May 30 2002

Business Rehabilitation Discussion Document Released

Associate Minister of Commerce Laila Harré today announced the release of a public discussion document on business rehabilitation.

The release marks the next stage in the Government’s insolvency law review, with a number of decisions already having been made on insolvency issues.

The discussion document has been prepared by the Ministry of Economic Development, which is coordinating the review.

Laila Harré said that business rehabilitation is an important insolvency related procedure that has been adopted in other countries.

It provides an alternative to liquidating companies by allowing a debtor company to enter into a binding arrangement with its creditors so a plan can be developed to enable the debtor company to keep on trading.

“Business rehabilitation could protect workers’ jobs and creditors’ interests and improve the overall operating environment for New Zealand businesses, and in turn promote economic development,” Laila Harré said.

The Companies Act 1993 includes a less developed form of business rehabilitation procedure, which the discussion document says is ineffective and not widely used.

Laila Harré said existing procedures do not allow company directors or other parties to seek a stay prohibiting debt recovery attempts by individual creditors, except in those rare situations where all the creditors agree.

“Such a stay against creditors seeking to recover their debts through the Courts is essential if company directors and creditors are to have time to work out a proposal to enable the business to trade on.”

The discussion document examines how business rehabilitation has been adopted in other countries. It presents some broad policy options for a new business rehabilitation procedure in New Zealand, and discusses some of the design issues that would need to be considered.

“The document follows a number of other public papers on business rehabilitation,” Laila Harré said.

“The difference is that this paper asks a number of focused questions about business rehabilitation and considers the benefits of co-ordinating with the Australian voluntary administration procedure.

“Evidence from Australia indicates that voluntary administration has resulted in creditors receiving greater financial returns than they might other wise have”.

The Government has already made a number of decisions on issues relating to insolvency law including priority debts, cross border insolvency, bankruptcy administration and voidable transactions.

Details of these decisions and the wider insolvency law review are available on the Ministry of Economic Development web site at http://www.med.govt.nz/ri/insolvency/review.html

The discussion document is available on the Ministry’s website at http://www.med.govt.nz/ri/insolvency/busrehab/index.html The closing date for submissions is Friday, 19 July 2002.

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