Finlayson Christopher: Insolvency Law Reform Bill — In Committee 
Finlayson Christopher: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:5736] 
CHRISTOPHER FINLAYSON (National) 
: 
 Insolvency laws are fundamental to the efficient operation of the State and indeed they have been with us since time immemorial. Under the Roman law of the Twelve Tables creditors might as a last resort cut the debtor’s body into pieces each of them taking his or her proportionate share. Even among the Jews whose legislation was of a comparatively humane character the harshness of bankruptcy law was illustrated by the Old Testament story of the woman who sought the help of Elisha saying: “Thy servant my husband is dead; … and the creditor is come to take unto him my two sons to be bondmen.” I am not suggesting that we have provisions like that in this legislation—and indeed we do not. 
The Insolvency Law Reform Bill is a reform of the 1967 legislation and let it be stated quite bluntly that without doubt insolvency law reform is much needed. Personal bankruptcy laws are currently set out in the 1967 Insolvency Act and they were developed at a time when bankruptcy laws affected more the individual trader. But modern personal bankruptcy tends to be consumer debt - driven and certainly this legislation recognises that shift in society. 
Certain parts of the legislation I think are positive but the bill founders for the reason that National speakers have said—that is that the centrepiece of the bill as the minority report says is voluntary administration. That is the real heart of the new legislation and the voluntary administration scheme which will replace as the minority report says the seldom-used compromise scheme—and I know from my time in practice that it was very seldom used—will not work because of the issue of the priority status for the Inland Revenue Department. As the minority report says unless the Government can address that issue the voluntary administration scheme will be severely compromised. That is why we in the National Party are going to have to divide the Committee on those issues. 
That is a shame because as I said there are some major amendments that are worthwhile. There is amendment of the voidable transaction provisions; amendment of the liquidation provisions of the Companies Act to counter perceived abuses since that Act was passed in 1993; introduction of rules and prohibitions on the use of phoenix companies; modernisation of the laws of personal insolvency—and when we come to Part 2 on the procedure for declaring people bankrupt I will say something about what I think are useful improvements there; as my friend Ms Wilkinson also said introduction of a no-asset procedure for individuals; and what I find particularly interesting concerning what I call the conflict of laws issues of bankruptcy introduction of the model law on cross-border insolvency. 
But if National is to support the bill the issue of the Inland Revenue Department priority will need to be addressed. I went back and looked at the Law Commission’s 1999 paper which dealt with some of these issues. In particular the 1999 report dealt with priority debts in the distribution of insolvent estates. The Law Commission recommended that the priority given to the Inland Revenue Department should not remain. It recommended abolition of the priority for GST customs duties and levies under the Fisheries Act and Radiocommunications Act and it recommended limiting the PAYE priority but only to PAYE in respect of unpaid wages. It recommended that unpaid PAYE relating to previously paid wages should not have priority and that the priority should be retained in certain limited circumstances. So the Law Commission was in favour of that. Moreover New Zealand’s decision to have this model of legislation is out of step with both Australia and the United Kingdom countries with which we have very close legal and trading relationships. For reasons that I will develop later in the debate this model offends the paripassu principle and really as I will say later incentivises inefficient tax collection. So it is a poor policy decision. It needs to be revisited. There were opportunities during the select committee hearings to look at those issues and they were not looked at. As a result of that the legislation is flawed. The Inland Revenue Department’s priority will severely erode the effectiveness of the new voluntary administration procedures. 
Those are preliminary comments; as we get into the substance of the parts I can deal with some of those arguments in detail. But I say in closing that it is a shame that after 40 years—when there is a major need for insolvency law reform because the business laws of our country need to be kept up to date—and after all this time and all this work a couple of provisions in this bill will render it inefficient and impractical law and that is why National is opposing it.