31 October 2007

New laws give financially distressed firms room to move

The new Voluntary Administration regime under the Companies Amendment Act 2006, which comes into effect tomorrow (1 Nov), will provide an option other than liquidation for companies in financial distress, Commerce Minister Lianne Dalziel says.

“The new VA regime, which we have adopted from the Australians, provides an alternative to liquidation for companies that are in trouble. The Australian model had seen increased returns to creditors and I'm confident that similar benefits will occur here," Lianne Dalziel said.

A feature of the new regime is the moratorium period, which prevents recovery actions by creditors to give the appointed administrator time to assess the company's financial viability before deciding whether or not the company could be rehabilitated.

Lianne Dalziel said if a re-organisation was not viable, VA would enable a more orderly and measured distribution of assets.

As well as the new voluntary administration scheme, the Companies Amendment Act 2006 also:

- acts to prevent the use of phoenix company arrangements to defeat creditors;
- fine-tunes the voidable transaction provisions which give the liquidator the power to cancel certain transactions;
- increases accountability and transparency in the activities and appointment of liquidators.

"The changes are part of a very comprehensive piece of law reform, which reflects the Labour-led government's commitment to encouraging early intervention when financial distress becomes apparent, as well as meeting the objective of closer co-ordination with Australian business law," Lianne Dalziel said.

Lianne Dalziel said that the new Insolvency Act 2006, which deals with personal insolvency matters, is due to come into effect on 3 December. This Act will repeal and replace the Insolvency Act 1967.

ENDS

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