Wong Pansy: Insolvency Law Reform Bill — First Reading 
Wong Pansy: Insolvency Law Reform Bill — First Reading 
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PANSY WONG (National) 
: 
 I doubt very much whether anyone is any wiser after the delivery of that prepared speech by the Minister with responsibility for Auckland Issues. She really got into it with passion and commitment! 
One of the stated objectives of the review of the insolvency law of 1967 by the Ministry of Economic Development is to provide a predictable and simple regime for financial failure. Financial failure usually becomes predictable in hindsight. So is business recovery. In every business people start off with the belief that their venture will be profitable and most cannot be convinced that it is heading into trouble even when that might become obvious to others. Risk taking and operating in an ever-changing environment is part of the norm of doing business. Every day suppliers and lenders take into account calculated risk before they decide whether they will supply goods services and credit to businesses. I wish the Minister could stay and give us some feedback after the passionate delivery of her speech but unfortunately she was otherwise engaged. Every day business owners also take into account the calculated risk of whether they will carry on doing business with the aim of making a profit after paying off debts and suppliers. So failure and success are part of the nature of doing business. 
The inherent risk-taking nature of doing business actually improves discipline on both lenders and borrowers to take those calculated risks into consideration in their decision-making process. Anyone who thinks that the passage of any law can make business failure or business recovery more predictable is hopeful if not naive. Any measure that aims to convey a message that there will be Government intervention to prevent business failure or to assist business recovery will not work. Indeed it would lead to unrealistic expectations and worst of all we would find that a lot of the energy of business people would be diverted away from managing business risk to lobbying politicians. Heaven help them! It would be a waste of energy and it certainly would not be a recipe for a thriving economy. 
The presence of this type of ideological and lofty statement throughout the legislation leads to some concerns that National members want to address seriously at the Commerce Committee. Let us examine some examples—and the officials can expect some of this type of questioning from the diligent National Party members on that committee. 
Lindsay Tisch 
: A great committee! 
PANSY WONG 
: The National Party is particularly fortunate in that our members all have business expertise and I am sure that this bill will benefit from that. 
One example I will share with the public is that one of the aims of the bill is apparently modernisation. That sounds good! Apparently it proposes additional changes that would take into account the fact that the main reason for personal insolvency has changed from business failure to consumer spending - related reasons. Does that mean that insolvency due to consumer spending - related reasons will be treated differently from other types of business failure? Is business not supposed to cater to consumer demands? I think every business person knows that consumer demand changes and that he or she should cater for that. What is the relevance of that to creditors and lenders? How does it affect the way in which insolvency law operates? I am sure that my learned colleague Chris Finlayson might lend some weight in his speech to ask how consumer-related insolvency affect the implementation of insolvency law. 
Another example is the statement in the explanatory note referring to distributing the proceeds to creditors in accordance with their relative pre-insolvency entitlement. That sounds reasonable until we see that it goes on to state: “unless it can be shown that the public interest in providing greater protection to one or more creditors outweighs the economic and social costs of any such priority;”. Does that mean that a Government agency will decide what is in the public interest and which type of creditor can override other groups? That type of subjective assessment will seriously undermine the discipline of risk-taking decisions made by creditors. It will also lead to an expectation by creditors for intervention by Government agencies rather than following long-established case law and practices. 
One of the provisions of the law is meant also to maximise the return to creditors by providing flexible and effective methods of insolvency administration and enforcement that encourage early intervention when financial distress becomes apparent. Who will be this keen observer of any business that is facing apparent financial distress? What if a seller’s creditors want to call in the seller’s debts during a low-season business cycle? Who will decide when an early intervention is warranted? Once again any attempt to legislate away risk and uncertainty in allowing the business cycle to run on is indeed full of danger and risk. 
This bill also sets out to ensure that with limited exceptions a debtor’s assets will be distributed to all creditors equally in proportion to the size of their admitted claims. On the face of it this would overturn some long-established understandings of priority creditors. That in itself should cause us to examine this issue very carefully in the select committee because we know that the way to trouble is often paved with plenty of good intentions. This so-called good intention may lead to creditors no longer having confidence to extend credit to businesses. My parliamentary colleagues on this side of the House will soon expand more on those lofty provisions. 
National supports the review of the Insolvency Act because this law does date back to 1967. The bill contains provisions for simplified insolvency administration for personal bankruptcy such as the no-asset procedure and the cross-border insolvency mechanism which we support. We also like the stated intention of the bill to streamline the processes to better align the processes of personal and business bankruptcy and to appoint competent and bipartisan liquidators. But let us remember that insolvency comes at the end of a business process that no one plans for and that it is an inevitable part of the risky nature of business. So the swift administration of the process to ensure that creditors debtors etc. can move on should be the aim of this legislation. 
We will scrutinise in the select committee the bill’s lofty statements and provisions to ensure that their implementation would not be at the expense of in particular start-up businesses that want to borrow and want credit to be extended by their suppliers. We will support this bill to the Commerce Committee but there is a lot of work to do on it yet.