Wong Pansy: Insolvency Bill Companies Amendment Bill Insolvency (Cross-border) Bill — Third Readings 
Wong Pansy: Insolvency Bill Companies Amendment Bill Insolvency (Cross-border) Bill — Third Readings 
[Volume:634;Page:6173] 
PANSY WONG (National) 
: 
 Business failure is a difficult time for all concerned but unfortunately it is an integral part of operating a business. National agrees with the objectives as outlined by the Minister of Commerce of the major review of insolvency law that has been carried out since May 1999 and that has resulted in this current legislation. The objectives—rightly so—are to make a simple and predictable regime to maximise the returns to creditors to not stifle innovation and also to encourage businesses to work their way back. The Minister credits this legislation as complementing the Government’s objective of economic transformation. Business recovery has to be a major part of that and that is why National has spent so much time discussing the centrepiece of the original Insolvency Law Reform Bill the voluntary administration scheme. This scheme is aimed at giving people who have taken responsible risks but have ended up in the unfortunate position of being insolvent an opportunity to recover their businesses. 
During the review undertaken by the officials they concluded that New Zealand’s current business rehabilitation law is seldom used and seems to serve little real purpose either in terms of salvaging businesses that are essentially sound but have got into difficulties or in terms of increasing the returns to creditors. They found that assisting business recovery was difficult. The reasons are that at the moment during a situation of insolvency only four options are available. The first is that the bank appoints a receiver. Usually that means the business assets are sold the bank calls on the directors’ personal guarantees and nothing is left for anyone else. The second option is to appoint a liquidator. Once again the business assets are sold and usually the amount recovered is quite insignificant in terms of benefiting other creditors particularly unsecured creditors or in terms of enabling the business to work itself out of that situation. Option three is to attend an out-of-court restructuring which is always difficult because it requires all creditors to agree. The last option is to attempt a creditors’ compromise. Unfortunately because there is no provision at the moment for a moratorium—during which the creditors do not enforce payment—it is quite difficult for all the creditors to adhere to not enforcing payment. 
So we know that the current law does not help businesses get out of a difficult financial position. But the Commerce Committee members learnt during the very useful and informative submissions from the many submitters that in many instances the major creditor is the Inland Revenue Department. 
At this juncture I would like to pause to acknowledge formally the generosity of the submitters who largely were involved in insolvency practice. They provided sound and technical submissions with practical illustrations to the committee. I am sure that I speak on behalf of all its members when I say that we found them very beneficial and we are indebted to them. I also acknowledge the work done by the officials and the support they gave because the original bill was very large and technical. 
Many submitters quoted examples that they had seen of the Crown preference for outstanding PAYE and GST being of such a substantial amount that it would not allow the company to trade into the future. The Minister tries to defend the Inland Revenue Department by saying that it is not a voluntary creditor but one has to question why the department allows individual businesses to get behind with that money which they hold in trust for and collect on behalf of taxpayers. Why does it allow a business to hold on to it for so long that it becomes a problem for that business and for other people? The department should be more proactive in enforcing the collection of those deductions which technically are trust money held by the business. 
The slackness of the department’s attitude has a lot to do with it. The fact that the department knows that it enjoys preferential creditor status is the reason it was suggested by many submitters the department is a bit relaxed about enforcing those payments. The department knows that it enjoys preferential creditor status if a business gets into trouble. Therefore it allows the directors or proprietors to start to use that money which does not belong to them as cash flow in order to cover the problems of the business. One could argue that if the Inland Revenue Department were to take action more promptly it either would minimise the losses of all the other creditors or might force the company to take action in those difficult times. 
One high-profile reported business failure concerned a Wellington restaurant. The Kopi restaurant went into liquidation and it was reported that it had not handed over PAYE deductions for 3 years. It took another 3 years for the Inland Revenue Department to take any action. One supplier who was owed $28000 by that restaurant has described his chance of recovering his debt as being less than that of winning a first division lottery ticket. One has to be fair to unsecured small creditors. They do not have the benefit of being able to refuse to give credit to a lot of their customers. So who is looking after their interests? Certainly we know that the Labour Government does not care about them. 
In another court case in Greymouth Judge Christiansen described the Inland Revenue Department as “lurking in the background like a shark waiting to consume failing companies”. The reason he made that statement was that the failed company that was the subject of the case had initially owed the Inland Revenue Department $90000 but eventually penalties etc. took that debt to $200000. There was nothing left for any unsecured creditors. 
The conclusion is that the current business recovery options do not work. One of the key decisions that the officials recommend is to introduce voluntary administration. The Minister continues to misrepresent the situation. The voluntary administration scheme is not modelled completely on the Australian case and it is not true that National would jump on the idea of increasing the directors’ liability. The Commerce Committee was presented with the option of limiting the Inland Revenue Department’s preferential creditor status to a time period or to a certain type of deduction and I found it offensive that some Labour members stopped the select committee from continuing to debate a real viable option. 
I also want to pose a question to United Future which claims that it is looking after small-business people: why is United Future choosing to protect the Inland Revenue Department ahead of small businesses—and the same goes for New Zealand First? We understand that Labour of course is trying to protect the inland revenue. It is famous for grabbing as much tax as possible which it can then use to bribe all sorts of sectors or even to produce its pledge card for electioneering purposes. National opposes the legislation because we believe that the Inland Revenue Department’s interests should not be placed ahead of small-business people. Unsecured creditors and business people who genuinely get into trouble should be given a real chance of working themselves out of those financial difficulties.