Rich Katherine: Insolvency Law Reform Bill — Second Reading 
Rich Katherine: Insolvency Law Reform Bill — Second Reading 
[Volume:633;Page:5177] 
KATHERINE RICH (National) 
: 
 I rise to speak on the second reading of the Insolvency Law Reform Bill. I would like to acknowledge the comments from the Minister Lianne Dalziel regarding the work the Commerce Committee did. There was a lot of unanimity around the table in particular amongst members who have a long-term desire to create a business environment within our country where we can minimise the number of insolvent liquidations and attempt to increase the number of business successes as opposed to failures. 
The bill deals with a regime when things do not go well in business. I know the Minister talked about solvent liquidations but when the rubber hits the road for a lot of businesses we need very good rules in order to be able to deal with business situations when things do not go to plan and people are looking down the barrel at a failure. I think this bill does aim to deal with situations when things do not go to plan either in business where the bill aims to look at changes to the Companies Act 1993 or when things do not go well for individuals by reviewing the Insolvency Act of 1967. I accept that as we have seen changes to law over a period of four decades it was time for another look at rules relating to insolvency. 
National opposes the bill because there are some areas that it thinks require additional work. For us the key question is whether the new regime of voluntary administration will work. It is a new regime for New Zealand and although the committee looked at the processes put in place in Australia National has some concerns about the differences in the scheme as proposed for New Zealand. 
There was quite a bit of discussion about retaining the Inland Revenue Department’s status as a preferential creditor under schedule 7 of the Companies Act 1993. That was an area that consumed almost every submission. All the submitters who came before the committee said that they agreed with having a new voluntary administration procedure but they had concerns about putting in place the new regime and retaining the Inland Revenue Department’s preferential status. The thinking behind the Crown priority is that the Crown should have the ability to have first call on any moneys and in particular moneys collected through tax such as PAYE GST resident and non-resident withholding tax child support and student loans deducted by the company from wages and salaries. 
The thinking behind the preferential status is that the Inland Revenue Department does not have any choice when extending that credit and so there was concern from officials and as we heard the Minister about changing that position. All the submitters said to our committee that if it did not address the issue the whole efficacy of the voluntary administration regime would be affected. They said the Crown priority undermines the effectiveness of the proposed voluntary administration scheme and that the Inland Revenue Department will be put in a position where it will vote against deeds of company arrangements amongst creditors and against any firm going into voluntary administration procedures. The argument they gave was that the Inland Revenue Department in having Crown priority has every incentive to push a company into liquidation because if it does that it has first call on the money. In moving into a voluntary administration regime the Inland Revenue Department has the status of any other creditor and is therefore treated as any other creditor and does not have any special status. So although the Inland Revenue Department could imagine it could get 60 percent of its debt repaid under the current regime its concern was that on moving into a voluntary administration regime where it would stand side by side with a long list of other creditors it would lose its special status and there would be no incentive to get its debt repaid. 
Submitters also argued that the Inland Revenue Department is an inefficient tax collector and in fact if it continues to retain its Crown priority status it does not have any incentive to go out and collect the money. I am not sure about that as an argument because the Inland Revenue Department will get criticised for going too hard on businesses as well as going too soft. 
The final point which I think is the major one is that although New Zealand is basically copying the regime in Australia we are not copying it on the issue of Crown priority. Therefore we are out of step with Australian and British insolvency law as they have not retained the Crown priority. When Inland Revenue Department officials came before the committee it asked them how much would be at stake in respect of taxpayers’ money if we removed the Crown priority—the committee was trying to balance up the benefits of taking away the priority and hopefully moving more companies into a voluntary administration regime and saving more allowing them to trade out of their difficulties. The amount was a very small amount. The Inland Revenue Department officials said there was only about $5 million of taxpayers’ money at stake and the committee felt it was worth considering further very carefully the issue of Crown priority because when it looked at the benefits of ensuring that the voluntary administration regime worked it thought there was merit in doing that. 
 The committee listened very carefully to what submitters said and they were unanimous on this point. So I am interested that the Minister said that although she has listened to information from submitters she is not prepared to budge on that point. I would ask her what she knows that the committee did not and what advice she has received that rebuts or is at odds with the advice the committee received from industry practitioners—people who are involved in insolvency situations every day. The issue of Crown priority is one of the reasons why the National Party will not be voting for this bill—albeit that we will watch its progress with interest. 
Another point we thought was worthy of seeking change on was related to the watershed meeting that creditors have before voting on a deed of company arrangement. In Australia a total of 50 percent of creditors who must make up 50 percent of the value of a debt must be in agreement in order to move to a deed of company arrangement. Here in New Zealand we set the bar a lot higher requiring that 50 percent of creditors representing 75 percent of the value of the debt have to be in agreement before moving into the voluntary administration regime. Many practitioners said that was setting the bar far too high and that it would be almost impossible to ensure that this benchmark was met in order for companies then to vote on moving to a voluntary administration. 
Finally there was a huge area of concern to us about the move to a no-asset procedure for individuals. The National Party thinks it sends the wrong message about personal responsibility when the Government says to people that they can rack up $40000 worth of debt and that once in their life they will have the opportunity to write it off totally—no questions asked all is forgiven. Our view is that a lot of young people in particular many with student loans could use this as an opportunity just to get rid of their debt and start afresh. We believe that people need to understand the implications of taking out debts. To remove people’s responsibility for repaying them sends the wrong kind of message. When has the answer to issues of debt been to forget about that debt and to say that all is forgiven and there will be no consequences? We think that this is a wrong step for this country. The National Party has concerns about this bill and hence will be opposing it in its second reading.