Dalziel Lianne: Insolvency Law Reform Bill — Second Reading 
Dalziel Lianne: Insolvency Law Reform Bill — Second Reading 
[Volume:633;Page:5175] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Insolvency Law Reform Bill be now read a second time 
. The bill will reform New Zealand’s personal and corporate insolvency laws. It will streamline the personal bankruptcy process and provide individual debtors with greater alternatives to bankruptcy. The bill encourages investment and innovation by providing a new business rehabilitation regime known as voluntary administration for New Zealand companies that are insolvent or on the verge of insolvency. The adoption in the bill of the United Nations Commission on International Trade Law model law on cross-border insolvency further encourages foreign investment and promotes efficiency in conducting cross-border insolvency cases for the benefit of New Zealand creditors. 
The Commerce Committee has considered the bill and reported back in support of the key principles behind it. The committee has recommended a number of amendments to better reflect the policy intent of the bill. I would like to discuss some of those changes because I think the committee has assisted a great deal in fine-tuning this bill. 
The committee has recommended some important refinements to the proposed new no-asset procedure scheme. The Official Assignee will be able to apply to the court for a preservation order over the assets of a debtor who misled the Official Assignee or concealed assets at the time of making an application for entry to the no-asset procedure. Assets would be subject to the preservation order until the application for the debtor’s adjudication of bankruptcy is heard by the court. This will prevent the assets from being on-sold or dissipated and will therefore preserve the assets for the future benefit of creditors. 
The committee recommended a further change to the no-asset procedure that relates to the creditor’s right to object to a debtor’s entry into the no-asset procedure. Creditors are no longer restricted to a set number of days within which they can object to a debtor’s entry into the no-asset procedure. Therefore creditors can raise objections while a debtor is in the process thus providing a check on the debtor’s honesty and integrity. The changes recommended by the committee not only tighten the no-asset procedure and prevent abuse of the process for the benefit of all creditors but also protect in my view the integrity of the no-asset procedure. 
The committee has also recommended that a summary instalment order register be established for debtors who are in summary instalment arrangements with their creditors to pay the debts. This register would be maintained in the same way as the current bankruptcy register and the proposed new register for debtors under the no-asset procedure. The register will alert potential creditors that a debtor is currently subject to a summary instalment order and assist them in making an informed decision before entering into a credit transaction with the debtor. 
On the issue of appointment of liquidators the committee recommended that a company be restricted from going into voluntary liquidation and appointing a debtor-friendly liquidator at the eleventh hour when there is a pending creditor’s application to wind up the company before the court. The bill now provides that a company can voluntarily liquidate and appoint a preferred liquidator within 10 working days of receiving a notice from the court advising that a creditor has applied to wind up the company. The petitioning creditor will have the ability to ask the court to review the appointment of the liquidator chosen by the company. This amendment to the bill allows for a liquidator to be appointed who is objective and looks after the interests of the creditors. This amendment also preserves the company’s right to place itself into voluntary liquidation to prevent further deterioration of the company’s financial affairs and assets to the future benefit of all creditors. 
The changes in the bill to voidable transaction provisions have raised concerns amongst practitioners that it would be costly for a liquidator to set aside transactions and charges as the liquidator would have to start a court proceeding where a creditor objects to a liquidator’s decision to make a transaction void. I agree with the committee’s recommendation that when a notice of objection to a transaction is lodged it should contain full particulars of the reasons for objecting as well as specifying the documents that substantiate the objection. This should assist the liquidator to make an informed decision on whether to pursue the matter further in court to make the transaction void or uphold the transaction as valid. This will reduce the liquidator’s costs and give creditors more certainty in their dealings with the insolvent company. 
In addition to the amendments I have already highlighted the committee has recommended a number of other amendments that clarify the policy intent of the bill some of which I will mention briefly. The committee has recognised that solvent liquidations do not pose any risks to creditors and has allowed the solvent company to appoint a person as a liquidator if that person or that person’s firm has provided professional services to the company in the previous 2 years. In order to safeguard the interests of creditors these persons cannot be appointed as liquidators in an insolvent liquidation. 
The bill now where appropriate reflects the terminology and definitions used in the Personal Property Securities Act 1999 thus avoiding confusion for practitioners. With the increased threshold for entry into the summary instalment order process under the bill the committee has recommended that the supervisor should provide at the request of the Official Assignee any document under the supervisor’s possession or control that relates to the debtor’s property conduct or dealings. This provides a check on the supervisor and is consistent with the Official Assignee’s responsibility for administering the summary instalment order process under the bill. 
Recognising that a bankrupt can still make payments towards his or her debts while in bankruptcy the committee has proposed that the bankrupt be obliged to disclose any change in his or her income to the Official Assignee. This will allow the Official Assignee to adjust contributory payments being made to creditors by the bankrupt. Liquidators currently have the responsibility of reporting any offences committed by the company or any director officer or shareholder to the relevant authorities. The committee recommended that the same responsibility should be extended to administrators of the proposed new voluntary administration regime. 
 I would also like to mention the recommendation of a majority of the committee to maintain the Crown’s priority as the preferential creditor in the bill. Under the Companies Act the Inland Revenue Department is listed as the preferential creditor which means that the payment to the Crown of PAYE GST resident and non-resident withholding tax child support and student loan payments are prioritised over payments to unsecured creditors of the insolvent company. One of the main objections to the retention of the Inland Revenue Department’s preference was the concern that it could undermine the new voluntary administration regime proposed in the bill. I agree with the recommendation of the majority of the committee that retention of the Inland Revenue Department priority will not undermine the new voluntary administration regime. 
I further agree with the committee’s recommendation that the Australian-style director penalty notice provision—which is the quid quo pro if the National Party is saying that that is what we should do—should not be adopted in New Zealand to replace the Crown’s preferential creditor status. If the National Party’s position is that there should be Australian-style director penalty notices then I am happy to inform New Zealand business that that is the position of the National Party. The director penalty notice provisions make the director of the company personally liable for the company’s tax debts if he or she does not take the appropriate action to pay the Australian Taxation Office within a certain time period. The select committee was concerned—by a majority and in my view rightly so—that not only would that be a significant increase in directors’ liability and walking away from the whole principle of limited liability companies but it would erode the fundamental concept that is the premise of our company law. 
The committee received a number of submissions recommending the regulation of insolvency practitioners. Officials are currently working on a discussion document for public consultation on this issue which will be released in the next few months. It is expected that any policy proposals on the regulation of insolvency practitioners will be reported to Cabinet mid to late next year. 
The Insolvency Law Reform Bill is an important part of the Government’s economic transformation agenda. This becomes evident when we look at the objectives that have been set and achieved through the legislation: to encourage investment by providing a predictable and simple insolvency regime that can be administered quickly and efficiently for the benefit of local and overseas investors; to promote innovation and entrepreneurialism by providing companies with alternatives to liquidation; to promote international cooperation in cross-border insolvency cases where assets of New Zealand companies are held in different jurisdictions; and to provide better returns to creditors involved in both personal and corporate insolvencies. 
I wish to thank members of the Commerce Committee for their work in considering this bill. I know they gave it detailed consideration. I would also like to acknowledge the helpful contribution of submitters. I commend this bill to the House.