Power Simon: Insolvency Amendment Bill — First Reading 
Power Simon: Insolvency Amendment Bill — First Reading 
[Volume:652;Page:1954] 
Hon SIMON POWER (Minister of Commerce) 
: 
 I move  
That the Insolvency Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the Insolvency Amendment Bill be referred to the Commerce Committee for consideration that the committee report finally to the House on or before 12 May 2009 and that the committee have the authority to meet at any time while the House is sitting except during oral questions during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
This bill amends the Insolvency Act 2006 in order to address a small number of significant issues that have arisen since it came into effect in December 2007. Unfortunately—and hence the shortened time frame for the select committee to consider this matter—these changes have become even more pressing in the light of the expected impact of the current economic downturn on rates of insolvency. Having said that by introducing changes designed to preserve the integrity of the personal insolvency processes—namely the new no-asset procedure and bankruptcy—this bill is also timely because it aims to provide more protection for creditors and potential creditors. 
The no-asset procedure or “NAP” was introduced as an alternative to bankruptcy in December 2007 as part of the new Insolvency Act. Debtors may be eligible for a no-asset procedure if they have no realisable assets that can be sold to pay their creditors they have not entered into a no-asset procedure or a bankruptcy process before and they have debts of between $1000 and $40000 with no other means to repay them. 
By enabling individual debts of up to $40000 to be written off the intention of the no-asset procedure was to grant financially distressed people relief from liabilities that were incurred contractually. However the Act does not explicitly exclude the discharge of fraudulent debts leaving open the possibility that debts such as fraudulent social welfare payments could be wiped under this regime. Rewarding dishonesty was never the intention of the Act and clearly contravenes the fundamental policy objectives that underpin insolvency laws. The changes proposed in this bill stop fraudulent debts from being written off and will apply retrospectively to debtors who were in the no-asset procedure process when this bill was tabled in the House 3 days ago—a slightly unusual step but a necessary one—and to those who have entered no-asset procedures since them. 
To further protect the integrity of the no-asset procedure the bill also proposes to empower the official assignee to extend the period of discharge under a no-asset procedure by a maximum of 25 working days. This allows more time for the official assignee to investigate any new information or creditors’ objections that are received at the eleventh hour in relation to a person’s eligibility for the no-asset procedure. When the no-asset procedure allows someone to forgo up to $40000 in debts it is essential that any new information that may relate to concealed assets or debts can be brought to the attention of the official assignee right up to the day that person is discharged—hence the change. Such information could lead to the no-asset procedure process being terminated if an entrant is found to be concealing assets or debts from the official assignee. 
The bill also proposes to restore the official assignee’s ability to recover gifts made by a bankrupt prior to his or her bankruptcy. The insolvent gift provisions in the Act were inadvertently weakened in the 2006 insolvency law reform making it difficult for the official assignee to deal with gifts made to a third party in the period leading up to a person’s bankruptcy. The changes proposed in this bill will ultimately ensure that creditors are not out of pocket as a result of those gifts being made. The bill will allow contingent liabilities to be included in the assessment of the bankrupt’s insolvency at the time of making the gift and will cancel any gifts that are made in the 2-year period prior to a person’s bankruptcy. This 2-year time frame is consistent with the longstanding presumption that an individual is technically insolvent for a period of time before he or she files for formal bankruptcy proceedings. It is often within this period that those individuals shift assets set up trusts etc. to avoid paying creditors. The bill shifts to the recipients of gifts the onus of proof of a debtor’s solvency for the purpose of gifts made in the 2 to 5-year period before he or she was adjudicated bankrupt by the official assignee. 
Finally the bill proposes to increase the length of time a debtor’s information is kept on the no-asset procedure public register. Currently someone under the no-asset procedure regime remains on the register only for as long as the no-asset procedure lasts which is 1 year. The bill increases the time period on the register to 5 years from the date of entry. I will be interested in the select committee’s views on that matter. Furthermore where a person has been through multiple insolvencies it is proposed that his or her information will be permanently retained on the register. This information will be publicly available enabling credit-rating agencies and providers of credit access to make informed decisions about doing business with these individuals. 
Costs incurred by businesses that transact with bad debtors become a drain on the economy particularly as these costs are eventually passed on to everybody else. The changes proposed in the bill will strengthen New Zealand’s personal insolvency laws. I commend this bill to the House.