Wilkinson Kate: Insolvency Law Reform Bill — In Committee 
Wilkinson Kate: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6057] 
KATE WILKINSON (National) 
: 
 I hate to interrupt my learned colleague because I am sure the quality of his speech was a lot better than the quality of mine will be but none the less I rise to speak to Part 8 which deals with voluntary administration. This should have been very good legislation and Part 8 should have been a very good part of it. But unfortunately it is flawed because the Inland Revenue Department is retaining and clinging to its priority status. This means we do not have a level playing field which is unfair and means that this legislation is flawed. 
I am somewhat surprised that despite all the submissions to the contrary this Government has still insisted on retaining the spurious Inland Revenue Department priority. A Government that values the opinion of Chapman Tripp so very very highly in other matters has disregarded its opinion in regard to Part 8 and in relation to the Inland Revenue Department’s priority. Way back as early as April 2006 it said in its  
Counsel 
 brochure which we all received a copy of: “We consider the likely effectiveness of this procedure given the policy decision to retain Inland Revenue’s priority in liquidation. We conclude that by retaining this priority there is a significant statutory incentive for Inland Revenue to vote against voluntary administration and in favour of liquidation in order to make a better recovery. It is our concern that if the first wave of voluntary administrations are undone by Inland Revenue voting against restructuring and rehabilitation plans then the new voluntary administration regime may well lose the confidence of the market.” 
I have a fear that that will indeed happen. In its  
Counsel 
 magazine Chapman Tripp went on to say: “In any voluntary administration Inland Revenue will be a significant creditor. If the Inland Revenue priority is retained Inland Revenue will be compelled to evaluate its recovery out of voluntary administration against its recovery out of a liquidation. If a company is in liquidation the Inland Revenue priority debt ranks ahead of all other unsecured creditors. In voluntary administration unsecured creditors will expect to be treated equally with Inland Revenue in accordance with the pari passu principle (which provides that all creditors in a class are treated equally).” By retaining Inland Revenue priority there is a statutory incentive for Inland Revenue to vote against a voluntary administration and in favour of liquidation to make a better recovery. It may even be that Inland Revenue decides that notwithstanding the general merits of a voluntary administration restructuring plan … it has a statutory duty to vote in favour of liquidation and priority recovery because”—as Mr Tremain has already pointed out—“the Commissioner’s statutory duty is ‘to collect over time the highest net revenue that is practicable within the law’ (section 6A Tax Administration Act 1994). If Inland Revenue is compelled to vote against voluntary administration restructuring plans then the prospects of New Zealand’s voluntary administration regime achieving the success of its Australian counterpart are slim. The opportunities that voluntary administration provides to maintain value for all stakeholders may be lost to the commercial community.” 
The fatal flaw in this bill and in this part of the bill is the clinging to the Inland Revenue Department’s priority status. If the department becomes the preferred creditor it will receive the proceeds of liquidation before other unsecured creditors. Why would it vote for a voluntary administration that would then put it pari passu with other creditors when it can easily outvote the other creditors and easily have its preferred status? 
Can I repeat some of our minority view in the commentary on the bill. Yes we agree that the centrepiece of the bill is the voluntary administration scheme which replaces the seldom used compromise scheme. I can vouch as a practitioner of 29 years standing that the compromise was seldom used.