Copeland Gordon: Insolvency Law Reform Bill — Second Reading 
Copeland Gordon: Insolvency Law Reform Bill — Second Reading 
[Volume:633;Page:5183] 
GORDON COPELAND (United Future) 
: 
 I rise on behalf of United Future to take a call on the Insolvency Law Reform Bill. It is an important bill because it revises and updates New Zealand law in relation to both personal bankruptcy and company liquidation or insolvency. I think it is very important to put this bill in some sort of context when it comes to companies and insolvency. 
It is I think very much a public-good goal to ensure as much as we can that when companies that are growing encounter difficulties we have a method that will enable as many of them as possible to go through that experience and come out the other side without going out of business altogether. Under the current regime statistics show that companies that go into receivership almost always end up in liquidation. Unlike regimes for example in the United States and in particular under its chapter 11 provisions and now in Australia with its voluntary administration scheme our companies do not get a second chance very often to go on and be successful. That is tremendously important because there are many many examples around the world of very successful businesses and very successful businessmen or businesswomen who have been through an insolvency or a bankruptcy in their lives. They say it was the lessons they learnt through that experience that gave them the expertise next time around to be successful. 
It is much much more efficient to our economy if an orderly process can be worked through. That is what the voluntary administration which is at the heart of this bill in many ways as far as companies are concerned is all about. It is about endeavouring to ensure there is a system in place whereby through a voluntary process the directors of the company and others can get together and decide to go through that period of administration. When we look at that from the point of view of creditors I think the outcome for them is pretty much the same as it is for the Commissioner of Inland Revenue—namely that creditors want over time to have the money they are owed paid to them in full 100c in the dollar and also to have an ongoing business relationship with that company into the future. In a very real sense I believe that the interests of creditors and the interests of the Crown through the Commissioner of Inland Revenue in respect of what is called the Crown priority are aligned to some extent and therefore they should hopefully act in concert when it comes to voluntary liquidation. 
As other speakers have mentioned a lot of the time at the Commerce Committee was taken up with debating the question of Crown priority. Let me concede immediately that it is true that the practitioners who came to the select committee spoke with some passion about the need for New Zealand to do away with Crown priority. They gave us instances of companies that had gone into liquidation and only at that point did the creditors who were supplying those companies find that the Inland Revenue Department was owed taxes such as PAYE GST family support and other payments some of which had been outstanding for several years. During all that time other creditors had continued to trade with those companies completely oblivious to the fact that they were heavily in debt and getting further into debt to the Inland Revenue Department week by week. 
On the front page of the  
Dominion Post  
here in Wellington about a month ago there was a classic example of that situation. Right on the front page was a story about a well-known woman who ran a number of restaurants in Wellington including Kopi a Malaysian restaurant and several others. Her businesses had gone into liquidation. It was revealed that for a 3-year period—I believe the time was from about 1997 to 2000—those companies had not paid any PAYE GST or other payments of that sort over to the Inland Revenue Department yet the department had let those companies continue to trade. There on the front page of the  
Dominion Post  
were the figures which showed that that group of companies then owed the department about $1.3 million and all other creditors combined were owed I think about $260000. That was a classic case right here in Wellington that demonstrated the problem with the Crown priority—namely that it is unfair to creditors who are just completely unaware there is a problem with a company not having paid its GST. 
Therefore the committee gave the matter of Crown priority very very serious consideration. We went back to the department not once not twice but three or four times I think. Finally we had the commissioner himself write us a letter stating in black and white that the department under this new legislation would cooperate with a voluntary administration regime. Let me say that United Future for one therefore decided to go with the Crown priority based on the written assurances given to us by the commissioner himself. It will now be up to the department to follow through on that commitment and to ensure that it becomes partners with the other creditors in voluntary liquidations and that it does not rely on the Crown priority itself to impede or in any way delay that process. That will be the test and only time will tell whether the department delivers on it. 
However in addition to that I inform the House that we have also to some degree moved towards a system somewhat similar to that of Australia in relation to Crown priority. With reference to Crown priority we set out in our commentary very clearly the following words: “Submitters believe this is an unfair and unjust outcome for such creditors. They argue that if trade creditors had been aware of the tax arrears they would in all likelihood have initiated a liquidation order themselves at an earlier date thus mitigating their ultimate loss. Some of us therefore believe that when PAYE GST child support and other similar payments due to Inland Revenue are unpaid for two consecutive ‘payment due’ dates”—that is one misses two payments of PAYE or two payments of GST—“Inland Revenue should be obliged to notify company directors of the position. This will ensure that directors are aware of the tax arrears and encourage early intervention which may take the form of corrective action or consideration of voluntary liquidation.” 
I need to say that that was a bit more than just a recommendation from the committee because we called officials in from the Inland Revenue Department and discussed it with them and they quite readily agreed they would adopt the practice henceforth. They will revise their manuals and so forth so that when two payment periods for GST or PAYE have been missed they will then notify the directors of that company that the GST or PAYE has not been paid and they will encourage the directors to address the issue immediately. I think that that is probably not a bad compromise between the complete removal of the Crown priority which many submitters wanted and the evidence presented to us that that would probably have been a risk to the Crown revenue. So I think the committee made a reasonable compromise and I for one hope we will see that initiative followed through in reality. 
Debate interrupted.