Wong Pansy: Insolvency Law Reform Bill — In Committee 
Wong Pansy: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6038] 
PANSY WONG (National) 
: 
 Part 3 concentrates on the very detailed technical procedures of the duties and responsibilities of the assignee and how the assignee will supervise where an organisation has gone into liquidation. Part 3 also lays out whom the preferential creditors are. I will concentrate on two aspects of those provisions. I know that the Minister in the chair Lianne Dalziel is well known for her willingness to answer queries and address issues and I look forward to that. A lot of the people who raised the issue who are actually unsecured creditors rightly will be quite cynical about legislation that has so many detailed provisions about what an assignee can do etc. Will the end result be beneficial? Is there anything left for the unsecured creditor after a bankruptcy? 
I will share with members a very high-profile case which is one of the many bankruptcies that happen in a year. This high-profile bankruptcy happened in Wellington to a restaurant called Kopi. What happened is quite interesting. The proprietors owed the Inland Revenue Department $1.2 million in unpaid PAYE and income tax and also related penalties and interest. The  
Dominion Post 
 article on this high-profile bankruptcy included an interview with an unsecured creditor a Richard Young of Molesworth Fruit Supply. He wrote off $28000 that was owed by the restaurant proprietor and he reckoned that his chances of winning first division Lotto are higher than getting his money back. I am sure that Richard Young’s statement would be echoed quite frequently by unsecured creditors. 
I think maybe the Minister might like to take a call to say that we have gone through all the deliberation stages and whether there was anything that she felt has been seen as a significant improvement to the legislation whereby the assignee would be better able to look after the interests of unsecured creditors. They are not the only ones who mentioned that winning first division Lotto would be easier than getting any residual money from a bankruptcy. 
The other issue I want to return to is the $1.2 million owed by the couple to the Inland Revenue Department in unpaid PAYE income tax and penalties. The bankruptcy record shows that the liquidators were appointed on 20 February 2005 but apparently the proprietors stopped paying PAYE deductions from their employees’ pay packets in 1998. They had stopped payment for 3 years. Then in the tax years ended March 2002 and 2003 they paid only a fraction of their personal income tax and one of them paid nothing at all in 2002. We all know that failing to pay PAYE is an offence as is the persistent non-payment of personal tax. I wonder why the Inland Revenue Department had not instigated any action against this couple for the non-payment of taxes for 3 years from 1998. 
Part 3 continues to protect the Inland Revenue Department’s secured preferential creditor status and I think the Minister might like to take a call and say why an entity such as the Inland Revenue Department is so lax in terms of compliance action. We are being asked today in this Committee of the whole House to approve this part that includes a provision to continue to protect the Inland Revenue Department’s position as a secured creditor. I emphasise that this is not a single example. A powerful department like the Inland Revenue Department has all the tools at its disposal. If it had taken action to liquidate the company earlier it might be that the unsecured creditors and other creditors would have benefited from it. 
That is not an isolated case. Let me share another case with the public. I am sure that my very good hard-working colleague from the West Coast Chris Auchinvole would join me in citing this case. This is a company on the West Coast that went into liquidation. During the hearing in the High Court at Greymouth the very very good mining town Justice Christiansen described the Inland Revenue Department as lurking in the background like a shark waiting to consume failing companies. Why did he say that? He said that because this was an attempt by the department to liquidate a possum skin company called Gray Fur Trading. 
Justice Christiansen said that the company owed almost $200000 in overdue income tax and GST. That is fair enough. But the court was told that almost half of that amount $100000 was added on in penalties. The initial debt was closer to $90000 but it had ballooned since 2003 and the department did not take any action or correspond with that company until October 2004. A powerful Government department did not take action that could have benefited unsecured creditors and then on the initial debt of $90000 it charged $110000 more to liquidate the company. In the event nobody benefited. We on this side of the Chamber need to be convinced why the department’s preferential creditor status needs to continue to be protected. 
Then of course recently the department released a discussion document and said it was going to waive some penalty tax. If a company can prove that it has taken reasonable steps to address or reassess its tax position the department might be a bit lenient in terms of the penalty test. I do not think it is good enough. I think the fact that National members on the Commerce Committee put up a very strong case for questioning the department’s continued protected preferential creditor status has somehow led the department now to issue a discussion document about being a bit lenient on certain penalties incurred by those companies. 
Those two very high-profile examples are not untypical. In fact they are quite representative of the position because liquidators the people involved in the insolvency petitions have come before our committee and said that lots of times they have felt for the unsecured creditor. They said that the position of companies was aggravated largely because for example the department failed to take early action or alternatively the department’s preferential creditor position has made sure that it does not take very quick action to recover some of those payments which do not even belong to the department or to the company because the company is simply a collecting agent.