Tizard Judith: Insolvency Law Reform Bill — First Reading 
Tizard Judith: Insolvency Law Reform Bill — First Reading 
[Volume:629;Page:1318] 
Hon JUDITH TIZARD (Acting Minister of Commerce) 
: 
 I move  
That the Insolvency Law Reform Bill be now read a first time. 
 It is my intention that this bill be referred to the Commerce Committee. The bill is designed to give effect to the Government’s overall objectives which were established at the outset of the extensive consultative process that preceded the introduction of this bill. The objectives were: to provide a predictable and simple regime for financial failure that can be administered quickly and efficiently without imposing unnecessary compliance and regulatory costs on its users and that does not stifle innovation responsible risk-taking and entrepreneurialism by excessively penalising business failure; to distribute the proceeds to creditors in accordance with their relative pre-insolvency entitlements; to maximise returns to creditors by providing flexible and effective methods of insolvency administration and enforcement that encourage early intervention when financial distress first becomes apparent; to enable individuals in bankruptcy to participate again fully in the economic life of the community; and to promote international cooperation in relation to cross-border insolvencies. 
The bill accordingly repeals and replaces the Insolvency Act 1967 and amends the insolvency provisions of the Companies Act 1993. New Zealand’s personal insolvency or bankruptcy law was last reviewed in the 1960s resulting in the enactment of the Insolvency Act 1967. This Act is now regarded by many as outdated inflexible and administratively inefficient. The current personal bankruptcy structure—and I am sure members standing in the aisles opposite will be very interested in this—does not reflect modern international practices in relation to personal bankruptcy. 
Corporate insolvency law was amended to some extent by the enactment of the Companies Act 1993. However some of the provisions of the Companies Act still lack clarity and certainty. Most important current corporate insolvency laws do not provide for an effective alternative to winding up companies that would enable the rehabilitation of financially distressed companies nor is there an effective mechanism to deal with the incidences of cross-border insolvency which is important when creditors and assets of the insolvent company are located overseas. 
 That potentially discourages foreign investment in New Zealand which is in itself a limiting factor to the growth of our economy. These problems are further exacerbated by an increase in the number of company liquidations and personal bankruptcies that have provided low returns if any to unsecured creditors. For an insolvency regime to work effectively administrators who are competent and skilled in conducting those affairs are required. While the bill does not currently address the issue of practitioner regulation work in that area is currently under way and decisions are expected to follow late in 2006 after further consultation. 
In light of that background I now propose to outline some of the main provisions and benefits of the bill. It will make the personal bankruptcy procedure undertaken by the Official Assignee more administratively efficient and cost-effective. It is also designed to provide debtors with better access to the bankruptcy regime and alternative bankruptcy procedures in times of financial difficulty where the ultimate goal is to maximise returns to creditors. The introduction of an alternative to personal bankruptcy known as the “no asset procedure”—or NAP—is administered by the Official Assignee over a 12-month period. This procedure is aimed at consumer debtors who do not have assets or any other means of paying their debts. It is not necessary to apply any of the punitive aspects of bankruptcy such as restrictions on overseas travel or owning a business to such debtors. Debtors will have only one chance of entering this procedure and it will apply only to debts up to $40000. 
The bill adopts the Australian voluntary administration regime for companies in financial distress as an alternative to liquidation that allows for a moratorium period so that administrators can assess the viability of the company to continue trading before a decision is made either to rehabilitate it by placing it in voluntary administration or to enter it into liquidation. If a decision to rehabilitate the company is made a deed of company arrangement is executed between the company and its creditors which forms the basis of the administration and contains details of creditors— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: I am sorry to interrupt the honourable member. Honourable members the time has come for me to leave the Chamber for the dinner break. I shall resume the Chair at 7.30 p.m. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon JUDITH TIZARD 
: As I was saying before the dinner break the Insolvency Law Reform Bill the first reading of which we are dealing with adopts the Australian voluntary administration regime for companies in financial distress. This regime is an alternative to liquidation that allows for a moratorium period so that administrators can assess the viability of the company to continue trading before a decision is made either to rehabilitate the company by placing it in voluntary administration or to enter into a liquidation. If the decision to rehabilitate the company is made a deed of company arrangement is executed between the company and its creditors that forms the basis of the administration and contains details of creditors the amount of debt and the time over which the debt is to be repaid. Essentially this allows a company to have a voluntary plan to continue trading while managing its debts. 
Improvements to the law relating to cross-border insolvency are also included in the bill. The bill adopts the United Nations Commission on International Trade Law model law on cross-border insolvency. The model law will provide effective and efficient mechanisms for dealing with cases of cross-border insolvency and debt recovery particularly where assets of the insolvent company are held in an overseas jurisdiction. The model law will not come into force in New Zealand until Australia also adopts the United Nations Commission on International Trade Law model. Also given that it is our largest and closest trading partner Australia has announced that the model law will be included in its Corporate Insolvency Reform Bill which is intended for introduction later this year. 
Provisions in the bill have been introduced to restrict the abuse of phoenix company structures by directors of a failed company with the intention of defeating the legitimate interests of creditors. The bill proposes to restrict the directors of failed companies reusing the name of the failed company and it provides for criminal sanctions where the directors of a company act in bad faith to defeat creditors’ legitimate interests. The changes proposed in the bill will eliminate the potential benefit to the directors thereby providing fewer incentives for directors to abuse phoenix company arrangements. The changes proposed in this bill strengthen New Zealand’s insolvency laws. In particular the bill brings our personal insolvency laws up to par with international standards. The changes proposed to corporate insolvency laws provide for an alternative to liquidation for financially distressed companies. They restore the integrity of phoenix companies and pave the way for cross-border insolvency proceedings when overseas creditors and assets are involved. 
Overall this is a balanced reform that not only meets the concerns of both creditors and debtors but also has greater benefits for the New Zealand economy as a whole. I look forward to it being thoroughly examined by the Commerce Committee.