Insolvency laws to be revamped
Legislation to modernise insolvency and personal bankruptcy laws has been introduced to Parliament today by Commerce
Minister Lianne Dalziel.
“Although at 300 pages, the Insolvency Law Reform Bill is no light summer holiday reading, I was keen to have it
introduced before Christmas to allow insolvency practitioners and other stakeholders to see the Bill before it has its
first reading early in 2006. The consultation on the Bill has been extensive so I am anticipating that it will be
welcomed by those who have been closely involved in its design,” said Lianne Dalziel.
Although Lianne Dalziel said she was confident that there would be widespread support for the new 'phoenix company'
provisions and the tightening of the voidable transaction provisions, she felt that there would be two areas of reform
that would attract the most debate.
“These are, first, the streamlining of the bankruptcy administration process and the introduction of a new ‘No Asset
Procedure’ as an alternative to personal bankruptcy and, second, the introduction of a voluntary administration
procedure for companies with potential for rehabilitation”, says Lianne Dalziel.
Personal insolvency laws are some 40 years old and do not reflect the shift from sole trader bankruptcy to ‘consumer’
related bankruptcies. The No Asset Procedure is a one-off opportunity for an individual with no assets to be subject to
the procedure for 12 months as opposed to three years as is the case for bankruptcy.
“The voluntary administration procedure will bring New Zealand into line with other OECD countries and has been adopted
from the Australian voluntary administration regime, which will have the added advantage of benefiting business
rehabilitation involving trans-Tasman organisations,” said Lianne Dalziel.
Lianne Dalziel said by adopting the UNCITRAL Model Law on Cross-Border insolvency, the Bill also paves the way for
cross-border insolvencies to take place and will address difficulties that arise when an entity is placed under some
form of insolvency administration in one state, but has assets in another.
"Although the Bill does not include proposals to regulate the insolvency profession, I have asked officials to report to
me on this by late 2006. In the meantime proposed amendments in relation to the appointment of liquidators, liquidators’
reporting duties, prohibition orders on liquidators, director and related party voting in a liquidation process, should
mean that the accountability of liquidators to creditors is increased. It should also mean that the scope for company
shareholders and related parties to defeat the interests of creditors is reduced.
Lianne Dalziel said that the objectives of the Bill are to:
Provide a predictable and simple regime for financial failure that can be administered quickly and efficiently, with the
minimum necessary compliance and regulatory costs on its users and that does not stifle innovation, responsible risk
taking and entrepreneurialism by excessively penalising business failure; Distribute the proceeds to creditors in
accordance with their relative pre-insolvency entitlements, unless it can be shown that the public interest in providing
greater protection to one or more creditors outweighs the economic and social costs of any such priority; Maximise the
returns to creditors by providing flexible and effective methods of insolvency administration and enforcement which
encourage early intervention when financial distress becomes apparent; Enable individuals in bankruptcy to participate
again fully in the economic life of the community; and Promote international co-operation in relation to cross-border
“As in all law reform where there are competing interests, the government must perform a balancing act. I believe this
Bill demonstrates the government’s commitment to getting the balance right,” Lianne Dalziel said.