Finlayson Christopher: Insolvency Law Reform Bill — In Committee 
Finlayson Christopher: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6059] 
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.