Collins Judith: Insolvency Practitioners Bill — First Reading 
Collins Judith: Insolvency Practitioners Bill — First Reading 
[Volume:666;Page:13543] 
Hon JUDITH COLLINS (Minister of Police) 
 on behalf of the  
Minister of Commerce 
: I move  
That the Insolvency Practitioners Bill be now read a first time. 
 At the appropriate time I intend to move that the Insolvency Practitioners Bill be referred to the Commerce Committee for consideration. The law currently provides for minimal restrictions as to who can be appointed as a liquidator administrator or receiver collectively referred to as insolvency practitioners. Insolvency practitioners in New Zealand are not required to obtain any particular qualification or experience to register or obtain a licence or to belong to a professional body. Almost anybody as long as they are not disqualified by limited criteria set out in the Companies Act or the Receiverships Act can—and do—set themselves up as an insolvency practitioner. This has resulted in the situation where there is a small minority of individuals practising as insolvency practitioners who simply should not be. 
The Insolvency Practitioners Bill provides for regulation of insolvency practitioners through a negative licensing regime. Put simply this means that rather than registering all practitioners only those who fall short of expected standards of practice will attract the attention of regulators. The Registrar of Companies will have the statutory power to stop individuals from providing corporate insolvency services if they fail to carry out the duties outlined in legislation in a competent and honest manner. Insolvency practitioners are required to carry out skilled tasks and manage a number of competing tensions. These include striking a balance between investigating and seeking to void a business transaction or to realise an asset at a good price and completing insolvency processes as quickly and efficiently as possible. Winding up an insolvent business effectively requires practitioners to demonstrate sound judgment and good negotiation skills on a range of matters. It also requires knowledge of commercial law investigative skills to quickly assess the financial position of a company often in the presence of inadequate financial management systems and an understanding of the statutory obligations of company directors and practitioners’ own obligations under insolvency law. There are currently a small number of practitioners who are continuously demonstrating incompetence imposing significant costs upon creditors. However beyond competency issues some practitioners are also debtor-friendly failing to discharge their statutory obligations so as to favour the interests of the insolvent company its director shareholders or themselves at the expense of the very creditors practitioners are supposed to protect. For example practitioners may short-change creditors by selling a business or its assets to the directors or shareholders of the insolvent company or a third party related to themselves at less than market value. The asset could then be onsold at a later date at market value putting money in the pocket of practitioners or insolvent parties. 
Such practices could be remedied by introducing a positive licensing regime whereby all practitioners would need to meet a minimum set of standards to be licensed to practise. However the cost of such a system would be disproportionate to the size of the insolvency practitioner industry in New Zealand estimated to have fewer than 200 practitioners. This cost would effectively be passed down to creditors as under insolvency the practitioner becomes the priority creditor and is among the first to be paid for services. This would reduce the money available to disburse to the general pool of creditors. The courts currently have and will continue to have the ability to remove individuals from providing corporate insolvency services. However in an insolvency situation there is rarely enough money to be disbursed to all creditors limiting their ability to challenge—in the courts—poor or dishonest decisions made by these practitioners. 
This bill primarily aims to improve enforcement of practitioners’ duties by providing a lower-cost way for parties to seek prohibition orders. The bill will expand the disqualification criteria outlined in section 280 of the Companies Act and section 5 of the Receiverships Act. These sections list the persons who cannot be appointed as practitioners from the outset such as individuals who are under the age of 18 creditors of the insolvent business and undischarged bankrupts. The bill will also disqualify practitioners who have been banned from taking similar appointments in other specified jurisdictions—for example Australia. It disqualifies individuals who are undischarged no-asset procedure debtors or subject to a summary instalment order under the Insolvency Act accountants and lawyers who have been struck off from their respective professional registers individuals who have been convicted of a crime involving dishonesty under the Crimes Act and close relatives of the major shareholders directors auditors or receivers of the company or of a related company. 
Finally the bill amends the Receiverships Act to allow the court to make a prohibition order against a receiver for an indefinite period rather than the 5-year limit in the current Act. This brings the court’s powers to place sanctions under the Receiverships Act in line with its powers to sanction liquidators and administrators under the Companies Act. The Insolvency Practitioners Bill will therefore not only strengthen measures to remove incompetent dishonest or conflicted practitioners but also make it easier to avoid the appointment of such persons from the outset. I commend this bill to the House.