Bennett David: Insolvency Law Reform Bill — First Reading 
Bennett David: Insolvency Law Reform Bill — First Reading 
[Volume:629;Page:1332] 
DAVID BENNETT (National—Hamilton East) 
: 
 After such great representations from the National Party from Pansy Wong Chris Finlayson and Chris Auchinvole who have already spoken on points for and against the bill we have yet to go into the detail of the bill but that will come through in the select committee. However there is a genuine need for reform of our insolvency law legislation. This legislation has suffered from a number of inefficiencies since its last review a generation ago. Insolvency laws are important in providing a framework where individuals and companies that are in trouble financially can as a result of the law repay the creditors of those entities and bankrupt individuals. 
There are some underlying reasons for the need for change. First since the 1960s there has been a change from individuals’ insolvency being caused by business failure to a situation of it being caused by overspending on consumer items. The movement towards a consumer society has meant that those who want to live a certain lifestyle but who do not have the means have had to sustain that lifestyle through borrowing and this has led to insolvency in some cases. Secondly there has been a realisation that many of the processes involved are too restrictive and difficult to progress. Much of this relates to administrative processes and the need to align those with a much more efficient and effective system. 
The first of those reasons relates to the consumer society that we now have and that has been accentuated by the current Government’s economic policy which has favoured a high exchange rate to encourage imports and individual consumption of consumer items. This Government favours a high exchange rate with little regard to the productive face of an export-led economy. It has presided over a continual increase in interest rates on consumerables that have to be repaid leading to poor cash flows for individuals and families. 
This Government has no qualms over increasing the availability of credit. Its student loans policy provides the incentive for young people to borrow more than they need. The Government-owned bank Kiwibank has the most lenient capital lending requirements in the retail housing market. This is a tax-and-spend Government that sends the wrong signals to hard-working Kiwis through its Working for Families package which entails the entrapment of a new generation of New Zealanders into a path of dependency and reliance on Government cheque books. This Government has presided over the decline of a growing economy and has strangled the growth that would have enabled individuals to meet their debts. 
The Labour Government of the late 1980s and the great National Governments of the 1990s set up this country with a strong economic base—a base that this Labour Government has strangled through its obsession with increasing compliance costs overly restrictive labour laws and an excessive taxation regime. There has been nothing to encourage growth—but encouraging spending is something this Government has done. The net effect of low growth and high spending is a higher rate of individual bankruptcy. This Government needs to take responsibility for providing an environment that encourages and downright promotes overspending by consumers. It is an environment complicated by a promise of a “chewing gum Budget” that sized tax cuts leading up to Christmas but since Christmas those tax cuts have been downsized to nothing but a breath of broken promises from this Government. But people should not worry because Cabinet papers supporting this legislation state that the bill complies with the rights and freedoms contained in the New Zealand Bill of Rights Act 1990 and the Human Rights Act 1993—that is all we need! 
In essence this bill provides first for companies that are in financial trouble to restructure under a voluntary administration regime. A form of voluntary restructuring is to be welcomed and although not of the same effect as the US Chapter 11 bankruptcy examples this will assist companies that have a prospect of rehabilitation. There is a welcome move of harmonisation especially with Australia. However there has been some disquiet among commentators over the bill’s failure to preserve tax losses under the voluntary regime. Combined with a requirement to keep Government debts namely PAYE and GST preferences a priority this may also limit the bill’s effectiveness. 
Secondly the bill strengthens the provisions relating to phoenix companies. As some have described phoenix companies are where the directors of a failed company for example company A divert some or all of the assets to a second company company B at less than their economic value. This means that the legitimate creditors and company interests of company A can potentially be defeated—that is a director of a failed company immediately transfers assets to a new company with a similar name to the detriment of creditors. This bill bans failed directors from acting as directors of companies with such similar names including trading names. 
Thirdly there has been a streamlining of the bankruptcy administration process. This includes the use of a no-asset procedure. This will be less punitive on individuals and will carry less social stigma. It would apply to first-time debtors who cannot repay their debts. Those are people who generally through overspending on consumer debts have become unable to meet their commitments. Those people are not adequately dealt with under the current law and many of them are just living life on the edge. Sometimes they are unable to manage the difficult balancing act in the situation they get themselves into. Essentially for those debtors who have found that they are unable to meet their commitments bankruptcy was often onerous and it sometimes had an overly restrictive effect on their ability to function in our society. Under the no-asset procedure there will be a one-off opportunity for individuals with no assets to be subject to a 12-month—rather than the current 3-year—period. There will be an automatic discharge from the no-asset procedure 12 months after the date of admission. 
Under the Cabinet briefing paper discharged bankrupt people’s names are kept on the official assignee’s public register for the following reasons: first knowing whether someone is discharged can affect that person’s creditworthiness and it is useful for credit providers; second it may assist the individual to make a fresh start after his or her discharge. 
Overall the bill proposes to provide a streamlined and more efficient regime for those with financial failure with the minimum necessary compliance costs and with no overly stifled business risk-taking through excessive penalties. It will distribute proceeds to creditors under their prior entitlements unless public interest for greater protection of certain creditors outweighs the cost of such priorities. It will maximise returns to creditors by suppliers by a simpler and more flexible process. It will enable individuals in bankruptcy to participate fully in the economic life of the community and it will bring closer alignment and regulation with international trading partners. 
The bill does provide for reform in an area of overdue need. However the Government needs to take responsibility for the increased potential of personal bankruptcies due to its economic policies over the last two terms. 
Bill read a first time. 
Bill referred to the Commerce Committee.referred to Commerce Committee