Insolvency Law Reform Bill

Part 5 is quite a substantial part, so we will take quite a few calls. I will start off by raising the concerns of the National Party, which does not support Part 5.

One of the major issues of concern to us is the introduction of a provision called the no-asset procedure. We were told by the officials that the reason for introducing the no-asset register is to allow a person who has no previous bankruptcy experience and no assets etc. to simply enter into the register for a period of 12 months, and at the end of that period to be discharged of his or her debts. The debt can range up to $40,000. They claimed that that was proposed for two reasons. First, nothing positive is achieved by placing people who have no income or assets into bankruptcy, and it does not help the creditors to get their money back. Secondly, it will reduce administration costs.

We certainly have a problem with the concept that if a person who has incurred a debt agrees to enter into the no-asset register, the creditor will end up with nothing. The indebted person has no obligation to try to repay his or her debt. I can just see that a lot of students will be eligible. In fact, my very hard-working, intelligent colleague Chris Tremain, as soon as he heard about this provision, said that it could become known as the student loan write-off provision. When one thinks about it, one realises that tertiary students are very well qualified under this provision. First of all, they are encouraged to incur debt, because there is no interest on it. Then they are encouraged to enter into the no-asset register, because if they enter themselves in the register, after 12 months their debts will be written off. Presumably, if it is good enough for the Government to write off debts owed to businesses, it will be good enough for the Government to apply the same principle to itself.

But the concern about that concept is that it undermines, once again, personal responsibility. I believe that a person who incurs a debt incurs an obligation to pay that debt. The fact that the Government endorses the concept that a person can incur debt of up to $40,000, enter on to a register for 12 months, say “That’s it; it’s a clean slate.”, and start from the beginning is certainly not a good thing. We were told that some retailers endorse that, but I am not sure that all retailers would like that measure. Some retailers—maybe those of a smaller size—may find it more difficult to do business once they get a credit assessment of certain individuals, decide to extend credit to them, then find themselves at the stage where those individuals may not have to repay their debt. We certainly find that the Government should not send the message to individuals that it is OK to incur debts because they could, at the end of the process, have no obligation to repay them. There are a lot of small businesses in New Zealand; we all know that small to medium-sized businesses make up 92 percent of businesses in New Zealand. In fact, for a lot of them their annual profit may only come to about $30,000 to $40,000, and to write off a significant debt is certainly not of comfort to our small businesses.

We are flabbergasted that the no-asset procedure is being introduced.

I will respond to a couple of points that Pansy Wong has made. She has referred to students. Because students will not be adjudged bankrupt because of non-payment of their student debts, it has been decided student debt should not be provable or dischargeable within the no-asset procedure. Therefore, it is not an issue as the member has indicated. I think the member should refer to the fact that summary instalment orders are now being made far more accessible, in terms of the cap being raised from $12,000 to $40,000 total unsecured debt, and I think a lot more individuals will take the summary instalment order option rather than go to the no-asset procedure.

I am interested that the National Party opposes an alternative to bankruptcy for individuals with minimal debt and few assets who have no means to repay the debt. This measure acknowledges that individuals cannot avoid bankruptcy, and that the punitive, deterrent element is disproportionate and totally irrelevant to these individuals. It gives debtors a fresh start, it provides safeguards against abuse of the procedure, and it minimises the cost to the State. I think this is a win-win.

The other point the member has made that I think does not stand up to any scrutiny is that this will encourage those who offer credit to people who cannot afford to pay back the amount of credit they have been offered. It will make them think twice. They will have to think very carefully about extending a person’s credit card limit without a request even having come from the individual. Pansy Wong does not have constituents so she does not understand this. But I have constituents who come into my office and show me letters from their banks stating that their credit card limit has been extended, without an application having come from the individual. I do not think it is right and proper that we have people offering credit left, right, and centre without any realistic prospect that people will be able to pay it. I think this will make creditors a lot more careful about offering credit to people who cannot afford to pay.

The points made by the Minister Lianne Dalziel are very interesting but they are quite wrong. I will start by taking issue with her phrase that a “fresh start” is being offered people who become bankrupt. That is nothing more than a euphemism, because quite often a number of Kiwis rack up debts through recklessly taking out loans even though they have no ability to repay them. This Government is saying it is OK to write off 40 grand of debt.

The second point—and I think it shows a difference between National and Labour—is that the Minister is indicating a total disregard for business. Ninety-five percent of New Zealand businesses are small businesses, many of them are mum and dad operations, and some of them in good faith sell products to people who, on the surface, look like they can pay for them and have a good credit history. These are the operators and business people who will be in the gun for selling products to people who cannot repay them—up to $40,000. I do not think that is fair. I think allowing someone to recklessly rack up debts then be let off the hook to the tune of $40,000 shows a total disregard for what it is like to be in business, to carry risk, and to lie awake at night worrying about whether the bills can be paid. That is a serious sum if one is a plumber, or runs the local dairy, or runs the local furniture shop.

The final point where I think the Minister has it quite wrong is the little barbed comment she made about Pansy Wong doing no constituency work. That member looks after most of the Asian community from Kaitāia to Bluff, and deals with a wide range of issues—from immigration, to welfare, to business—and it is kind of smug and insulting to say she does not do that kind of work.

This bill was probably at least worth putting on the agenda, because personal bankruptcy laws have not been looked at since the early 1960s. We saw that some work done in the 1960s culminated in the Insolvency Act of 1967, but there has not really been a good look at it since that time. The number of bankruptcies we see in this country has changed dramatically. In the 1980s there were about 800 personal bankruptcies, and we have seen that increase dramatically to about 3,000 per year—that was the 2005 figure, but it is probably more now. The type of bankruptcy we are seeing has also changed. It used to be bankruptcy as a result of a small business falling over; today many bankruptcies are the result of people racking up too much debt on the credit card.

The no-asset procedure aims to deal with people who have no money, no assets, and no prospect of paying a debt off. It might seem a cute, tidy way of dealing with those people, but members on this side of the Chamber are worried about the messages it sends to other New Zealanders—that it is OK for people not to be responsible for the debts they incur, that it is OK for people to take out goods on hire purchase with no prospect of paying for them, that it is OK for people not to deal with issues of personal responsibility, because the Government will let them off for up to $40,000.

That is a serious amount of money for most New Zealanders. I feel for some of the creditors who have sold products to these people, because there is no prospect of their getting back any of the money. The Minister Lianne Dalziel might say: “Oh well, it will make those businesses think twice.”, but I think that indicates a total lack of interest in the day-to-day workings of small businesses, and a lack of realisation of what it is like to have a customer standing opposite who wants to buy a lounge suite, and who looks like he or she stacks up, but who, when things turn to custard, cannot pay his or her bill. Most small-business operators have children. They want to put bread and butter on the family table just like anybody else. This Government is giving up on these debtors. It is forgiving debts of up to $40,000. It is basically setting up a training programme for people to move on to the big game of proper bankruptcy, after they have had their first warning by entering this 12-month no-asset procedure.

Luckily, the Commerce Committee did tighten up a few things. The committee members felt that there were no penalties for people who give misinformation or do not keep their part of the bargain. At least that change was made, even though we were concerned about some other aspects. But I think, ultimately, Part 5 is really about what message we are sending to Kiwis. We are saying it is OK for them to incur debts of up to $40,000. They will be forgiven that, they will be told it is OK, and they can have another go.

I rise to speak to Part 5 of the Insolvency Law Reform Bill and to the different means within this bill that can be put forward to deal with people—companies in a range of different corporate and individual structures—who get themselves into the position of being unable to pay their bills. I must say that over the course of the last 15 years I have had some personal experience with a number of individuals and companies that have, unfortunately, got themselves into that position. They have got into a situation where they have owed my own business money, and we have been faced with having to deal with their bankruptcy and trying to recover money from either an individual or a company we have put our trust in and have done business with over a period of many years—in some cases, for decades. In one instance, in one of our travel businesses, we had dealt with the person concerned for decades.

It is a very difficult situation when one of the businesses in a relationship like that goes into bankruptcy. I can assure members that not all companies deal with bankruptcy in a draconian way and look to bedevil the poor guy who has got himself into that situation. In fact, many companies look for alternative ways to help those people, because bankruptcy, as we know, is not just about the financial impact of that situation on people but also about the mental and psychological impact on them, on their family, on their friends, and on their whānau. I think one does need to take that into account. There are those who go bankrupt and break the law in doing that—they actually go out of their way to put themselves into a difficult position. But I am talking about guys who have been in business for a long time and who, through no fault of their own, get themselves into a difficult situation.

One example we were involved with concerned a building company that put up the AMP building in Napier. Because the head contractor for that building project had gone bankrupt, Linnell Building and Joinery in Hastings unfortunately got itself into a position where its head contractor did not pay the bills. It was such a major contract that that company then got itself into a situation where it turned bankrupt. Really, Linnell Building and Joinery had done nothing wrong, but it found itself in a difficult situation with many companies in Hastings, including my own at that point—I think we had just sold a property for that individual, and he could not pay the commission. In that case, we sat down and used the proposals situation referred to in Part 5 of this bill to help the company out. I am pleased to say that the firm is now back on its feet again and is one of the best building companies in Hastings, not only in residential joinery but also in a whole range of building products. That firm does homes and commercial properties, and it is back on its feet again. I think it was helped by the proposals situation and by everyone getting on board on that. The company also does a lot of work in my own constituency of Napier, which is good to see.

Part 5 deals with four different types of procedure that can be undertaken in a bankruptcy situation. I will make a few comments about each. The first is composition. In that situation creditors put forward a resolution to help the individual person or company out. That, in many cases, works well. Often creditors accept a lesser amount than is due to them. That can help people to get out of difficulty, as was the case with my friends in Hawke’s Bay in their particular situation. The very few changes made to Part 5 in the Commerce Committee were small ones. The second procedure is proposals. That is the situation where, instead of the creditors putting forward a solution, the bankrupt company is able to put forward its own proposal for getting itself out of that situation. Another situation with which I was involved in the Napier electorate concerned a business called Linden Estate Winery and Vineyard, a company that got itself into a difficult situation and overcommitted itself by taking on a number of vineyard leases.

In rising to speak to Part 5 of the Insolvency Law Reform Bill, I point out that it is in four subparts—as we know.

The first three subparts are mostly relatively straightforward machinery-type provisions with which I do not have any issue. Subpart 1, as Mr Tremain stated, deals with composition during bankruptcy, the passing of resolutions, the fact that compositions must be approved by the court, the procedure for court approval, the deed of composition, etc. Subpart 2 deals with the proposals. It includes a definition of “debt”, and the allowance for an insolvent to make a proposal, whether that be by way of a compromise, a time payment, assignment, or other. Again, that proposal must be filed in, and approved by, the court. The subpart continues with the various duties of the insolvent and the trustee. Subpart 3 deals with the summary instalment orders, and includes the time payment, who can apply for an order, the supervising of such an order, the role of the supervisor, and rules for summary instalment orders. National does not take too much issue with most of those provisions.

The provision that causes us the most angst, as National members have already mentioned, is subpart 4, relating to the no-asset procedure. It sounds good in practice. An individual can choose to enter into the scheme for 12 months in return for a write-off of up to $40,000—unfortunately, at the expense of creditors. Although this may have some practical advantages, it sends a very clear message that individual responsibility is not important. Basically, it says that people can do what they like and take no responsibility because, never mind, someone else will pay for their mistakes.

We all know that insolvency laws should always provide a balance. They do by their very nature allow for mistakes, but they should also require responsibility to be taken for those mistakes so that debtors can learn from them, get over them, then start again; it should not be that the mistakes can just be swept under the carpet and 12 months later the debtor can start again. But it seems that under subpart 4 of Part 5 there are no such words as “mistake” and “responsibility”. It is a bit like pretending that failure does not exist, when we all know that it does.

Insolvency laws should balance the responsibility for failure and the opportunity to start again. But they should also never forget the creditors, who are not always the Inland Revenue Department and who are not always the Government. It could be the creditors who stand to lose. This measure punishes the small-business owners—the self-employed—who are owed this money. It makes it too easy for the debtor to give up rather than try to trade through those difficulties. The debtor can give up and in 12 months’ time just start again, and the poor small-business owner, the self-employed creditor, has no recourse whatsoever.

The criteria for the no-asset procedure as set out in clause 359 are not particularly complicated. The assignee must be satisfied on reasonable grounds that the debtor has no realisable assets; the debtor has not previously been admitted to the no-asset procedure, so this is one strike and you are out; the debtor has not previously been adjudicated bankrupt; the total debts are between $1,000 and $40,000; and, under a prescribed means test, the debtor does not have the means of repaying any amount towards those debts.

Throughout the no-asset procedure the debtor must not obtain any further credit—which seems to make sense—including hire purchase, whether it is jointly or by himself or herself. But it does not seem actually to describe what the debtor can do in that 12-month period. Does the debtor just sit on his seat and do nothing? Can the debtor actually continue with employment? Can the debtor, if jointly in business with, say, his or her spouse, continue that business with the assignee’s consent? This part of the bill does seem to be a wee bit silent as to what the debtor can actually do during that 12-month no-asset period.

I rise to speak to Part 5 of the Insolvency Law Reform Bill. National members are opposed to the bill, which in some ways I think is unfortunate, because we feel it could have been quite good in so many aspects. But, as in so many aspects of the term of office of the current Government, it has failed to come up with the momentum necessary to carry through the better parts of the bill. In Part 5 there is, again, the feature of the Government not being able to carry through the original intention of this borrowed legislation. I say “borrowed” because in its original form it came from Australia. In its original form it concentrated heavily on improving the situation of bankruptcies, on helping debtors to recover their situation, and in all aspects was quite a solid piece of legislation. But it has been chopped and changed to suit, I would suggest, the social agenda of this particular Government.

The problem of major proportions that we have here is the no-asset procedure. Why on earth is the Government even entertaining such a move? There seems to be some suggestion that this is State-assisted debt avoidance. Subclause (2) of clause 367 states: “The debtor must notify the Assignee as soon as practicable of any change in the debtor’s circumstances that would allow the debtor to repay an amount towards the debts referred to in section 366(1).” I cannot find in any parts or subparts of the bill the compulsion that goes with this requirement.

I do not think it is quite right for the Minister who was previously in the chair, the Hon Lianne Dalziel, to blame outright the creditor for the person being in debt, as she did earlier. Sure, I share the Government’s concern that there is an easy extension of credit to people, which, for the poorly organised, could entice them towards debt. But by the same token here it is providing an opportunity for people to walk away from the responsibility they willingly undertook. I also think it is a bit rich that on the one hand the Government extends credit to students through the student loan scheme but then denies them entry on to the register. They cannot get off without paying the Government back—oh no!

💬 Pansy Wong: Double standards.

But small businesses will have the debtors strolling off from the debt through this particular clause. As my colleague and mentor in many ways, Pansy Wong, says, there are double standards operating here. In other words, the Government is not prepared to extend the same level of protection to retailers that it extends to itself, but, by gosh, it will put them at risk in a way that it is not prepared to put itself at risk.

💬 Pansy Wong: It does not care about retailers.

It does not care about retailers. Small business in New Zealand, though, is New Zealand’s major business and there are plenty of statistics to emphasise that. To allow a shrug of the shoulders towards personal debt is an odd thing for any Government to do, but particularly this one. We understand—and I am not an economist and I do not pretend to be one—that the present level of household debt is higher than ever before in this country’s economic history.

💬 Pansy Wong: Why?

I do not know. Why is it? Does this legislation help?

💬 Pansy Wong: No personal responsibility.

Looking at the lack of personal responsibility is a good start when addressing why.

💬 Ron Mark: Credit cards and hire purchase.

Credit cards and hire purchase—access to easily available credit. A constituent came to see me the other day in my little blue office in Greymouth. He explained just how easy it is to get credit nowadays. He said that all people have to do is keep refusing to take it from the companies that keep offering it, and they offer them more, and they offer to make it easier. He did not have a problem with that. What he did have a problem with was a weak-willed relative who took advantage of those opportunities then sought, exactly as we are saying here, to walk away from the responsibilities. That is the danger that is faced here. I notice that Mr Mark of New Zealand First is agreeing with that, and I am delighted to think we have reached one point of agreement in our mutual interest.

We understand that the level of household debt is higher than ever before. Is the Government blind to the reality of this? It has been quick enough to crow repeatedly about how the Government’s debts—and I have heard Dr Cullen give a speech on this particular subject—have been cleared and reduced, almost as if the taxpayer had not actually contributed to that being possible.

As we have been talking about Part 5 of the Insolvency Law Reform Bill, the National Party does have some major concerns about the no-asset procedure. I think it is important that, as a country, we look at the time of year we are entering. The next couple of months is a very important time for New Zealanders and their families as we come into Christmas. Just on Monday we had Labour Day, and there were a number of sales in Hamilton for example. Major discounts were offered on appliances and other household goods. Consumers were lining up to buy such goods, and they will line up over the next couple of months because they have families they have to buy Christmas presents for. They will increase their household debt to huge levels over the next couple of months. What will happen at the end of that time? People will have to make some payback in the early New Year. That is when the hampers come to fruition. That is when people pay for their families to go away on holidays.

And what are we doing as a Parliament in this country? We are setting up an institution that encourages greater debt, that tells people not to worry about it and that after Christmas they can write it off. Why would we be putting that message out? Well, I guess it is the lesson we learnt last week, is it not? If it is good enough for this Government to take that attitude, it certainly signals that it is good enough for New Zealanders to have the same attitude.

Let us look at some of the reasoning behind the legislation. When it was first put together by the Minister of Commerce, it was disclosed: “The Bill proposes a NAP be introduced as an alternative to personal bankruptcy, which is less punitive to individuals and may prove to have less social stigma attached to it. This would apply to first time debtors who have no assets and could not repay the debt. The proposal to introduce a NAP is the most significant change that the bill proposes in the area of personal bankruptcy.” Well, certainly that is what the Minister was intending to bring about through this legislation. It has also been said in a press release from the Minister: “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 3 years as in cases of personal bankruptcy.”

Well, those may be fine, ideological things to put forward in a bill, but they deny the reality that there is another side to any credit engagement, and that is the institution that sells the product. In New Zealand that is generally a small business. This country is based on small businesses. Hundreds and hundreds of thousands of us rely on small businesses for jobs, for income, and for the support that is the integral part of the New Zealand economy and community. We as a country rely on small business, yet at the same time we are about to give small business a decent whack. In this Chamber of representatives $40,000 may not seem much, but to a small business $40,000 is the difference between a profit or a loss for a year. It is the difference between that small business retaining its staff. It is the difference between that small business still having a shop on the corner so that we can go down and get our newspaper on a Sunday morning. It is the difference between a small business actually paying the taxes that build up to pay the salaries of Government.

Those small businesses cannot be kicked in the guts forever and a day. At some point in time they will either go out of business or go to Australia. They will do that; they will walk with their feet, as we have seen in the last year. We cannot do that to a country built on small business.

💬 Chris Auchinvole: But they will.

Members opposite certainly will, and at the same time they are sending the wrong signals to all New Zealanders about the need for debt. We have a country whose economy has been strangled over the last 7 years. It is an economy that is now going into low-growth mode. On the world scale we need to be growing at 9 or 10 percent to keep up with our Asian neighbours. But what will we grow at? Probably at a rate of 1 to 2 percent. That is simply not enough to pay for the debt levels New Zealanders are incurring. New Zealanders borrow to the hilt. That is fine, they can borrow to the hilt, but they have to pay the mortgage, and they are not going to pay the mortgage if New Zealand does not have growth. We live in a country governed by a Government that does not understand that, that is willing to strangle growth, and at the same time is willing to forgive debts to the extent of $40,000. It does not have any concept of reality or safeness for small business.

There is nothing worse for a small business than to have the expectation of a debt being repaid that will not be repaid. It leads to borrowing from the bank in order to cover assets that will never be realised—namely, unpaid debts. The no-asset procedure is an enlightened piece of legislation in the debt recovery regime. In fact, it is a natural extension from the present provisions of the Insolvency Act, because bankruptcy is not an automatic consequence of filing to put someone in bankruptcy. The judge always retains the discretion to make a bankruptcy order, because the underlying thesis of granting that discretion is a protection to the commercial community from a continually bad debtor.

The no-asset procedure has high qualifying standards. Clause 359 has five prerequisites, two of which are important in rebuttal of the matters raised by previous speakers. First, clause 359(1)(a) states: “the debtor has no realisable assets;”. Of course, an income that will enable payment of the debt over a 12-month period is a realisable asset, so any person with such an income would not qualify for a no-asset procedure. Under clause 359(1)(e), a debtor must meet a prescribed means test, to prove that he or she “does not have the means of repaying any amount towards those debts.” So a person who applies for a no-asset procedure will not be granted that status if there is any ability, within the 12-month period, to repay the debt. But, more important, we find in clause 360(c) that a debtor who has incurred debt, knowing that he or she does not have the means to repay it, will not be allowed into a no-asset procedure. So a debtor who is careless and reckless is precluded from entering the no-asset procedure. That provision underscores the basic tenet of the present bankruptcy laws that that is a discretion designed to protect the commercial community.

If a person is not a threat to the commercial community but is in a circumstance where he or she, having acted in good faith, comes to a stage where he or she cannot pay his or her debts, then all creditors are entitled to know that, in order to clear what would otherwise be an asset from their books and get on with planning their businesses accordingly. So a debtor who is in the unfortunate position of being in good faith but of having no realisable assets, which would include a good income over the next 12 months, can apply for a no-asset procedure because it cancels out the share of unmeritorious assets in a creditor’s book, based on the assumption that maybe that debtor will one day pay. Of course, if the circumstances of the debtor do change in a 12-month period, then clause 367 applies, because in the event of such a change the official assignee must be notified of that and, of course, the next step would be for the person to go either straight into bankruptcy or into the insolvency provisions.

The no-asset procedure will not be used in a widespread way. It is a simple cut-off, sanitising process for a person who cannot repay debts that have been incurred in good faith. It is an asset to the business community, because it gives everybody a standard for assessing which debts will be repaid and which people are worth lingering with, in the hope that they will repay debt. But, of course, a creditor also has a say in this procedure. Under clause 362, a creditor has time to object to a debtor being placed into a no-asset provision situation. The final underscoring of the good-faith provisions that underlie the no-asset procedure is that a debtor may be placed into a no-asset procedure on only one occasion. One mistake is OK in the commercial world, but two are a bad habit and people cannot be placed in a no-asset procedure again.

So instead of the misrepresentation we have heard from the speakers on the Opposition side of the debate, I can tell the Committee that the no-asset procedure is a logical extension of the discretion the court has under the present insolvency laws. It is a low-expense provision that enables creditors to truly appraise what are good debts and what are bad debts, because it has the measuring stick of the official assignee, who has to apply stringent test criteria before admitting someone to a no-asset procedure. There is the out of the creditor having a chance to object, and there is the opportunity, should the debtor’s position improve, for the debtor to move from a no-asset procedure to an insolvency or even bankruptcy basis, or to repay his or her bills.

I thought I would even the slate with our colleagues on the other side, because what a lot of diatribe we have just heard from Russell Fairbrother, the former member for Napier. I think the people out there who may have been listening to that speech would be completely confused, so I will take the few moments I have to even the slate and talk about why we are so uptight about supporting Part 5.

The no-asset procedure seems complete stupidity to me when I read it. This procedure will allow people 12 months in which they can write off their debt and be discharged from it. Up to $40,000 can be written off. We heard from the hard-working member for Hamilton East, Mr Bennett, about the importance of small business and how it is often those people who are waiting for the cheque to come on the 20th of the month and hoping that it will come. They know full well that if the cheque is late it may mean bad news for them. Let us think about the creditors out there—the small-business people who are the heart of our economy. Somewhere between 90 and 95 percent of the small businesses in New Zealand actually drive the economy.

We need to be mindful of the signal we are sending to the rest of society when someone can come in with a clean slate and write off $40,000 of debt. When we think about the culture of savings in this country, we are pretty poor. There is hire purchase, the credit card debt that people rack up, traffic offences and parking fines that are not paid, and now, in Part 5, we are signalling to those people that they can write off $40,000 and live happily ever after.

So there is a lot of stupidity around Part 5. It is fair enough that we give debtors a second chance so they can start again, but I think it is too easy to allow those people to just chuck everything in and not to take into account the real importance of those creditors that I have spoken about. The creditors—the last cab off the rank when a company goes into insolvency—are left high and dry under this proposal.

I think it is important that we have a look at the no-asset procedure in clause 359(1). It states: “(a) the debtor has no realisable assets; and (b) the debtor has not previously been admitted to the no asset procedure; and (c) the debtor has not previously been adjudicated bankrupt; and (d) the debtor has total debts that are not less than $1,000 and not more than $40,000;”. Clause 359(2) refers to section 156 and states: “In this section, realisable assets does not include the assets that a bankrupt is allowed to retain under section 156.” I refer to that because it is pretty important and I would appreciate the Minister in the chair, Pete Hodgson, taking a call. Clause 156(1) states: “The bankrupt may choose and retain as the bankrupt’s own property certain assets up to a maximum value.” I would appreciate the Minister taking a call on that. I ask him to let us all in the Committee this evening know what is a certain asset up to the maximum value. I look forward to him taking a call on that.

Clause 156(3) states: “The assets and their maximum value are—(a) the bankrupt’s necessary tools of trade—”. I think it is important to realise that for those people, their tools of trade are extremely important. The examples given in clause 156(3)(b) are: “necessary household furniture and effects, including clothing, for the bankrupt and his or her relatives and dependants—the maximum value is fixed in the Assignee’s discretion:”. It is interesting to see that a motor vehicle is valued at $5,000. When the Minister takes a call about my previous question I would really appreciate it if he could tell us how he has come to the value of a motor vehicle at $5,000. For a lot of small businesses $5,000 is a very small amount for a vehicle.

I want to take a very brief call on Part 5. I certainly do not intend to speak about subparts 1 to 3, which, as Mr Tremain said, largely re-enact equivalent provisions in the 1967 Insolvency Act. But I do raise a couple of questions about the no-asset procedure in subpart 4 and I would be most grateful if the Minister in the chair, the Hon Pete Hodgson, could condescend to answer them. They are not so much on the morality of the no-asset procedure but on the necessity for it.

Let me explain it this way, from the point of view of the debtor. The debtor finds himself or herself in trouble and, prima facie, would appear to qualify for entry into the no-asset procedure. Clause 358 states: “(1) A debtor who meets the criteria set out in section 359 may apply to the Assignee for entry …”, and the assignee, as other speakers have said, may admit that debtor to the no-asset procedure if the assignee is satisfied on reasonable grounds as to the criteria set out in clause 359(1). So it is very much at the discretion of the assignee.

The Minister Lianne Dalziel said when she was in the chair that this procedure is an alternative to bankruptcy. But I wonder whether that is right—for the reasons that Mr Fairbrother explained when he gave his speech—because, under clause 11, adjudication by the court is discretionary, and the court may refuse to adjudicate in the circumstances set out in clause 37, which largely re-enacts section 26(2) of the Insolvency Act. The four criteria in clause 37 are: “… if—(a) the applicant creditor has not established the requirements set out in section 13; or (b) the debtor is able to pay his or her debts; or (c) it is just and equitable that the Court does not make an order of adjudication; or (d) for any other reason an order of adjudication should not be made.”

There are numerous examples where the court has declined to exercise its discretion under the existing section 26(2). One of the principles that is set out is that a lack of assets is no bar. A lack of assets is a factor that the court should take into account in the exercise of its discretion, but it is not a bar to the making of an order that is otherwise appropriate. As the commentaries have said, a lack of assets is not to be found lightly. At the time of the hearing of the petition—or of what will become an application, under the new legislation—the court would generally not have sufficient material before it to decide the question, and the public examination of the debtor may have the effect of bringing assets to light.

The point I am making—from the debtor’s point of view—is that, rather than bother to go into the no-asset procedure set out in Part 5, he or she may decide simply to oppose the application for bankruptcy on the grounds that to bankrupt that person would be largely a pointless exercise. So there is the discretionary element in the clause that re-enacts section 26(2) of the Insolvency Act. If that is the case, then I fail to see why the no-asset procedure provision is really necessary. It seems to me that there are sufficient tools under Part 5 to enable compositions with creditors or summary instalment orders, or compositions during bankruptcy. If one adds to that the ability to oppose an application for bankruptcy, which, as I have said, is a discretionary remedy for the court, then one wonders where the no-asset procedure really takes us.

So for those reasons, quite apart from the business morality reasons that my friends on this side of the Committee have mentioned, I really doubt the usefulness of this provision. I think that the way I have approached it, either by opposing the application for bankruptcy on the grounds set out in the clause that now replaces section 26(2) of the Insolvency Act or by relying on the other tools set out in Part 5, would tend to render the no-asset procedure superfluous.

The question was put that the amendments set out on Supplementary Order Paper 62 in the name of the Hon Lianne Dalziel to Part 5 be agreed to.

Amendments agreed to.