Law Reform In Plain
English
Insolvency and Trustee Service
August 2007
Outline
•Brief Overview of Current Regime
•Law Reform Background
•Law Reform Objectives
•Law Reform Changes
•
•
•
•
•
•
•
Debtor Petitions
Summary Instalment Orders
No Asset Procedure
Voluntary Administration
Voidable Transactions
Liquidations/Liquidators
Phoenix Companies
Current Insolvency Regime
Current Insolvency Regime
•State monopoly on personal insolvency
•Bankruptcy: Debtor Petition or Creditor Petition through High Court
•Summary Instalment Orders through District Court
•Liquidations: voluntary or court-ordered
•Official Assignee administers some liquidations
Law Reform Background
Bankruptcy Numbers By Year and Petition Type
4000
3500
3000
2500
2000
1500
1000
500
Creditor Petitioned Orders Made
Debtors Petitions
/0
7
06
/0
6
05
/0
5
04
/0
4
03
/0
3
02
/0
2
01
/0
1
00
/0
0
99
/9
9
98
/9
8
97
/9
7
96
/9
6
95
/9
5
94
/9
4
93
/9
3
92
91
/9
2
0
Total Bankruptcies Per Year
0
0
2004/05
2005/06
2006/07
$2
00
$1
00
,0
00
,0
00
$9
0,
00
$8
0,
00
$7
0,
00
$6
0,
00
$5
0,
00
-$
-$
-$
-$
,0
00
+
9,
99
9
$5
00
-$
49
9
9
9
9
9,
99
9
99
,9
9
89
,9
9
79
,9
9
69
,9
9
9
9,
99
9
9,
99
9
59
,9
9
-4
-3
9
9
9
9,
99
9
19
,9
9
-2
-$
0
0
0
-$
49
9
00
0
11
,9
9
-$
-$
0
$2
-$
19
0
0
0
0
0
$4
0,
00
$3
0,
00
$2
0,
00
$1
2,
00
$5
00
$2
00
<
Debt Levels in NZ Bankruptcies
600
500
400
300
200
100
0
New Liquidations Filed With Registrar of Companies
New Liquidations based on the notices of Appointment of Liquidators
filed with the Registrar of Companies
700
500
400
300
200
100
0
Se
p00
D
ec
-0
0
M
ar
-0
1
Ju
n01
Se
p01
D
ec
-0
1
M
ar
-0
2
Ju
n02
Se
p02
D
ec
-0
2
M
ar
-0
3
Ju
n03
Se
p03
D
ec
-0
3
M
ar
-0
4
Ju
n04
Se
p04
D
ec
-0
4
M
ar
-0
5
Ju
n05
Se
p05
D
ec
-0
5
Number of Liquidations
600
Quarter Ended
Voluntary Liquidations
Court Ordered Liquidations
Total Liquidations
Linear (Total Liquidations)
Linear (Voluntary Liquidations)
Linear (Court Ordered Liquidations)
Law Reform Background
•April 2004: Draft Insolvency Law Bill, Discussion Doc
•December 2005: Introduced to Parliament
•Submissions sought and collected
•Passed October 2006
•Awaiting implementation
Law Reform Objectives
Law Reform Objectives
•Objective regime that everyone has confidence in
•Cost effective
•Maximise returns to creditors
•People back contributing to the economy more quickly
•Promote international cooperation
Law Reform Changes
Bankruptcy
•Current: prospective bankrupt files Debtor’s Petition at High Court; bankrupt
once accepted. Only court can annul.
•Change: Official Assignee to receive and process Debtor’s Petition via post,
person, electronically. OA can annul Debtor’s Petition.
•Debtor’s application must be accompanied by Statement of Affairs (SOA)
•Discharge to be 3 years from date OA accepts a satisfactory SOA
•Record on public register to be removed 4 years after discharge
Summary Instalment Orders
•Current: registered by District Court
•$12,000 limit
•limited to three years
•stay of proceedings as long as payments made
•Comment: decentralised and paper-based
Summary Instalment Orders
•Change: Registered by OA
•$40,000 limit; over 3 years
•Creditors can apply to OA to resolve disputes with claims
•Offence to raise credit or take out HP over $1000 without disclosure
•OA will be approving Supervisors and may seek a bond
•Looking at having supervisors use OA’s trust account
•Fines and student loan excluded
•New public register of current SIOs
No Asset Procedure
•Current: all bankruptcies administered by same system – no NAP
•all subject to same restrictions, period of bankruptcy, obligations,
stigma
•Change: genuine alternative targeted at consumer type debtors
•aspects of bankruptcy not appropriate for every debtor
•encourage debtors to seek earlier intervention/assistance
•get them back contributing to economy quicker
•less social stigma
•more cost effective
No Asset Procedure
•Entry Criteria:
•Min $1,000, max $40,000 (CPI-adjusted biannually)
•Statement of Affairs completed prior to admission
•No realisable assets
•No evidence of enforcement issues / no trust use
•Never used before / never bankrupt / no creditors petition pending
•Student loans/fines not provable
•Official Assignee has discretion not to allow entry
•Cannot obtain credit or HP over $1000 without disclosure
•Proceedings stayed
No Asset Procedure
•Completion:
•By discharge at end of term
•By entering bankruptcy
•Termination by OA – change of circumstances
•Termination by OA – if wrongly admitted
•Creditors can apply to OA for termination at any time during NAP
•If concealed assets OA can seek preservation order pending application for
adjudication
•Part of public bankruptcy register whilst current
Company Provisions
Voluntary Administration
•First meeting of creditors to consider proposal within 8 days
•Watershed meeting to vote on proposal within 20 days
•75% in value of those voting must approve
•Automatic stay binding unsecured creditors
•Secured creditor has 10 days to exercise security
•VA not available after 10 days from filing application for liquidation
•Stay of proceedings
•IRD preferences stay
Liquidations
•Removes 20 cent rule for filing reports
•Lists of creditors to be provided
•Resolution for voluntary liquidation only within 10 days of being
served with liquidation application
•Liquidator can’t have provided professional services in previous 2
years
Phoenix Companies
•Restricts re-use of same/similar company name for 5 years
•Personal liability for debts of new company if it is a phoenix company
•$200,000 fine or 5 years imprisonment
•Exception where new company set up by arrangement with liquidator
•Doesn’t apply to receiverships
Liquidators Regulation
•Removed from current bill
•Current options:
- Strengthen existing measures in Companies Act
- Voluntary accreditation
- Mandatory licensing – through government agency
•New option:
- Competitive licensing – through professional organisations
Voidable Transactions
•Bringing bankruptcies and liquidations in line
•New “continuing business relationship” test
•More objective
•Aligns with Australia
•Liquidator must initiate proceedings
Debtor Petitions
Summary Instalment
Order
No Asset
Procedure
When?
•Company provisions likely to come into
force October 2007
•Personal Insolvency provisions likely to
come into force December 2007
Keep up to Date
Via Website – www.insolvency.govt.nz
Subscribe to Business update – http://news.business.govt.nz