Insolvency Law Reform Bill — In Committee 
Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:5733] 
Insolvency Law Reform Bill 
In Committee 
Part 1 Interpretation and scope 
Dr RICHARD WORTH (National) 
: 
 As will be apparent from the material before members National has some real difficulties with this bill. There is no doubt that it was well-intentioned legislation and I think it is always a tragedy when commercial legislation of some significance does not attract support across the Chamber. Clearly it was intended that this legislation have that support. 
I simply note in dealing with Part 1 that the concerns of National are set out in a minority report that appears in the commentary on the bill. It is noted there that National opposes the bill and in saying that the bill is being touted as the first major review of company and personal insolvency law in four decades those members of the National Party who participated in the deliberations of the Commerce Committee enter their reservations. Those reservations are substantially centred on the concept of voluntary administration and we also have reservations in respect of the no-asset procedure. There will be an opportunity to talk on those two issues later in the context of the legislation. 
It is interesting to reflect on why it was seen as necessary to change the title from “bankruptcy” to “insolvency”. Bankruptcy has a very settled meaning—a meaning that is well established in history—and insolvency is somehow seen as a softer and in some sense a more kind word. Bankruptcy which is of course what insolvency is is a legally declared inability or an impairment of ability of an individual to pay his or her creditors. It can arise in two main ways. First of all a declared state of bankruptcy can be requested by creditors in an endeavour to recoup a portion of what they are owed but in the overwhelming majority of cases the bankruptcy is initiated by the bankrupt individual or organisation. 
I have said that this concept of insolvency has a long history. Without getting involved in that history to any great extent it is interesting that in the Old Testament Moses’ laws prescribed one “holy year” that should take place every half a century when all debts were eliminated amongst the Jews and all debt slaves were freed due to the heavenly command. Of course in Ancient Greece as the Minister in the chair the Hon Lianne Dalziel nodding wisely will know bankruptcy did not exist. If a father owed—and since only locally born adult males could be citizens it was fathers who were legal owners of property—and he could not pay his entire family of wife children and servants were forced into what was called debt slavery until the creditor recouped losses via their physical labour. Many city states in Ancient Greece limited debt slavery to a period of 5 years and debt slaves had protection of life and limb which regular slaves—mostly war prisoners—did not enjoy. 
Finally just on these historical matters and I will be able to deal in greater substance with other parts of the bill at later calls the word “bankruptcy” is formed from the ancient Latin “bancus”—a bench or a table—and “ruptus” which means broken. A bank originally referred to a bench that the first bankers had in public places in markets and fairs on which they tolled their money and wrote their bills of exchange—that type of activity. So when a banker failed he “broke his bank” to advertise to the public that the person to whom the bank belonged was no longer in a position to continue his business. This practice was very frequent in Italy and it is said that the term “bankrupt” is derived from the Italian “bancarotta”—a broken bench. But enough of that. 
Part 1 covers in a preliminary way some key provisions and I will turn to those now. First of all clause 3 has interpretation provisions and possibly of some relevance is the definition of “current summary instalment order”. 
MARYAN STREET (Labour) 
: 
 It is my pleasure to rise to speak to this Insolvency Law Reform Bill and to have been on the Commerce Committee during the progress of this bill—which the previous speaker was not. I would like to get to the point of the National Opposition’s minority view on this bill because there was much more unanimity on this bill around the select committee table than would be indicated by National’s blanket opposition to the bill as it stands. 
There were two points on which National decided to oppose this bill just for the sake of it. One was to do with the issue of voluntary administration and it hinged around the creditor status of the Inland Revenue Department. This status means that when a company goes into liquidation or elects to go into a voluntary administration regime the department has the first call upon the moneys owing. I will explain in case members opposite do not understand the significance just what that means in practical terms. 
First of all the department’s priority status is absolutely essential. If workers in a company that is going under are to receive the payments due to them the department has a claim on PAYE GST child support payments and other welfare payments that are due to it. It seems to me that it is right and proper to retain the department’s creditor status in order to ensure that the moneys due—as those moneys are—are not misappropriated by companies and allowed to be used to pay for other things. We did hear examples of companies that have not paid PAYE but have banked that money for 1 2 or 5 years and have used it to employ additional staff. That is not correct by any yardstick or measure. 
Those were particular examples but there is a general principle at issue as well—that is the department has entitlements that must be observed. When we looked into some of the examples we found that the department could perhaps improve its processes. Even by its own admission it said it could improve its processes for extracting the entitlements that are due. So we tightened up provisions in this legislation to ensure that where payments due were defaulted on for two pay periods or more they were then brought to the attention of the directors so that the directors did not go on blindly with the default position and not pay the due entitlements. That is an example of a particular application of the department’s creditor status. 
Beyond that and I alluded to this earlier is the general principle of the Inland Revenue Department’s creditor status. The department is required by law to make sure that it receives the entitlements due to it—and that is the basis of the department’s priority—so there is no reason for the Opposition to oppose this bill on that count. 
KATE WILKINSON (National) 
: 
 In speaking to the Insolvency Law Reform Bill I would like to make some comments in rebuttal of the previous speaker’s concentration on the Inland Revenue Department’s status and in particular the priority in relation to wages. The Inland Revenue Department’s four-pronged priority status remains—it is not just in relation to wages but also to GST and withholding taxes. It is interesting to note that the Law Commission report itself recommended abolition of this priority yet for some reason the bill retains it. If we look at some of the criticisms made in commentary relating to the Inland Revenue Department’s priority status we see that they include such comments as: “New Zealand’s decision to retain the Inland Revenue priority is out of step with Australia and the United Kingdom offends the pari-passu principle and could be seen to incentivise inefficient tax collection. For these reasons alone the decision to retain the Inland Revenue priority is a poor policy decision and should be revisited.” Yet that seems to have been ignored in this bill. 
It has been commented that the policy decision in relation to the Inland Revenue Department requires consideration because it conflicts with the goals of introducing a business rehabilitation regime and harmonising trans-Tasman business laws. Unless reconsidered the Inland Revenue Department voluntary administrators and general unsecured creditors will have great difficulty in effectively implementing the new voluntary administration procedure. Some have said that while the Inland Revenue Department still has preference the voluntary administration will be a waste of time. One of the questions that has been raised is why an administrator would bust a gut to trade a company out of trouble just so that it can pay the Inland Revenue Department. In fact one of the final verdicts on voluntary administration is that it will create a new dimension for the insolvency industry but it will not be a panacea. 
The main problem with insolvency as we all know is that there is rarely enough money to pay all the creditors everything they are owed. Insolvency law provides a system that kicks into place in the event of financial failure and if we look at why businesses or people become bankrupt or insolvent or go into liquidation we see that it is not all because of reckless or irresponsible trading. According to 2004-05 figures about 3000 people filed for bankruptcy that year. Of those 15 percent attributed their bankruptcy to the excessive use of credit facilities extravagance gambling or speculation; 35 percent to unemployment or loss of income; 10 percent to relationship breakdowns; another 10 percent to ill health or absence of health insurance; and the final 10 percent to adverse legal action or the incurring of liabilities due to giving personal guarantees as collateral for bank loans or failed businesses. Personal guarantees as we well know are often secured by way of collateral mortgages and therefore such guarantors do not rank as unsecured creditors and do not have to line up in the queue. 
With any financial failure there is only so much money to go around and not all creditors will get their money back. Some are secured and are the lucky ones; others need to line up and get a proportion. Under this bill the new voluntary administration procedure is introduced and this is one of the most significant reforms in the bill. It is not unlike the receivership provisions we have in existence at the moment. Some of the problems that often surround receiverships are the cost of those receiverships and the stigma attached to them. It is not unlikely that a stigma will also be attached to voluntary administration under this new regime. 
Under the bill when a company enters into voluntary administration an administrator is appointed to operate the company. Again that is similar to a receiver under the existing receivership rules. The administrator reports to creditors and at the end holds a meeting of creditors to determine whether the company shall be liquidated returned to the directors or be entered into a restructuring plan. There are similarities with the receivership regime but under this new bill the deed of company arrangement requires approval from 50 percent of creditors receiving 75 percent of the value of a company’s debt. Effectively this means that a creditor holding 26 percent of that debt can quite easily defeat that deed of company arrangement which in effect defeats the liquidation. If the Inland Revenue Department for example were that creditor then it would be able to defeat any plan for voluntary administration. As a preferred creditor it is also able to receive the proceeds of liquidation before unsecured creditors. 
The Australian experience which has been used as a comparison in many cases indicates that most companies entering into the voluntary administration arrangement are in fact subsequently liquidated. However the argument in favour of it is that it may provide a more orderly liquidation and the opportunity to negotiate with creditors. In theory it allows the directors to refocus from if you like the firefighting to active business improvement so that the company may then be able to trade out of its difficulties. But it is certainly not the panacea that the bill purports it to be. The Inland Revenue Department’s four-pronged priority is certainly an issue we take issue with and on that basis National is opposing this bill. 
I would like to speak later in relation to the no-asset procedure scheme but I am aware of the time restraints and I will let my colleagues take further calls on this part of the bill. 
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. 
Hon DAVID CARTER (National) 
: 
 I rise with pleasure to take a brief call on the Insolvency Law Reform Bill. I listened with interest to the previous speakers Kate Wilkinson and Chris Finlayson and I thank Chris very much for the history lesson around the earlier ways of solving insolvency difficulties. I am pleased that the legislation as proposed by the Labour Government does not include some of those more historic means of sorting out these problems. 
I think it is a shame that National is in a position whereby it has to oppose this legislation. Law that has been on the book for such a considerable length of time clearly needs to be revised and it is a pity because a reasonable idea around voluntary administration has actually been corrupted by this legislation which is basically incompetent. The legislation introduces voluntary administration which is a process used widely around the rest of the world but it will fail in this country because the submissions to the Commerce Committee have been largely ignored despite the fact that the committee did not receive a lot of submissions—there were 11 submissions only. I understand from National members on the select committee that they were significantly in support of the principle of voluntary administration but said that where it will fail is in the greed of the Government and the Minister of Finance in maintaining the priority status of the Inland Revenue Department. 
I think the Minister in the chair Lianne Dalziel should take a call in the Committee stage and tell us what other countries around the world have established insolvency legislation incorporating voluntary administration while still retaining the priority right of the revenue department of that country to get the first claws on the money. I would be grateful if the Minister would answer that question because I suspect the legislation is before the House with special preference being maintained for the Inland Revenue Department for no other reason than the Minister of Finance being able to come in at question time and crow about a Budget surplus of $11.5 billion. Surpluses of that magnitude it seems to me are one good reason why in this legislation the Minister in charge Lianne Dalziel could have given thought to accepting the work of the select committee and the well-researched well-regarded submissions received by the committee acknowledging that voluntary administration could work and in fact would work if the principle of priority status being given the Inland Revenue Department were removed. That is the major point that I want the Minister to take a call on. 
It is all very well for the National members of Parliament to come in and work hard at opposing the bill in the Committee stage but a Minister who either does not understand the legislation or just cannot be bothered answering the questions legitimately raised by National members is frankly not good enough. So I say to the Minister that she should give us a very simple answer to the questions I have raised. Which of the countries where voluntary administration works and works successfully have maintained a preferential status for the revenue department of those countries? That is the essence of the debate. That is the reason the National Party finds itself having to oppose the legislation. It simply will not work practically or fairly because of that preference being retained by the Inland Revenue Department. 
DAVID BENNETT (National—Hamilton East) 
: 
 As we debate this bill it is important to look at the history behind the legislation which has been thoroughly exposed by some of our great members with legal minds and also some of the reasons why one would want to have legislation such as this. When one puts such strength and urgency on the Inland Revenue Department’s ability to retain first call on the money the question must be raised that David Carter just raised: why would one want to do that? It is quite simple. The Government wants to retain these huge Budget surpluses so that in election year it can have a big spend-up to buy the votes of ordinary New Zealanders. It has done that before and it will do it again. This is just another example of the tax-and-spend Government we have here today. 
But there is another reason the Government wants to build up finances: so that it can pay for its election campaigns. Today we have seen evidence of that in the Auditor-General’s report. It is good that we have the former president of New Zealand First Doug Woolerton in the Chamber to make comments about the Government’s spending. Look at this. New Zealand First took $90540 in 2005 and $59906 in 2006. A total of $150446 of hard-working New Zealanders’ money went to those guys so that they could sit in those cushy chairs. That is what this legislation is about. It is about raising money. It is about paying for their own election campaigns and that is shocking. 
Hon David Carter 
: It is corruption. 
DAVID BENNETT 
: It is corruption corruption on a grand scale across the whole of that side of the Chamber. But when one has that corruption one has to look at the reality of what this bill actually means for individuals out there who are dealing with high credit. We have a Government that has provided an economy that has high interest rates and a high exchange rate. That has encouraged people to buy a lot of consumer goods—all that increase in availability of credit. The student loan scheme is another example. It is teaching the wrong lessons to young New Zealanders about the availability of credit. Kiwibank will loan 100 percent of mortgages. Those kinds of things open credit availability for ordinary New Zealanders and that is when people get into trouble and that is when they need legislation that looks after them and looks after the companies and individuals who supply money to them. 
If one walks down the streets of New Zealand these clothes traders are quite obvious—basically trucks that go around selling very expensive clothing in the poorest areas of our country. It is very difficult to see how a Government can allow that kind of increase in personal debt and at the same time allow the Inland Revenue Department to have first preference over ordinary New Zealanders who have high debt levels. What have those New Zealanders got? They have a Government that looks after the Inland Revenue Department and does not attack the high debt that gets those New Zealanders into trouble. If they did not have this high debt they would not need legislation such as this. But no this Government is quite happy to let that happen because it does not care about those people. It knows best. It knows so well that it does not even follow the international examples. It is willing to walk away from the Australian example. 
That is why National members are opposed to this bill. There was the ability for this Government and this country to have taken on board some of the lessons learnt internationally—lessons in regard to voluntary administration and lessons that would enable all New Zealanders to work a way out of any problems they may encounter. 
The CHAIRPERSON (Hon Clem Simich) 
: Would the member please come back to clauses 3 to 6. 
Hon Clayton Cosgrove 
: What clause is the member on? Tell us. 
DAVID BENNETT 
: Clause 3 “Interpretation” clause 4 “Rights and powers under other Acts not affected” and clause 5 “Act binds the Crown”. Well an Act binding the Crown! That would be an unusual thing in this Parliament would it not? Imagine if those members were actually bound by something in legislation! They would just change the legislation. Why bind oneself; just go and write another one a year later! They do not need to be bound by legislation. I thank those members for allowing us to look at the binding of legislation. 
Chris Tremain 
: Retrospective! 
DAVID BENNETT 
: Yes let us just do retrospective legislation. That will keep everyone happy. But do these guys want us to go through how the Act will bind the Crown? Clause 6 explains that corporations and other entities are not subject to this Act. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to Part 1 of the Insolvency Law Reform Bill but before I do that I will just outline the legislation that is the key reason why National is not supporting the voluntary administration regime. It is section 6A of the Taxation Administration Act which makes it clear that it is the Commissioner of Inland Revenue’s statutory duty to “… collect over time the highest net revenue that is practicable within the law …”—and Mr Woolerton might want to listen to that little clause again because he obviously was not listening. It is section 6A of the Taxation Administration Act which he probably has not taken much time to read during his time in Parliament. That is a very important point because it sets the Inland Revenue Department’s priority to collect above all others what is owed to it in terms of PAYE GST and various other things. Section 6A of that Act outlines the department’s statutory obligations which lie at the very heart of why National will vote against this bill. 
Voluntary administration lies at the very heart of this bill. In fact voluntary administration has been introduced under this bill in accordance with New Zealand’s obligations—and this may be news to Mr Cosgrove as well—under the 2000 Memorandum of Understanding on Coordination of Business Law. In a nutshell National believes that voluntary administration has significant merit but only under the right conditions because it is only with the Inland Revenue Department having it on a level playing field with non-secured creditors that voluntary administration will work. 
 National believes that the retention of the Inland Revenue Department’s priority status above unsecured creditors coupled with the responsibility to collect over time the highest net revenue that is practicable within the law will ensure that the department will be in favour of liquidation and recovery for itself as opposed to supporting voluntary administration. We believe that without the department’s support voluntary administration is doomed from the start which is why we do not support this bill. 
The minority view from National states: “All the submitters on [the voluntary administration] provision were unanimous in their view that unless the Government addresses the issue of the priority status for IRD the voluntary administration scheme will be severely compromised.” It goes on to state: “We do not believe that Parliament should pass another piece of redundant legislation when there is a groundswell of opinion from practitioners who believe that it will not work without the removal of the Inland Revenue’s priority status.” 
Let us review some of the merits of voluntary administration. As I said to Mr Cosgrove when I enlightened him on this legislation voluntary administration was introduced under the 2000 Memorandum of Understanding on Coordination of Business Law. It aimed to replace the seldom-used compromise scheme already available to companies in financial distress. A lack of incentives to get a majority of creditors to consent to a compromise has been the reason for the lack of use of that part of the older legislation. 
Voluntary administration was introduced in Australia in the early 1990s. It has had some degree of success there largely because the Australian office of taxation has had its priority status reduced—and we will talk about the reasons why that was able to happen over there later on. Many other jurisdictions have now introduced it. I think that is one of the reasons why we did not look at some of the other jurisdictions such as the United Kingdom where voluntary administration had been introduced without increasing director responsibility or liability which is what happened in the Australian model. 
Voluntary administration allows an insolvent company the court or secured creditors to put a company into voluntary administration and to appoint a voluntary administrator. While the company is under voluntary administration there is a stay on creditor enforcement. I think that is a key point because the voluntary administration process allows a business to trade out of a difficult position and gives it time to review its profitability and its ability to trade out and to restructure its balance sheet and move on. The administrator manages the company calls meetings of creditors and develops a structuring plan on which creditors are able to vote. A majority of creditors determines whether the company is restructured— 
GEORGINA BEYER (Labour) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 66 
New Zealand Labour 50; New Zealand First 7; Green Party 5; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Motion agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to clause 3 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 70 
New Zealand Labour 50; New Zealand First 7; Green Party 5; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Amendment agreed to. 
Part 2 Nature of bankruptcy and process of being made bankrupt 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I will take just a brief call to explain this part. It provides for the application by a debtor for his or her own adjudication and bankruptcy. Previously a debtor had to apply to the High Court for adjudication. Now the application will be made to the official assignee. As was the case before the adjudication is automatic on the application being made. The only procedural requirement is that the debtor must first file a statement of affairs with the official assignee which allows the official assignee to advise debtors of alternatives to bankruptcy and of their best option. The reason I am spelling it out is that this part is a very technical restatement apart from the change to that one aspect of the existing law. 
CHRISTOPHER FINLAYSON (National) 
: 
 I will take just a brief call on Part 2 of the Insolvency Law Reform Bill because as the Minister in the chair the Hon Lianne Dalziel says it deals with the essential nature of bankruptcy and the process for being made bankrupt. 
Although the National Party is opposing this bill for reasons we have already elaborated on one of the good things about it is that it does away with old-fashioned terminology. Under the old regime one needed— 
Hon David Carter 
: Would Winston have understood it then? 
CHRISTOPHER FINLAYSON 
: I will explain the Winston hypothetical in a few seconds. Under the old regime one needed to petition the High Court if the bankruptcy notice was not complied with within a particular time. Now of course that terminology has gone and the High Court Rules will need to be amended. 
Part 2 deals with what happens if someone fails to comply with a bankruptcy notice. Let me give the Committee this example. A person has proceedings struck out against a member of Parliament in a defamation case and incurs costs. The plaintiff is told to pay those costs but refuses to pay them. Time goes by and the impoverished and excitable defendant gets upset about that. So how does the defendant go about recovering his or her costs? He serves a bankruptcy notice in accordance with clause 29 of this legislation. The bankruptcy notice obviously has to be in the required form and it sets out the amount that the successful defendant in the defamation case wishes to recover from the plaintiff. If that notice is not complied with then the actual bankruptcy proceedings may begin. 
There are a couple of points on adjudication that I want to address briefly. The court has a discretion as to whether to adjudicate a person bankrupt. I refer to clause 36: “The Court may at its discretion adjudicate the debtor bankrupt …”. Indeed the court may refuse to adjudicate in certain circumstances and they are set out in clause 37. It is sometimes thought that bankruptcy will follow simply because the notice has not been complied with. Well that is wrong. I can recall at least one case where the court looked at the situation after the time for complying with the bankruptcy notice had expired and decided that it would not be just or equitable to declare the debtor bankrupt. 
I have one or two concerns about the debtor application procedure. It seems to me that it is almost too easy for a person to go into bankruptcy under this legislation. Clause 45 sets out the circumstances when a debtor may file an application. A debtor may file such an application with the assignee if he or she has combined debts of $1000 or more which is peanuts. I wonder whether the figure should be more substantial particularly bearing in mind the costs to the Government of administering bankrupt estates and the steps for example that the assignee must take after bankruptcy which are set out in this part as well. 
One or two changes have been made to the legislation as it has gone through the select committee. For example clause 24(2) talks about execution process. As the majority report stated the term “charging order” has been deleted because it is not a form of execution process. I wonder whether the Minister ought to check whether the terminology referred to in that clause will continue for very much longer—writs of sale possession arrest or sequestration—because I have an idea that the High Court Rules Committee is completely redoing Part 6 of the High Court Rules dealing with execution. I have a feeling that some of that terminology will change. So if the terminology is going to change in the High Court Rules it should also be changed in this legislation and a couple of Supplementary Order Papers may be required—although I suppose it will be a bit too late to do that. 
Part 2 does not contain anything too magical; it simply sets out the nature of bankruptcy and the process of being made bankrupt. Apart from some of the minor points I have made I have no particular objection to this part but of course we have overriding objections to the bill that colour the way we will look at it. 
Hon DAVID CARTER (National) 
: 
 I was not going to take a call but I was again intrigued at the contribution made by Chris Finlayson who talked about a member of Parliament being sued for defamation and having to move the case to the High Court and seek a strikeout—with some success. I assume that Chris Finlayson was referring to my action involving the current Minister of Foreign Affairs the Rt Hon Winston Peters. 
My question to the Minister in the chair the Hon Lianne Dalziel is whether there is any change to the way in which bankruptcy papers are served on the person from whom one is chasing money. In my particular case I had huge difficulty serving the bankruptcy papers on the Rt Hon Winston Peters. Of course after this case was successfully struck out in the High Court costs were awarded to me of about from memory $13000-odd— 
Shane Jones 
: Oh chicken feed! 
Hon DAVID CARTER 
: Well it might be chicken feed if one double-dips in the way that Shane Jones does but in my case it was quite a significant amount of money. 
Despite repeated attempts through solicitors to get Mr Peters to front up and pay his due bills it became a matter whereby the only way we could make progress was to try to serve some bankruptcy papers on the Minister of Foreign Affairs the Rt Hon Winston Peters. The Minister may be interested to know that in my particular case it was quite difficult to do so because the officer serving the papers asked where he lived in Wellington. We looked up the electoral roll and of course Winston Peters was not on the roll in Wellington. He appeared to be of no fixed abode which made it quite difficult. 
Craig Foss 
: Hummingbird. 
Hon DAVID CARTER 
: In fact I suggested that the guy go to Courtenay Place and just hang out there for a while and eventually he would find him. 
The long and the short of it was that on one occasion we were able to find him when we knew he was going to have a beer at the Back Bencher. 
Hon Member 
: Did that work? 
Hon DAVID CARTER 
: It did work. Ultimately after a lot of soul-searching and a lot of time—and no doubt more cost—we managed to catch up with the Rt Hon Winston Peters to serve bankruptcy papers on him as he walked into the Back Bencher on Molesworth Street. 
My simple question to the Minister in the chair is whether this legislation in any way makes it easier to serve bankruptcy papers on any member of the public or any Minister of the Crown who owes money and repeatedly refuses to pay it. From my recent experience when a person lives a fairly nomadic lifestyle—as the Rt Hon Winston Peters does—it becomes quite difficult to track that person down. So it is a relatively simple question for the Minister. She struggled to answer the question we put to her earlier but in this case we hope she is a little better briefed on the legislation. We ask whether this legislation in any way changes the current provisions for the serving of bankruptcy papers on any person particularly the Rt Hon Winston Peters when he does not pay his bills. 
NATHAN GUY (National) 
: 
 It is great to take a call in the Committee stage of the Insolvency Law Reform Bill. Parts of this bill seem pretty reasonable. We have heard from Mr Finlayson that he agrees in principle with the part we are on to now but some parts of it seem absolutely ridiculous. Let us talk a little about voluntary administration. 
Hon Lianne Dalziel 
: No it’s not in this part. You can talk only about the part we’re dealing with. 
NATHAN GUY 
: It is great that the Minister in the chair Lianne Dalziel is keeping up. It is interesting that 27 submissions were received on this bill but those submissions were not actually heard in essence. The considerations they made were not taken into account in this part at all. 
The concern I have is about the priority status the Inland Revenue Department will have around— 
Hon Lianne Dalziel 
: It’s not this part—wait until you get to it. 
NATHAN GUY 
: I am just pre-empting it I say to the Minister. I am just warming up for that part. My concern is that the Inland Revenue Department will still have its hand out. With this priority status it will still be there clipping the ticket. In fact when we look at the tax take of this Government at $11.5 billion—that is a “b” not an “m”—surely it would consider that for those individuals who are under financial pressure the department should not be there being the first cab off the rank. 
I will talk a little about the no-asset procedure. Giving individuals the ability to write off debt reduces down— 
The CHAIRPERSON (Hon Clem Simich) 
: Clauses 7 to 100—would the member speak on anything relating to those clauses please. 
NATHAN GUY 
: They are all related to that matter Mr Chairperson. Actually the paramount concern is that this has been reduced down from 3 years to 12 months and the write-off to $40000 when in fact personal responsibility should be the essence. What will happen is that small businesses those creditors—the electricians and the plumbers—will all be punished under this bill. Small businesses will be dealt a cruel blow. 
In speaking to Part 2 the interesting thing for those start-up businesses is that they are struggling under regulation and compliance costs now. It was interesting that the results of the survey—which the Minister will know all about—recently done by 1400 businesses showed that the compliance costs for small businesses are $3000 per employee. This is shocking and it is causing small businesses a whole lot of unnecessary red tape. The big thing is that we need less regulation. My concern for the small businesses is that when debtors hang them out to dry on the 20th of the month and they are waiting for a cheque to come—and I have been in that situation in a small business when a truckload of bulls has been sent off to a meat company and we wait and wait to see whether the cheque will come from the meat company—it can be extremely nerve-wracking. Mr Roy I am sure has also been in that situation before. Debtors are a big concern for people in small businesses. 
We have a bad culture in this country of spending beyond our needs. We have a low-growth economy and a high-spending Government. It is no wonder that individuals become bankrupt. It is interesting when I look at a statement made by Michael Harper a partner with Chapman Tripp. He summarised it pretty well: “However what is most disappointing and ironic is that the most significant risk to the government ambition of introducing and implementing a successful rehabilitation procedure will be the government itself.” 
Hon Lianne Dalziel 
: Part 2. 
NATHAN GUY 
: So we have some concerns about this bill. For the reasons I have just alluded to—in speaking to Part 2—we will not be supporting it. 
Rt Hon WINSTON PETERS (Leader—NZ First) 
: 
 Can I just say that I was rather interested while listening to the radio and not being in the Chamber to find that one of the most critical issues concerning the National Party in respect of the Insolvency Law Reform Bill is the question of service. Apparently a fellow colleague who is usually in this House at the same time that I am—probably to no effect whatsoever mind you—decided that he could not find his colleague so he had to come to the launch of the Back Bencher exhibition which I was launching to serve notice. 
It takes a certain type of character and a certain type of personality to think that the right thing to do is to attack a parliamentary colleague—but not while he is in the House and can defend himself. Oh no! He waits until his colleague is not there. It is a sort of “ambush ‘em in the back” tactic. He is the kind of person who would if he were in the army demand a job as a sniper a long way away from the action where he could shoot from a position of safety without ever having to confront the enemy. 
It takes a certain type of character to decide that despite the fact that his colleague is a very well-known New Zealander—I might just say that humbly myself—he could not find him in New Zealand. He had to come to the launch of the Back Bencher exhibition which I was launching because that was the only place he and his lawyers could serve notice on me. Does anybody in New Zealand believe that? 
Shane Jones 
: No. 
Rt Hon WINSTON PETERS 
: No they do not. 
Hon David Carter 
: I raise of point of order Mr Chairperson. 
Rt Hon WINSTON PETERS 
: Oh he cannot take it—I knew that. He can dish it out but he cannot take it. 
Hon David Carter 
: I am happy to take it but the member might also like to tell the Committee that parliamentary laws do not allow the service of such documents in the precincts of Parliament which is where we would have wanted to do it if the member had allowed us to do so. 
The CHAIRPERSON (Hon Clem Simich) 
: The member should not have raised that point of order; it is a matter of debate. I say to the Rt Hon Winston Peters that we are debating Part 2. 
Rt Hon WINSTON PETERS 
: I know Mr Chairperson but— 
The CHAIRPERSON (Hon Clem Simich) 
: I am still talking. I have allowed the run-in to that because I know the member will get to it. I have allowed whatever the member is saying as being in rebuttal—fine. 
Rt Hon WINSTON PETERS 
: In the circles in which I mix we talk of nothing else and that is why I am taking part in this debate. 
Here is the point. Briefly there for a while every good New Zealander would have thought we had a problem with the issue of service and our insolvency laws. That of course is the last problem we have. We have problems in other areas but the country yokel does not know that. And now David Carter tells me what the rules are in respect of the Parliamentary Service! I make it very clear that every parliamentarian can waive his or her rights to not being served in this House as I have done. In fact when Russell McVeagh sued me I went down to their offices and got the writ off them. Mind you what happened to the case? They sued me for millions in a gagging writ—[ 
Interruption 
] One of Mr Carter’s friends of course. 
Hon Clayton Cosgrove 
: Which friends? 
Rt Hon WINSTON PETERS 
: Russell McVeagh—they are friends of Mr Carter. Of course a while ago Mr Carter yelled out: “Pay your bills!”. Well let me just tell members about this issue. Mr Carter thinks he is winning because I had to pay him $8000 which I did happily. It was not a problem; it was a mere bagatelle—I am only a poor country boy! 
I will ask you a question Mr Chairperson because I know you are a man of the law. How much do you imagine Mr Carter has paid his lawyers so far? Who is winning here? I gave him $8000; he paid his lawyers $95000 so who is winning? It ain’t Mr Carter! More important let me tell members what happened in this huge matter on which he wanted service. He went to the court and said: “You know all those horrible things I said about Winston Peters when he was away from New Zealand? I didn’t mean at all that he was a corrupt human being in any way shape or form.” Mr Carter is a big lion in the media and a lamb when he is faced with— 
Dr Richard Worth 
: I raise a point of order Mr Chairperson. This speech is way out of order. You have properly given to the Rt Hon Winston Peters an opportunity to make some short rebuttal comments. This has no relationship at all to Part 2. He is abusing the privilege of being a member of Parliament in not speaking to the part. 
The CHAIRPERSON (Hon Clem Simich) 
: Thank you for raising that. 
Hon Clayton Cosgrove 
: I distinctly heard Mr Peters draw to the Committee’s attention the need for one to pay one’s bills and various things like that. If one cannot pay one’s bills that leads directly to the issue of insolvency. The member opposite Dr Worth is a lawyer; I would have expected him to make the connection. But I am happy to outline it for him and I am sure Mr Peters is as well. 
The CHAIRPERSON (Hon Clem Simich) 
: Thank you for helping me out there. The right honourable member was speaking in rebuttal but he has touched on matters that are relevant to this part more than most members have done so far in the debate. 
Rt Hon WINSTON PETERS 
: I have to be frank here. I never thought for a moment that in all the halls of jurisprudence in this country the issue of service was what was concerning them. I never thought for a moment given that there are lawyers in the National Party like Mr Worth— 
Hon Member 
: Who? 
Rt Hon WINSTON PETERS 
: Mr Worth. 
Hon Lianne Dalziel 
: Dr Worth. 
Rt Hon WINSTON PETERS 
: Well Dr Worth—on a good day! I never thought for a moment that Dr Worth had appraised his party of the fact that this was the No. 1 issue concerning insolvency law reform. But you see this party is split three ways. That is why the C-team came along today and said: “You’re qualified Dr Worth. I know nothing but I’ll take this issue on and have a go in the Chamber.” That is why I have responded. 
I am trying to address the issue of service because apparently it is a huge issue. I want to make one little point though. The service was effected. There was no problem paying the bills. But it is amazing that someone who is so bold outside the House and all around Parliament should say—in the conniving sneaky way that bespeaks his whole professional life—of all things when he gets to court: “I never meant any of the words I said about him. I cannot understand how it came about.” 
There is another little thing. It was reported to me that this man said about Gerry Brownlee: “If you’re talking about the fat fella from Fendalton forget it.” That is what Mr Carter said recently. 
Hon Clayton Cosgrove 
: You’re joking! 
Rt Hon WINSTON PETERS 
: Oh yes. He was asked about the leadership of the National Party and he said: “If you’re talking about the fat fella from Fendalton forget it.” 
Lindsay Tisch 
: I raise a point of order Mr Chairperson. You cannot allow the member to go on in this fashion. It was brought to your attention previously in the 5-minute speech that he is completely out of order. We are debating a bill—quite specifically what the bill is about. I ask that you instruct the member to be brought back to the bill. 
Hon Clayton Cosgrove 
: In speaking to the point— 
The CHAIRPERSON (Hon Clem Simich) 
: No. 
Hon Clayton Cosgrove 
: This is very important. This goes towards decorum in the House. 
The CHAIRPERSON (Hon Clem Simich) 
: Are you trying to help? 
Hon Clayton Cosgrove 
: I am indeed. You know me. I just ask for your advice given that Mr Peters told the Committee what Mr Carter said about his own colleague which I will not repeat. It is unparliamentary for a member to say such a thing and I take offence on behalf of Mr Brownlee. I call on Mr Carter to withdraw and apologise to Mr Brownlee. 
Hon David Carter 
: I can assure the Committee that I did not ever make those comments. Mr Peters cannot prove that at all. I did not make those comments. 
The CHAIRPERSON (Hon Clem Simich) 
: I know where we are on this matter. David Carter quite correctly tried to use examples in speaking to Part 2 but he did refer to another member of Parliament specifically for his example and I think it is right that I allow the counterargument from Mr Peters in the time that he has. I have done that and he has referred many times to issues in Part 2. He is entitled to have time for a rebuttal and he is doing that. 
Rt Hon WINSTON PETERS 
: Part 2 is about the nature of bankruptcy and the process of being made bankrupt. Because that is not “service”; it is the process of being made bankrupt. I for a long time in my legal career have been very concerned about the total process of insolvency and some of the unfairness arising from it. I am bringing to the Committee’s attention the character of a person who would have a go at a guy who is not in the Chamber when he knows he could have waited or given me some notice and I would have been here. 
But let me say why I am not surprised. When that member was the National Party whip whose duty it was to support his leader he was the numbers man for Jenny Shipley against Jim Bolger. His whole career is filled with that sort of behaviour. That is why I mentioned his quotes to somebody inquiring about the National Party leadership when he said: “If you’re talking about the fat fellow from Fendalton forget it!”. That is what he is like. He is probably as nice as pie in the caucus to Gerry Brownlee. He is probably as nice as pie to everybody else. But he is a seething mass of discontent and backstabbing when he is away in private. 
Dr RICHARD WORTH (National) 
: 
 Just while the Rt Hon Winston Peters is in the House I have to say that his comments were a gross abuse of the Committee stage of a bill. But I want to deal with Part 2 of the Insolvency Law Reform Bill in a very precise way and before doing that I will just make two quick preliminary comments. The first comment is that this particular bill merited close consideration by the Commerce Committee and by a number of Labour MPs on that committee. They were Charles Chauvel Shane Jones Winnie Laban Mahara Okeroa and Maryan Street. As I look around this crowded debating chamber I see those people remaining mute not prepared to contribute to this legislation at all leaving the hapless and helpless Minister trapped in the middle unable to respond in a substantive way to some of the more significant points advanced. I think that that is a tragedy because surely in those names that have been mentioned there was a faint asset reflective of intellectual power but in the Committee stage it has been completely denied us. That is the first point. 
The second point I make is that this particular part Part 2 has a number of subparts—six altogether. Those subparts are: “Bankruptcy and its alternatives” “Process of being made bankrupt” “Appointment of a receiver” “Adjudication” “What happens on adjudication” and “Role of creditors”. I condemn the Government for this method of legislative drafting because by having one part and multiple subparts it starkly limits the length of Committee stage contributions. 
In clause 8 of Part 2 the alternatives to bankruptcy are laid out but only three are described—inappropriately and inadequately I would say. The three that are described are a proposal to creditors paying creditors in instalments under a summary instalment order—and we have seen how in the Part 1 definitions there has now been inserted a definition of a current summary instalment order—and finally entry to the no-asset procedure which is the subject of comment in National’s minority report. But there are of course many other options and I would like to highlight what those other options are in the context of clause 8. 
Firstly there must be sale of assets because it is quite possible that people in financial difficulties might solve those difficulties by the sale of some of their assets and money raised from the sale of assets can of course be used to pay their debts. The second possibility is that of budgeting—of limiting one’s outgoings to what one can afford. Establishing a budget might also identify existing expenses that can be reduced or eliminated and the budget advisory service is available to provide assistance and support in that regard. Another possibility relates to a creditors’ pool which involves all of the debts being combined and then repaid by regular payments. Quite clearly such a proposal must be agreed to by all the creditors involved and it is normally administered by a third party such as a budget adviser an accountant or a financial adviser. Refinancing is another possibility. It might be possible to refinance current debts perhaps using a mortgage broker a banker an accountant or a solicitor for suggestions on appropriate financing alternatives. 
So there are these other possibilities that must be considered as we look at the Draconian step of bankruptcy and the impact of bankruptcy on the interests of secured and unsecured creditors—for it is very rarely the case that all the debts are repaid as a result of the formal processes proposed by the Insolvency Law Reform Bill which were earlier the subject of action by the Bankruptcy Act. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to Part 2 “Nature of bankruptcy and process of being made bankrupt”. It is interesting that the New Zealand First leader came into the Chamber during the debate on this part. I am surprised that he left the Chamber but he had obviously left Mr Woolerton in control. 
R Doug Woolerton 
: I raise a point of order Mr Chairperson. The member cannot comment on a member’s absence from the Chamber or otherwise. 
The CHAIRPERSON (Hon Clem Simich) 
: I thank the member for raising that point. It is correct. I ask the member please to desist from that. 
CHRIS TREMAIN 
: I will continue and I will desist from referring to the absence of the member who is no longer here. I will perhaps refer to New Zealand First. 
The CHAIRPERSON (Hon Clem Simich) 
: Do not compound it. I asked you to desist. 
Hon Clayton Cosgrove 
: Don’t be a plonker. 
CHRIS TREMAIN 
: Thank you Mr Cosgrove. I will move on to subpart 1 “Bankruptcy and its alternatives”. We are talking here about two key parts—clause 7 “Nature of bankruptcy” and clause 8 “Alternatives to bankruptcy”. The nature of bankruptcy clause talks about bankruptcy affecting the legal status of a person and that it has important consequences. Indeed it does such as the stigma that comes with bankruptcy. If someone becomes bankrupt he or she effectively loses everything. This is the point I want to make to members on the other side in relation to getting into business. There are 360000-odd small businesses throughout this country and it is the small-business people who go out there and put everything on the line to try to take this country forward in terms of growing their lot. I think the statistics are that 90 percent of small businesses over a 5-year period struggle to stay in existence and they will face potential bankruptcy. There is a lot of stigma attached to being bankrupt. People can lose everything—their house; their relationship along the way which is something we should all take into account in this instance; and their family; a whole heap of things—and it is not good. 
I will move on to clause 8 “Alternatives to bankruptcy”. A debtor who is insolvent may have an alternative to bankruptcy and three points are made in the clause: making a proposal to creditors paying creditors in instalments under a summary instalment order and entering the no-asset procedure. That might be something that Mr Woolerton may want to think about. 
R Doug Woolerton 
: Yes I can’t wait. 
CHRIS TREMAIN 
: He might be interested in this. Given the $150000 of debt that his party may face in the very near future listening to this bankruptcy procedure section might be quite a good use of his time. When New Zealand First has to face fronting up with that $150000 Mr Woolerton may have to consider some of the provisions in this legislation. There are three options that could be open to New Zealand First and the first is making a proposal to its creditors. I guess that comes back to making a proposal to the taxpayers of New Zealand. That will be interesting. 
Secondly New Zealand First could look at paying creditors in instalments under a summary instalment order. What it could do is take the $150000 and perhaps pay it over 15 months—maybe by $10000 a month. That might get it across the line of paying the money that should be paid back to the taxpayers of this country. 
The third option is entering the no-asset procedure. I am not aware of the balance sheets of New Zealand First or the Labour Party. Quite frankly I do not have time to look at them. But the balance sheets of both parties would be something that anyone would look at in considering any of those three procedures. The balance sheets will be a huge thing. I say to Mr Woolerton that it will be interesting to understand whether there is enough equity in the New Zealand First balance sheet to cope with a $150000 debt. 
In continuing with alternatives to bankruptcy I now want to focus on entry to the no-asset procedure. I tell the member that the no-asset procedure is a 12-month procedure. It is an alternative to personal bankruptcy which is probably quite a good thing because in that particular situation New Zealand First could actually have a look at bankrupting the party rather than personally bankrupting each and every one of its members. New Zealand First is sitting on—what is it at the moment? One percent in the polls? Two? Not even that. I guess that is bankruptcy of a nature in itself is it not? 
TIM BARNETT (Senior Whip—Labour) 
: 
 I move  
That the question be now put 
. 
Hon DAVID CARTER (National) 
: 
 Mr Chairperson you gave the Rt Hon Winston Peters a very liberal occasion on which to rebut my earlier arguments. I just want to take the opportunity of correcting three or four statements he made. Firstly in response to an interjection from Doug Woolerton he said there was a difference between a debt and a proposed liability. In my case I was talking about a debt; it was costs awarded by the courts. I took every opportunity to get that money from Winston Peters with a number of accounts being sent to him but to no avail. 
Mr Peters then said that I had had every opportunity—in fact I think he used the words that I “didn’t have the guts”—to ring him up and say I had served the documents on him in Parliament. I suggest to Mr Peters that he becomes familiar with Standing Order 400(c) which says that such processes are not allowed to be carried out in the precincts of Parliament without the express permission of the Speaker. 
The third point I want to correct is that Mr Peters said the matter concerned around $8000-odd. I cannot remember the exact figure but it was well in excess of $13000. 
The final point I want to make— 
R Doug Woolerton 
: I raise a point of order Mr Chairperson. I understood that you allowed Mr Peters a rebuttal and now you are allowing a rebuttal of that rebuttal. I do not think that is right and I just wanted to make that point. 
The CHAIRPERSON (Hon Clem Simich) 
: You have made it. I was just about to stop the member at his final point. 
Hon DAVID CARTER 
: The final point I want to make is that subsequent to further legal action Mr Peters lost for a second occasion. The courts have invited me to prepare a list of costs and it will be presented to Mr Peters. I hope that on this occasion he will front up and pay. 
A party vote was called for on the question  
That Part 2 be agreed to. 
Ayes 70 
New Zealand Labour 50; New Zealand First 7; Green Party 5; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Part 2 agreed to. 
TIM BARNETT (Senior Whip—Labour) 
: 
 The Committee has made good progress so far. I seek leave for the Committee to report progress. 
The CHAIRPERSON (Hon Clem Simich) 
: Leave has been sought for me to report progress. Is there any objection to that? There appears to be none.  
Progress reported. 
Report adopted.