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Latest Decisions On Insolvency Law Review

Associate Minister of Commerce, Laila Harré, today announced the latest round of decisions made as part of the Government’s review of Insolvency Law.

“These decisions, and those announced last year reflect the Government’s objective to implement an insolvency regime that effectively balances the interests of debtors and creditors,” said Ms Harré, speaking at a Butterworth’s Insolvency Law Conference in Auckland today.

The decisions announced today form part of the “tier two” decisions of the review and deal with the role of the state within the insolvency regime in four key areas:

- The state’s monopoly in bankruptcy administration;
- The state’s role in enforcement of insolvency law;
- Requirements surrounding the appointment of liquidators; and
- Incentives for insolvency litigation funding.

“Because the government’s Official Assignee is not profit driven, the interests of debtors are better observed by the state than by the private sector, and so we have decided to retain the state’s current monopoly in bankruptcy administration,“ said Ms Harré,

“If you left it up to the private sector, it is likely that it would only be interested in administering the small number of bankruptcies that could meet their costs. This could result in real disincentives for efficient bankruptcy administration.”

The Government has also decided not to make any changes to the way insolvency law is enforced. Insolvency law is enforced by the National Enforcement Unit (NEU).

“Enforcement levels are good by international standards and the NEU has taken considerable steps to clearing the backlog it inherited, so clearly no changes are needed, “said Ms Harré.

In the area of the appointment of liquidators, the Government has decided to improve the appointment procedure for the liquidators by requiring that there has not been a continuing relationship between the debtor company and the liquidator.

“The decision arises out of consultation with the Law Commission which identified two problems with the appointment of liquidators – first, that liquidators are not always impartial, and second that smaller creditors and debtors do not always have access to information to access the skill, competence and impartiality of liquidators.”

“The strengthening of the appointment procedure will address any favouring of particular parties by impartial liquidators.”

The Government has also decided to change the law around the liquidator’s right to sue. Currently, the statutory rights of a liquidator or the Official Assignee to sue cannot be assigned or sold. Problems arise where the liquidator doesn’t have the funds to take action on the claim.

“If, for instance a liquidator has a claim against the directors of a company for reckless trading, but no funds to pursue it, this action would currently not proceed because that right to sue is not able to be transferred to another party with the means to sue. The Government’s decision, to allow the liquidator to assign the right to sue to another party mean, that in the future, court action could be pursued,” said Ms Harré.

Further issues remain to be resolved within the tier-two level of the review, including the possibility of implementing a business rehabilitation regime. The Ministry of Economic Development will release a public discussion document next month that canvasses the potential benefits and costs of introducing such a regime in New Zealand.


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