Wong Pansy: Insolvency Law Reform Bill — In Committee 
Wong Pansy: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6051] 
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.