Insolvency Amendment Bill — First Reading 
Insolvency Amendment Bill — First Reading 
[Volume:653;Page:2012] 
Insolvency Amendment Bill 
First Reading 
Debate resumed from 12 March. 
JOHN BOSCAWEN (ACT) 
: 
 We are debating the Insolvency Amendment Bill. As I was saying to the House just prior to its rising on Thursday of the last sitting week insolvency is something I know quite a bit about. That is simply because I have been insolvent. I am sure I am not the first member of Parliament to come to the House having been insolvent or to become insolvent after leaving the House. 
In my case I was insolvent for a period of just on 5 years in the late 1980s and early 1990s. I have to say that the first 2 or 3 years of that period was probably the hardest period of my life. It was a time when I had to negotiate with my creditors to arrange the time payment of my debts. I knew that if just one creditor was not prepared to reach an arrangement with me that person could put me into bankruptcy. It was a gut-wrenching experience when a court bailiff came knocking on the door of 5A Kenny Road to give me notice that the National Bank was proposing a mortgagee sale of my property—a very gut-wrenching experience. 
But I was actually very lucky as I was in my early 30s and I had a chance to rebuild my financial position to get on top of my debts and to pay my creditors. I compare myself with the people today—mainly elderly; not totally but mainly—who have lost some or all of their life savings through investments in finance companies. I think what has happened to so many New Zealanders in the last 2 or 3 years is absolutely tragic and I think it is something that this House really needs to look at and look at very closely. It is an issue of real concern. 
In our jobs as parliamentarians we have probably all met constituents who have come to us with tales of loss tales of misrepresentation and tales of fraud and we have all been concerned. It would be very easy to push those stories to one side and say that the money has been lost and that there is not much we can do but I believe that as parliamentarians we have an obligation to investigate that. 
My view was further supported when the Commerce Committee of which I am a member asked the Registrar of Companies Mr Neville Harris to supply a report into his view of the regulatory structure of finance companies in recent times. Mr Harris’s report makes very sorry reading. In some cases losses have been incurred through simple changes in market circumstances. A person may make an investment by lending money to a finance company the finance company may decide to invest that money into a property development there is a change of market liquidity dries up and the borrower is unable to repay that money. The finance company finds itself in a position where it has no alternative but to default on the people who lent it money. 
I believe however we have seen a number of instances in recent times that point to mismanagement malpractice and possibly fraud. I guess one of the many things that concerns me is the issue of finance companies paying dividends to their shareholders in the period immediately prior to finding that they are not in a position to pay back the people who have lent them money. Many tens of millions of dollars have been paid out to those shareholders. 
I am not suggesting that there is necessarily any fraud in those payments and I am not suggesting that the directors have necessarily done anything wrong in authorising those payments to those shareholders. But we have to ask ourselves whether we should allow accounting standards that enable finance companies to capitalise interest to loans to capitalise fees to loans and then to report a profit that does not actually exist in cash and then to take the cash that comes from new investors to pay out those shareholders such that when it comes time to repay the people who have lent the finance company the money that finance company is unable to do so. 
I say that that is a very important issue to raise in the context of the Insolvency Amendment Bill because one of the provisions of our insolvency law is to provide the official assignee with a right to claw back voidable preferences or in this case to claw back gifts. So if a bankrupt person gives a gift to someone and within a short time finds that he or she is not able to pay his or her bills that gift is able to be clawed back. I suggest that one of the things that we as parliamentarians need to consider is whether we need such a provision in respect of dividends. It concerns me that literally tens of millions of dollars have been paid out from finance companies that then tell their lenders that they are unable to pay them back. 
I should point out that there are many reasons why finance companies have failed and I think it is important to acknowledge that some have failed simply because of market circumstances. Mascot Finance for example has been in the news recently. It was the first company to be given a taxpayer guarantee. Mascot Finance reported the fact that one of its borrowers tried to get a resource consent for a project was unable to do so and that there were delays of many years. So the Mascot Finance directors came to the conclusion that they needed to give notice that they may not be in a position to repay. So there can be quite legitimate reasons for finance companies finding themselves in that position. 
I referred earlier to the report of Neville Harris the Registrar of Companies. It was appended to the annual review of the Ministry of Economic Development. Mr Harris raises a number of issues. He raises the issue of corporate governance and he makes the point that there are a number of companies where directors simply did not know what was going on or they were led—or misled rather—by rather strong-willed chief executives. He also raises the issue of lending practices. In some cases finance companies have lent large sums of money to just a very few borrowers so the loans have been very very heavily concentrated and investors have not appreciated the true risk. 
At the annual review of the Securities Commission Jane Diplock made the point as head of the Securities Commission that the commission was required to authorise or approve the prospectus but—certainly as she perceived the law—the Securities Commission had no capacity to monitor that that money was spent as the directors authorised. Mr Harris in his report also draws reference to the role of trustees. The word “trustee” conveys some substance. It conveys the word “trust” but the reality is that a number of trustee companies are simply privately owned. They are probably perceived to be far stronger than they really are and they are perhaps perceived to be far more independent. One of the points that Jane Diplock made was the fact that entering into a relationship between a trustee and a finance company— 
Mr DEPUTY SPEAKER 
: I am sorry to interrupt the honourable member but the time has come for me to leave the Chair for the dinner break. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
JOHN BOSCAWEN 
: Let me summarise by saying that several billion dollars worth of losses have been incurred through investment in finance companies in the last 2 or 3 years. Those losses have been sustained mainly but not exclusively by the elderly and I think that we as parliamentarians owe it to those people to investigate why those losses occurred and what law changes are required to ensure that sort of thing does not happen to that extent in the future. The health of those people is being affected. In some cases their lives are at risk and we owe it to them to give this bill our earnest attention. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Kia ora. Kia ora koe i tenei po. Kia ora tatau e hoa ma. 
[ 
Thank you. Greetings this evening. Greetings to us fellow colleagues as well 
.] 
Sometimes I am sure that the listeners who tune into Parliament on the parliamentary channel wonder at the value of terminology such as the official assignee the no-asset procedure preferential creditor Crown preference and the like. The clutter of that sort of jargon can often blur the perfect meaning. So it is no wonder that a previous attempt at legislation on this matter the Insolvency Law Reform Bill in 2006 attracted only one public submission from the Joint Insolvency Committee. I am told that this joint committee was established by the New Zealand Law Society and the Institute of Chartered Accountants of New Zealand. 
Upon doing some research and investigation into this particular matter the issue of fraudulent debts the corruption of moral bankruptcy and the like I found some information on a famous march on Washington in August 1963. In that march the late Martin Luther King described the Constitution and the Declaration of Independence as a promissory note to which every American would fall heir—the guarantee of the inalienable rights of life liberty and the pursuit of happiness. We know that Dr King was pretty famous and at that time he said these words which are quite neat words actually: “It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honouring this sacred obligation America has given the Negro people a bad check a check which has come back marked ‘insufficient funds.’ But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation.” 
I wanted to share those words when speaking to this bill because the issues of integrity of accountability of honesty and of truth and justice are right at the core of any move to prevent the write-off of fraudulent debt. I say there is no better way to understand fraud than to draw on the links that we know are still relevant in the equal treatment under the law for all people. This Insolvency Amendment Bill on the floor of the House today is designed to close up a potential legal loophole. It amends the Insolvency Act 2006 to prevent people from discharging debts that were acquired fraudulently. In doing so the legislation boasts that it will ensure the integrity of the no-asset procedure. That procedure which is basically an alternative to bankruptcy was created to help people who find themselves in financial difficulty. What it does I am told in practice is to write off debts of up to $40000 for people who find themselves in difficulty and who do not have any realisable assets to pay off those debts. To qualify for the no-asset procedure individuals have to meet a number of stringent criteria including of course the fact that they have no assets. 
The no-asset procedure was all about a fresh start a new beginning to assist people to restore themselves on the pathway forward. It was an intervention that meant they could once again be contributing and productive members of society without having to face the stigma of being declared bankrupt. But the trouble is that the no-asset procedure was never meant to be a way out for those who had obtained debts fraudulently yet that is what has transpired. It is one of the anomalies of the Act that legislation that came into effect to deal with the discharge of fraudulent debts was in itself rewarding dishonesty. We welcome therefore the move to grant financially distressed individuals relief from debts that they may have incurred but not debts or liabilities that have themselves emerged as a result of fraud. 
The bill goes further than that and advances the issue of reporting and registration of those who have had debts discharged under the no-asset procedure. The bill stipulates that the public register should be amended to record the names of those who have had their debts discharged under the no-asset procedure. The information will be retained for 4 years on the public register after a person has been discharged from the no-asset procedure which all seems fairly sound to us. It also proposes that a permanent public record will be kept of those who have been involved in multiple insolvency activities. Information pertaining to an individual applies if a person has had two or more insolvency events and that also applies retrospectively. 
We would be very interested to hear at the select committee from individuals who have been through bankruptcy as to their perception of the extent of the harm that may cause to their future prospects. A key focus for the Maori Party through all the public policy is on the restoration and maintenance of whanau order. We supported the original Insolvency Law Reform Bill because we believed it had a focus on the rehabilitation of companies and the restoration of individuals. We would not want to see those values compromised in the interests of business relations per se. Although we totally support any investment in business growth and encourage whanau to enter into commercial enterprises we also want to ensure that whanau well-being the greater good of the collective is taken into account when considering individual situations of fraudulent activity. 
The key is to try to prevent financial strife from occurring in the first place. So it makes for an interesting synergy today that this bill follows fast on the heels of the Taxation (Business Tax Measures) Bill. We know that tax laws have often contributed substantially to financial distress. The taxation requirements are too costly and cumbersome producing an environment in which small businesses cannot keep up. In addition there is frequently no flexibility from the Crown via the Inland Revenue Department which assumes first place in the queue of creditors to the detriment of other creditors. Although this insolvency bill does nothing to change the tax laws we are obviously in support of the measures included in the business tax measures bill which will have a direct link to preventing financial failure. 
We hope that this insolvency bill will make it a whole lot easier for creditors for debtors and for whanau. It will allow creditors the opportunity to make better-informed lending decisions—an opportunity that cannot be understated in these difficult economic times. It will enhance the integrity of the no-asset procedure which in itself will have a positive impact on the returns to creditors. We hope that the processes introduced in this bill will achieve the difference we need to make in order to keep companies afloat and will impose the minimum costs on users yet at the same time will support innovation and entrepreneurialism. We do not believe that business failure should be excessively penalised by an overly corrective insolvency regime. Our greatest hope is that individuals who suffer the slur of bankruptcy are once again able to participate fully in economic life. It is because of those reasons that the Maori Party will support this bill at its first reading. 
KEVIN HAGUE (Green) 
: 
 I rise to give support to the first reading of this bill but indicate none the less that the Green Party has significant concerns about some of its aspects which I will go into in a moment. Earlier speakers have outlined the merits of the bill and I do not intend to go over them. Certainly the discharge of fraudulent debts the extension of the no-asset procedure and the voiding of insolvent gifts are all measures that are needed and they are supported by the Green Party. However the extension of insolvency registers is not something that we support and we certainly hope that the select committee will take particular care in seeking and examining submissions on that point. Although the other provisions of the bill relate to loopholes that were found to exist in the 2006 Act these provisions do not. In particular the 5-year register for no-asset procedure puts vulnerable people at risk and undermines the intent of the legislation. It violates the clean slate principle upon which the procedure was established and violates the spirit that redemption is indeed possible. This particular procedure was set up for those in unfortunate circumstances such as broken relationships or the suffering of financial issues due to ill health; both are factors that are recognised contributors to debt. 
These people are not big business fraudsters and financial illiteracy will also be a contributing factor in many cases. Putting such people on the 5-year register will reduce their ability to access clean credit from genuine lenders and combined with financial illiteracy will put them at very high risk from loan sharks and further financial distress. Five years is a very long time for some of the people who will pass through this process. Someone who makes bad financial decisions at the age of 22 for example will be likely to be unable to take up a rent contract open a utilities account or take up a mortgage on a first home until he or she is at least 27 and likely to be in a very different place both financially and personally. If that person then experiences a second insolvency event no matter what its size that event will be treated as a bankruptcy and under this bill that person will be on a register indefinitely. Treating the no-asset procedure as one insolvency event therefore threatens the independence of that process from the bankruptcy process. The two-strike register applies retrospectively so the more than 3100 people who have already passed through the no-asset procedure under legislation that guaranteed them a fresh start will now have a permanent register hanging over their heads should they get into financial trouble again. 
The current process is working well. The filtering of applicants has resulted in 35 percent of them being rejected on the latest figures. As the  
National Business Review  
quoted last week the numbers have not in fact been going through the roof as was initially projected by the credit industry. If the no-asset procedure process becomes more punitive through the 5-year register and potential inclusion on an indefinite register it will put people off dealing with their debt until that debt becomes more than $40000. According to an Insolvency and Trustee Service manager Cristian Pardo some debtors see no-asset procedure as a proactive measure to halt borrowing before it hits that level. This protects both them and further potential lenders. 
The Green Party does not want to protect criminals but believes that these people are not the real criminals; unscrupulous lenders and negligent politicians are. The Green Party understands the need for protection from genuine fraudsters especially when savings and financial literacy are so low. This is why we support the first three provisions of the bill and the creation of a register for those with multiple bankruptcies. But the no-asset procedure currently protects vulnerable people from further distress so they should not be included in that register. The real problems are the credit industry that allows debtors to get into unmanageable situations and this House’s failure to take effective action to regulate that industry. For example we are all aware that major banks in the last year have given 95 percent to 100 percent mortgages to first-home buyers with no assets; now we have a predictable raft of mortgagee sales. A  
Sunday Star-Times  
article from 2006 quoted a very typical example of a 20-year-old youth with an annual income below $20000 who was able to rack up debts with three different lenders totalling $19247—of which almost $13000 was for a car. The vehicle was later repossessed and two loans defaulted. 
The latest figures from the office of the official assignee show that 42 percent of those taken into the no-asset procedure describe themselves as beneficiaries. Before the no-asset procedure was in place a Retirement Commission study found that 72 percent of its sample of people who filed for bankruptcies were beneficiaries. A situation where these extremely low-income people can get themselves into significant debt shows how out of control our credit industry has become. These people already have a difficult time obtaining healthy credit and pushing them further towards the loan sharks for 5 years will almost guarantee a further financial crisis. At the same time the mean indebtedness of those in the Retirement Commission study was only $10600. Do we really want to punish and publicly shame people for life for $10000 they are unable to repay? 
The previous Government did not exactly cover itself in glory in this situation. For example credit companies like Veda Advantage can already publicly list those who have been discharged through the no-asset procedure thus corrupting the intent of the law but the Government has not moved against those companies. The Minister of Commerce in 2007 refused to put a cap on the interest rates charged by loan sharks despite advice from community law centres and budget agencies. In September 2008 after a media outcry over Super Loans Hutt Ltd charging debtors 8 percent interest per week the Minister finally admitted that the current situation was appalling and said she was looking at current credit advertising law with an eye to making changes. But it was way too late and the Government was voted out before it could make good its negligent record. 
Financial illiteracy in New Zealand is shocking and problems will continue until it is addressed. In 2007 the Reserve Bank undertook a study that indicated: “New Zealanders are aware of some of the financial issues that they face but they are ill-equipped to make financial decisions. They do not effectively understand the basic financial terms or instruments or more worryingly the concept of risk and return. Furthermore they do not use existing financial disclosures or credit ratings in a manner that would enhance their understanding of financial exposures.” The results of that study show that 53 percent of New Zealanders did not understand compound interest only 8 percent of respondents said they had financial goals and 80 percent were either not aware of mandatory disclosures or did not use them for financial decision-making. In 2007 the Government finally moved to address the complete lack of financial education in our schools. The Retirement Commission has been making some positive gains in this area. However there is currently still no compulsory requirement to teach financial literacy in the school curriculum and there is no provision for it at all in the primary school curriculum. 
The Green Party is glad the Government is moving to close the major loopholes in this law but in an environment where predatory finance companies are free to take advantage of New Zealanders who are not given the basic financial tools to look after themselves these objectionable provisions are a bear trap at the bottom of the cliff. We support the bill going to the Commerce Committee but strongly recommend to the select committee members that they take a detailed look at the full implications of these objectionable provisions. 
KATRINA SHANKS (National) 
: 
 I rise today to contribute to the debate on the Insolvency Amendment Bill. Let me say first how pleased I am that I have been given the opportunity today to speak to this bill which I am enthusiastically supporting. This is an important bill and I am glad it is before the House. I would like to give some background on what the no-asset procedure is for all those people who are listening; we are very good at using these terms that nobody really understands. The no-asset procedure has been described as a soft bankruptcy procedure. It applies only to debtors who have not previously gone through the no-asset procedure or who have not been declared bankrupt and it remains in place for 12 months only. After 12 months the debtor is discharged from the debt owed at the start of the period. It applies to debts between $1000 and $40000. Entry into the no-asset procedure can be refused by the official assignee. The procedure provides a one-off opportunity for financially distressed individuals to avoid the stigma of bankruptcy and enables them to rebuild their lives and that is really really important in the times we are in now when many people are facing financial stress. Many people require this procedure so that if they go into bad times which are no fault of their own but are due to the economic times we are in and they lose their jobs and cannot meet their commitments they will not have bankruptcy hanging round their necks for a very long time. 
This bill amends the Insolvency Act 2006 to address a small number of issues that have arisen since enactment. The Insolvency Act 2006 was enacted as a result of a major reform of New Zealand’s personal and corporate insolvency laws which came into effect in December 2007. The Ministry of Economic Development proposes that the Act be amended to maintain the integrity of the personal insolvency processes and further to enable better access to the respective public registers regarding a debtor’s previous insolvency. The status quo is not working and it is creating many problems. 
Currently the no-asset procedure allows debts that have been incurred fraudulently to be discharged under that process. The bankruptcy laws which the no-asset procedure is a subset of and an alternative to prohibit fraudulent debts that have been written off. This gap in the law contradicts the overriding public policy objectives of the personal insolvency laws which are designed to grant a debtor discharge from all pecuniary liabilities arising contractually while not writing off debts that have their origin in fraud. The law currently provides that all people admitted to the no-asset procedure must be discharged 12 months after entering the no-asset procedure. Unlike bankruptcy the official assignee does not have the ability to extend the period of discharge to properly investigate any late information relating to a debtor’s termination from the no-asset procedure including objections that are received from creditors and other interested parties. This prevents the official assignee from undertaking a thorough investigation thereby undermining the natural justice process that the official assignee is required to adhere to under the Act. That is why extending the period of discharge under a no-asset procedure is a good thing. 
The insolvent gift provisions in the Act allow gifts that have been made by the debtor donor prior to adjudication of bankruptcy to be clawed back by the official assignee for distribution to all the creditors. The insolvent transaction provisions in the Act were amended as part of the overall insolvency reform in 2006 to promote consistency with the voidable transaction provisions in the Companies Act 1993 and further to reflect a modern and simple drafting style. The Act currently provides that any gifts made in the 2-year period prior to the adjudication of the debtor are presumed to be void but this presumption is rebuttable if it is proven that the debtor was solvent at the time of making the gift. The law also provides that any gifts made by the debtor in the 2 to 5-year period prior to the adjudication can be made void but the official assignee has to prove that the debtor was insolvent at the time of making that gift. Basically that is saying that if someone has gifted money and should not have then it can be clawed back. 
The amendments may have inadvertently weakened the voidable gifts provision under the Act and imposed an administrative burden on the official assignee. These have a negative impact on the returns to the creditors. The public register provisions in the Act record details of persons who have entered into no-asset procedures or bankruptcy for 1 year and 7 years respectively. The problem with these specified periods is that they do not allow future lenders or credit-rating agencies access to information beyond these time frames in order for them to undertake a proper assessment of the creditworthiness of an individual. 
This bill preserves the integrity of the no-asset procedure by preventing the discharge of fraudulent debts and bankruptcy by restoring to the official assignee the ability to recover gifts made by the person prior to bankruptcy. This bill also amends the public register provisions to better enable creditors to make informed lending decisions by ensuring that a public record of people who have been discharged from the no-asset procedure is available for an appropriate period and providing for permanent public records where a person has had multiple insolvency events. 
This bill is much needed and I congratulate the Hon Simon Power on all the hard work he has been putting into getting the bill here today. It is all about getting things done which is precisely what National is doing. The public are amazed by the speed at which this Government is making positive changes after 9 years of inaction by the previous Government. I look forward to participating in the Commerce Committee as we examine this bill and as we hear submissions on it. I commend this bill to the House as others before me have done. I am quite pleased to be standing here to support this bill. I am looking forward to seeing it come to the select committee. I am also looking forward to hearing from the submitters who will come forward to the select committee—creditors those who have been put into insolvency those who have been put into bankruptcy victims and the people who have abused the system. I think we should have a good range of submitters coming forward to give evidence to the select committee so we can make an informed decision so as to ensure that there are no loopholes moving forward. Thank you Mr Assistant Speaker. 
RAYMOND HUO (Labour) 
: 
 I rise to support the Insolvency Amendment Bill. It is a good bill but I do have mixed feelings and to some extent concerns about it. This bill amends the Insolvency Act 2006 by addressing a small number of issues that have arisen since its enactment. Running through the bill’s clause-by-clause analysis I note there are generally four such issues that are addressed. The first one is addressed through the bill’s aim to preserve the integrity of the no-asset procedure by preventing discharge of fraudulent debts. The second one is addressed by allowing the official assignee to extend the no-asset procedure period when an objection is received just prior to a debtor’s expected date of discharge from the no-asset procedure. The third one is addressed by protecting the interests of creditors of bankrupts by restoring the official assignee’s ability to recover gifts made by a person prior to bankruptcy. The fourth one is addressed by amending the public register provisions to extend the period of time that the no-asset procedure will be on the record from 1 year to 5 years and providing for permanent public records where a person has had multiple insolvency events. 
The provisions addressing the fourth issue cause concerns in that these provisions have been added to what would otherwise have been a technical bill. A fundamental question behind those concerns is whether we should have a strong separation between the bankruptcy provisions and the no-asset procedure to make it very clear that a no-asset procedure is a one-off once-in-a-lifetime opportunity for a qualified applicant to have a fresh start. As to the public register we know that the public register’s relation to bankruptcy has been 7 years for many years. The 7 years remains for bankruptcy but this bill seeks to increase the time for having the no-asset procedure on the record not for the 1 year the no-asset procedure is in place currently but for 5 years. Last Sunday in Auckland I had a coffee with one of my former clients who had been helped under the no-asset procedure regime. His initial response to the proposed amendment was “What’s the point?”. Indeed what is the point behind the amendment to increase the time for having the no-asset procedure on the record from 1 year to 5 years? 
There are two further observations originating from the provisions addressing the fourth issue. The first one is that with these provisions being added on it is hard to say that this bill is still a technical bill. The second one is that as the Hon Lianne Dalziel said earlier in this House when we change the provisions around the no-asset procedure it will change the number of people who want to contemplate that regime as an option. I believe that that will affect the fundamental rationale behind the no-asset procedure in the first place. 
What is a no-asset procedure? The Ministry of Economic Development website provides a very people-friendly definition: “Applications are made to the Official Assignee … To qualify for entry you must:”—I am sorry Mr Assistant Speaker; “you” here refers to the applicant not you Mr Assistant Speaker—”have no realisable assets … not previously been admitted to the no asset procedure not previously been adjudicated bankrupt have total debts (excluding student loan) not less than $NZ1000 and not more than $NZ40000 … complete a means test showing you have no means of repaying any amount towards your debts. The Official Assignee can refuse entry into the NAP if: your creditor(s) object to entry or bankruptcy proceedings have been initiated and the likely outcome for the creditor would be materially better if the proceeding continued or you have concealed assets or you have committed an act that would be an offence under the Insolvency Act 2006 were you bankrupt or you have incurred debts knowing you had no means to pay them.” 
 As we can tell certain measures are in place to ensure that no-asset procedure is to be implemented appropriately. The no-asset procedure was introduced as an alternative to bankruptcy under the Insolvency Act 2006. It provides a one-off opportunity for financially distressed individuals to avoid the stigma of bankruptcy and to make a fresh start financially. Of course here a fresh start includes the ability to carry on a business and to travel overseas both of which are prohibited under the bankruptcy provisions. That should be a major difference between bankruptcy and the no-asset procedure. 
A two-tier review of New Zealand’s insolvency laws was initiated in 1999. The review included both personal and corporate insolvency matters and resulted in the enactment of the Insolvency Act 2006 the Companies Amendment Act 2006 and the Insolvency (Cross-border) Act 2006. The Insolvency Act 2006 came into effect on 3 December 2007. When the bill was introduced the no-asset procedure was probably the most debated part of the legislation being a very new procedure. Of course I did not witness how the debate unfolded because I was not here in the House at that time but as a commercial lawyer I can confirm that subsequent to the legislation’s enactment and the putting in place of the no-asset procedure the law firm that I worked for experienced a huge upswing in the number of inquiries. It was a good regime. Again it was designed as a one-off opportunity for someone who had otherwise acted in good faith but who had come across a very poor set of circumstances and hardship in his or her life to get a fresh start. Now an amendment has been proposed despite the fact that the Act is less than 3 years old and the no-asset procedure has been in effect for less than 18 months. 
Therefore I say the first three amendments are fine and they are good amendments but the fourth one causes concern. It causes concern for two reasons. Firstly the amendments in the Insolvency Amendment Bill would otherwise be of a purely technical nature and this would be a good bill. Secondly at this time when there is no shortage of disturbing news from around the world it would be much better for the National Government to focus on preventing more insolvency in New Zealand. Where is the National Government’s plan to prevent insolvency? The International Monetary Fund chief economist has advised world Governments to “commit to do whatever it will take to avoid a Depression . . . Above all adopt clear policies and act decisively. Do too much rather than too little.“ What is the National Government’s economic plan? Certainly it will not help raise our productivity or better prepare New Zealand and New Zealanders for the future if all we can see is nothing but the research and development tax credit scrapped KiwiSaver gutted and the New Zealand Fast Forward Fund trashed. Thank you. 
MELISSA LEE (National) 
: 
 I rise to support the first reading of the Insolvency Amendment Bill. It is very interesting to note that the member opposite who just spoke Raymond Huo asked what the National Government has done about the economic situation. Well I say to him that if the previous Labour Government had performed so well in the last 9 years then National would not now be the Government. 
This bill amends the Insolvency Act 2006 to address a number of small but significant issues that National warned the previous Labour Government about when the legislation was previously being debated in this House. Specifically those issues are about the no-asset procedure. Just like the previous speaker I was not in the House at that time but I have read some of the speech notes and  
Hansard 
 records of that debate. The Labour Government did not heed the concerns and issues raised by some of the National members. Since the law was enacted those concerns have eventuated and now we are here to try to fix some of the problems. 
This bill makes two amendments to the existing no-asset procedure which some National MPs have likened to a “get out of jail free” card. We have had serious concerns about the abuse of this section of the current Act. We also make one amendment to the current bankruptcy procedure and one amendment concerning the availability of information about people who have been through both the no-asset and bankruptcy procedures. 
The changes to the no-asset procedure close a current loophole around fraudulent debt. Currently the no-asset procedure allows debts that have been incurred by fraudulent means to be discharged—yes discharged—whereas the bankruptcy law prohibits them from being written off. The no-asset procedure is a subset or an alternative to the bankruptcy law and when the two laws are inconsistent the law must be realigned. This will maintain the integrity of the no-asset procedure process. This means that if any debts are created by fraud or if the debtor has induced someone to write off a debt by means of a fraud then these debts can be enforced after the debtor is discharged from the no-asset procedure. This means that it will no longer be a case of rewarding a dishonest person which I am sure was not the intention of this law when it was introduced. 
The other amendment to the no-asset procedure is the extension of the period of discharge by allowing the official assignee to extend the period of discharge by up to 25 days in order to undertake investigation into any objections or late information about the debtor’s entry into the no-asset procedure—which is by the way voluntary—putting the debtor on a full 12 months’ notice that he or she should come clean with their debts and assets if they have been concealed in any form to avoid paying his or her creditors. This amendment brings the no-asset procedure into alignment with the bankruptcy discharge provision in the Act extending the notice period by inclusion in the register to 5 years. 
The third amendment relates to insolvent gifts. This amendment reverts back to the Insolvency Act 1967 whereby the official assignee does not have to spend time and taxpayers’ money proving that the debtor was insolvent when making gifts within a 2 to 5-year period prior to his or her bankruptcy. This means that a person is disqualified from the no-asset procedure if the official assignee is satisfied on reasonable grounds that the debtor has concealed assets with the intention of defrauding his or her creditors for example by transferring property to a trust. The official assignee can actually disqualify the debtor from the no-asset procedure. 
The onus of proof of solvency in this case—that is solvency at the time of gifting—lies with the recipient of the gift. I think it is wonderful that the official assignee will not have to spend money and time proving that. Gifts made in the 2-year period prior to the bankruptcy are covered by the longstanding presumption that debtors are technically insolvent for a period of time before they file for bankruptcy. If they are giving gifts during that time I think everyone knows that those gifts are made with the purpose of avoiding payment to creditors. 
The final amendment is one that I am sure banks and the public will welcome and some members in this House have also raised some concerns about this issue. At the moment the name of anyone who goes into the no-asset procedure stays on the no-asset procedure public register for only 1 year. The amendment extends that stay on the public register to 5 years. It also provides for the no-asset procedure and bankruptcy public register to be searchable for those who have been subject to two or more insolvency procedures. 
This amendment is not about punishing people who are destitute and who cannot pay their debts; it is about people who actually do it more than once twice or three times. This provision will allow credit agencies or lenders access to information about an individual’s insolvency history for longer. This addresses the concern that the no-asset procedure was too debtor friendly. The rights of the creditor ought to prevail. 
It seems that with these tough economic times people are using the no-asset procedure as a way out of paying their debts. According to bank workers I spoke to last week there is a significant increase in write-offs by banks as a result of no-asset procedures. Because there is not the stigma attached to the no-asset procedure that there is with bankruptcy people seem to not be afraid to enter into the no-asset procedure in order to avoid their fiscal responsibilities. Perhaps with these amendments we may reinforce a modicum of personal responsibility on those people who see the no-asset procedure as a way to avoid paying their debts. 
I look forward to the submissions to the Commerce Committee on these amendments and to discussing and debating them with my colleagues. I commend this bill to the House. 
Dr PAUL HUTCHISON (National—Hunua) 
: 
 Thank you Mr Assistant Speaker Roy for the opportunity to speak on the Insolvency Amendment Bill. I absolutely concur with my colleague Katrina Shanks who mentioned that the Hon Simon Power has once again put in very practical and reasonable legislation that will be useful for diminishing the regulatory regime and also addresses a small number of issues that have arisen since the enactment of the Insolvency Act 2006. 
As many colleagues have commented the no-asset procedure can be described as a soft bankruptcy procedure. As we all know in the United States the stigma associated with bankruptcy is quite different from what it is here in New Zealand. Bankruptcy is known as chapter 11 and quite a large number of people go through this difficult time but over there people are able to get back into business much sooner than people here in New Zealand are. The balance I think has gone a bit hard here. But this bill helps—in a small way—to redress some of the difficulties that people get themselves into for no reason other than minor carelessness or misfortune. 
It is important to point out that the bill applies only to debtors who have not previously gone through the no-asset procedure or been declared bankrupt. Of course the provision remains in place for only 12 months although an amendment allows that period to be extended for 25 days in certain circumstances. The bill applies to debts between $1000 and $40000 so there are indeed restrictions associated with it. The procedure provides a one-off opportunity for financially distressed individuals to avoid the stigma of bankruptcy and to rebuild their financial lives. As I pointed out earlier I see numerous examples day to day at my constituency clinics where for reasons of carelessness maybe but more often for reasons of misfortune individuals find themselves in very invidious positions. This provision is a practical way of helping them and allows them to be in a much less onerous situation than bankruptcy which of course has a 7-year period. 
The bill amends the Insolvency Act. It makes two amendments to the existing no-asset procedure and one amendment to the current bankruptcy procedure. A further amendment applies to both procedures and concerns the availability of information about people who have been through the no-asset procedure or who have been declared bankrupt. The changes to the no-asset procedure are significant in that they close a current loophole around fraudulent debt and that indeed is one of the very strong points about this amendment bill. It also allows further investigation of a person who is undergoing the no-asset procedure and of course that is very important in case fraud is involved. 
There are four amendments to the Insolvency Act. The first prevents fraudulent debts under the no-asset procedure from being cancelled when a person is discharged from the no-asset procedure. The current Act does not explicitly exclude fraudulent debt under the no-asset procedure as it does for bankruptcy. An example of fraudulent debt would be where a benefit has been obtained from the Ministry of Social Development on false grounds such as declaring false details giving an alternative identity etc. I think everybody in Parliament would be most concerned when that happens and would applaud a mechanism to bring in any individual who tries to diddle the Ministry of Social Development and the taxpayer out of funds. 
The second amendment reverts to the provisions in the Insolvency Act 1967 around gifts made in the 5 years prior to the debtor becoming bankrupt. Those provisions put the onus of proving that the debtor was solvent at the time of the gift on the recipient rather than on the official assignee. That is in line with a longstanding presumption that debtors are technically insolvent for a period of time before they file for formal insolvency and that gifts during that time are given for the purpose of avoiding payments to creditors. 
The third amendment relates to allowing the official assignee to extend the period of time that a debtor is under the no-asset procedure by a maximum of 25 working days. It is important to have a degree of flexibility around legislation like this. It allows for the investigation of any late objections or information received about the termination of a debtor’s entry to the no-asset procedure. 
The fourth amendment extends the period of time that a debtor’s name remains on the no-asset procedure and bankruptcy public registers. There may be a slight downside here to that because it means that an accurate credit history cannot be compiled and it increases the business risk once debtors’ names come off the registers. Some of that risk will be carried by the economy and some may be paid for by other clients of the lenders. That is one of the realities that have to be contended with when we introduce legislation like this. It is indeed the balance we have to reach and this provision seems to be very reasonable and practical. 
There is no doubt that these amendments are required to maintain the integrity of the personal insolvency process. They also promote confidence in the official assignee’s ability to administer these processes effectively and efficiently to maximise the return to the creditors. One of the very useful aspects of this bill is that no agencies are created under it. That is very much in line with the excellent National Government’s commitment to minimising any bureaucratic activity. The amendments will be operated within the existing bodies. 
The bill certainly extends the length of time that debtors remain on the register. It complies with the Privacy Act. In extending the length of time for debtors to be on the register it reduces the risk to future creditors. It is also consistent with the overriding policy objectives of the personal insolvency legislation. 
All in all this is an excellent bill that has been brought forward by an excellent Minister the Hon Simon Power. I am very pleased with National to support the bill in its first reading in the House. 
Bill read a first time. 
Hon SIMON POWER (Minister of Commerce) 
: 
 I seek leave to amend the report date by extending it from 12 May 2009 to 28 May 2009 in light of the fact that the first reading of the Insolvency Amendment Bill was not completed prior to the adjournment thereby allowing 2 months in total for consideration at the Commerce Committee. 
The ASSISTANT SPEAKER (Eric Roy) 
: Leave has been sought. Is there any objection to that course of action being followed? There is no objection; leave has been granted. 
Hon SIMON POWER (Minister of Commerce) 
: 
 I move  
That the Insolvency Amendment Bill be considered by the Commerce Committee 
 and that the committee report finally to the House on or before 28 May 2009 and 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). 
Motion agreed to.