officials argued during the select committee process that by embracing this law the increased certainty would in fact add to New Zealand’s economic growth. I think the jury is still out on that. I am unsure whether that will be the case. But certainly on this side of the Chamber we think it is a good thing that we engage in a framework that will provide greater consistency around the world as long as all the parties are working under the same law. Obviously some Kiwi firms will still continue to deal with some countries that do not. But this looks to be a step forward and we will see whether there are additional benefits from this point. 
Part 9 agreed to. 
Schedule 1 agreed to.  
Schedule 2 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to schedule 2 be agreed to. 
Amendments agreed to. 
Schedule 2 as amended agreed to. 
Schedule 3 
The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to schedule 3 be agreed to. 
Amendments agreed to. 
Schedule 3 as amended agreed to. 
Schedule 4 
The question was put that the amendment set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to schedule 4 be agreed to. 
Amendment agreed to. 
Schedule 4 as amended agreed to. 
Schedule 5 agreed to.  
Schedule 6 agreed to.  
Clauses 1 and 2 
LINDSAY TISCH (National—Piako) 
: 
 National as members have heard in the debate on the Committee stage this evening has supported most parts. However we had concerns with Part 3 Part 5 and Part 8; consequently we voted against those parts. If we reflect on National’s minority view which is set out in the commentary on the bill we see that our speakers and our members who were on the select committee have identified that: “The centrepiece of this bill is the ‘voluntary administration’ scheme which will replace the seldom-used ‘compromise’ scheme.” It is interesting to note that all submitters on that provision were unanimous in their view that unless the Government addressed the issue of priority status for the Inland Revenue Department the voluntary administration scheme would be severely compromised. With that in mind our speakers especially Pansy Wong who led the debate in this area were adamant that we had to vote against the voluntary administration provisions. 
Further we do not believe that Parliament should pass another piece of redundant legislation when there is a groundswell of opinion from practitioners who believe that the legislation will not work without the removal of the Inland Revenue Department’s priority status. 
The other point we were very mindful of was the newly introduced no-asset procedure whereby an individual can choose to enter into a scheme for 12 months in return for a write-off of $40000. We ask where the personal responsibility is—the individual responsibility—for the debts that have been incurred. 
Overall with that in mind National says that while we support some parts we will be voting against this bill. 
Clause 1 agreed to. 
Clause 2 agreed to. 
The Committee divided the bill into the Insolvency Bill the Companies Amendment Bill and the Insolvency (Cross-border) Bill  
divided into Insolvency Bill Companies Amendment Bill Insolvency (Cross-border) Bill  
pursuant to Supplementary Order Paper 61. 
Bill to be reported with amendment presently. 
House resumed. 
The Chairperson reported the Reserve Bank of New Zealand Amendment Bill without amendment and that the Committee had divided it into two bills; the Communications Legislation Bill without amendment and that the Committee had divided it into two bills; and the Insolvency Law Reform Bill with amendment and that the Committee had divided it into two bills. 
Report adopted.