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Insolvency laws to be revamped

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 insolvency.

“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.

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