Insolvency Practitioners Bill

I move, That the amendments recommended unanimously by the Economic Development, Science and Innovation Committee be adopted on this Insolvency Practitioners Bill.

Madam Assistant Speaker, I’d like to thank you for giving me the opportunity, but not to speak to the second reading of this bill, because it already has had a second reading. We are speaking to the consideration of a report of the Economic Development, Science and Innovation Committee, and I want to thank members of that committee for their work and consideration of this bill for a second time and for their report to the House in December last year. As I said, for those who are watching, this is a bit of a rare occurrence—a consideration of a report; not a second reading—because this piece of legislation has had a somewhat lengthy and chequered history. If it’s OK, Madam Assistant Speaker, I would like to go into some of that detail.

The first version of this bill was introduced into the House in April 2010, and that bill featured a negative licensing system for insolvency practitioners, which empowered the Registrar of Companies to prohibit certain individuals from providing insolvency services when a business went into liquidation or insolvency. Then, in May of 2011, the Commerce Committee of the time reported back on the bill, and it concluded that the negative licensing system within the bill at that time would not adequately address the problems that were associated with insolvency practitioners who were dishonest or who lacked independence. The committee instead recommended a different path. It recommended that the bill as it stood then be amended so that insolvency practitioners would be required to be registered in order to undertake insolvency duties, and it recommended that the bill as it stood then include offences and penalties for practitioners who failed to comply with the conditions of the licensing regime that they were recommending.

Then, in 2016, the previous Government identified two problems with the registration system. First of all, the system as it stood would not have adequately addressed the competency and integrity issues that we were trying to address, because the disqualification criteria at the time were minimal and there were no skill or experience or good character requirements to obtain registration. Then, secondly, the registration may have misled some users of insolvency services who might have assumed that if a practitioner was registered, they had the requirements and were fit and had sufficient skills to be an insolvency practitioner.

In order to address those problems, the Government decided that the registration system in the bill should be replaced with a co-regulatory licensing regime. In June last year, I asked that a Supplementary Order Paper (SOP) be tabled and for the bill to be considered again, and we are here debating the consideration of the Economic Development, Science and Innovation Committee on, essentially, the second consideration of this bill.

So, now that I have explained the weird and wonderful parliamentary procedure that this bill has traversed, I’d like to talk about the purpose of the bill as it stands now. The purpose of the bill, as is set out in the departmental disclosure statement, is “to promote better outcomes under the corporate insolvency system by strengthening the regulation of insolvency practitioners.” Corporate insolvency takes place when a company is unable to pay its debts as they fall due or when its liabilities exceed its assets. The objective of a system is to ensure that any remaining assets of a company are allocated for their most efficient use, with the least delay and expense possible. The bill as it stands today supports those outcomes by introducing a new regime for the licensing of practitioners, providing effective ways for holding them to account, and requiring such things as continuing professional development to raise the standards of practitioners’ behaviours over time. These changes are necessary to ensure that all insolvency practitioners meet the basic standards of honesty, competency, and skills which the public will be expecting of them.

Unfortunately, a small number of practitioners continue to fall well short of the standards and they engage in conduct such as charging excessive fees for their services, carrying out unnecessary work to inflate their fees, and acting in the interests of those who appoint them and at the expense of the creditors whom money is owed to. Finally, they have been taking appointments without necessary skills, knowledge, or experience.

At the third reading of the bill, it will be divided into three bills: a new Insolvency Practitioners Regulation Act, featuring the new co-regulatory regime; a Companies Amendment Act; and a Receiverships Amendment Act. The proposed new licensing regime in this bill is modelled on the one in the Auditor Regulation Act of 2011, and under the system, the Registrar of Companies will be required to set minimum standards of licensing for insolvency practitioners and to accredit professional bodies. These bodies will be responsible for the front-line licensing and application of the regulation of individual practitioners, which will include regulating their entry and ongoing competence, investigating complaints against practitioners, and reporting on the adequacy and the effectiveness of their regulatory systems and processes.

The bill as amended by SOP 45, which has been considered by the select committee, also makes amendments to the Companies Act and the Receiverships Act, and these amendments reflect new requirements for the licensing of insolvency practitioners, increase the transparency of practitioner appointments, improve practitioner reporting requirements, and, finally, make other changes designed to raise the standards of practitioners over time, such as requiring them to undergo regular professional development.

In its report to the House, the Economic Development, Science and Innovation Committee has given its support to the bill and has recommended some minor changes, all of which the Government will be adopting.

In conclusion, I want to reiterate my view that the bill will ensure insolvency practitioners have the integrity and skills needed to carry out their duties, and, in so doing, it will enhance the integrity of the corporate insolvency system. I commend this bill to the House.

Thank you, Madam Assistant Speaker. I rise in support of the Insolvency Practitioners Bill in this consideration of a select committee report. As the Minister of Commerce and Consumer Affairs has pointed out, we find ourselves in a not unique but rather remarkably rare situation in Parliament where we are debating, simply, a select committee report, because we are debating a bill that has, in fact, already received a second reading some years ago.

The bill has had a long gestation period in the House, which I’m sure has allowed for some very deep contemplation. I would like to take this opportunity to thank all of those specialists in the House who are so proficient at deep contemplation. I’m sure they have added something to what we are talking about today. Specifically, what we’ll be talking about is the current Minister’s Supplementary Order Paper (SOP) 45, and, in particular, the commentary and the scrutiny it received by the Economic Development, Science and Innovation Committee.

In simple terms, the SOP, as it amends the bill as it has existed for some time, creates a co-regulatory licensing regime for insolvency practitioners. The bill in its very first form had a negative licensing regime, which was a very low-touch but arguably effective regime where anyone could be an insolvency practitioner, but there were expectations and rules applied to that, and if they were contravened or not complied with, those practitioners could be, effectively, struck off—to use that term. It then went through a process of looking at a potentially very positive licensing regime where they are listed, and if you’re not on the list, you can’t be an insolvency practitioner. Now we’re looking at a co-licensing regime where we have a Government entity as a regulatory body, but also with some industry bodies having a very strong role to play in both the effective registration but also management of practitioners in our commercial market space.

What I would like to talk about in this contribution—at least, on the report—are just a couple of points that were discussed and amended in looking at the SOP. The first is a duty to report serious problems. New Part 5 of the bill would impose duties and restrictions on licensed insolvency practitioners, and they were to report things that were out of order or potentially unlawful, or items, perhaps, of oversight or negligence. We looked at the duties that were placed on practitioners and felt it was very reasonable that if in the course of discharging their duties, either directly or through information they received indirectly, practitioners should be required to bring that to light. But we were a little bit cautious that we had to be clear that it was what they discovered, not what it might be assumed that they might have learnt. So there was an amendment proposed in the report just to clarify that, to make sure that it was things that the practitioner learns about or discovers either directly in the work they’re doing or indirectly through information provided to them in the course of that work. But it does certainly place that duty on them to report those serious problems.

The other area was on solvent liquidations and particularly directors’ declarations. Previously, the situation has been that under a solvent liquidation, directors could declare a liquidation was solvent and, therefore, appoint a liquidator that was not licensed, and they would have to provide no proof and they would face no consequences if they actually did not reasonably consider that the company could pay its debts. There’s a pretty obvious potential loophole there, so in the report we recommended strengthening those existing requirements by requiring that the company’s board of directors declare that the company is able to meet all of its obligations to creditors within 12 months and by adding an offence provision, and that just tightens things up.

It does mean that if you are, fundamentally, looking at a solvent liquidation, which is the expectation that all creditors can be paid—certainly, all secured creditors—then there is no need to have, or there should not necessarily be a need to have, that licensed practitioner. There is a very different approach taken to it because it is considered that the company will have the means to pay its debts. But we do need to make sure that where such a situation is permitted, it can’t be misused, perhaps even fraudulently so. So the recommendations the committee have made just help to strengthen that and make sure that there is both a compliance requirement but also a suitable penalty if that compliance requirement is not met. That pretty much, I would argue, reflects the committee’s consideration of the SOP in general.

We supported the bill, of course. It was originally our bill. We supported the SOP and we continue to do so, but the committee went through some extensive consideration of that SOP and offered some very sound recommendations for improvement. It’s those recommendations that we are discussing tonight, and which the Minister has clearly signalled that the Government are going to adopt in full. So on that basis, we have no problem in continuing to support this bill as it progresses, and I commend it to the House.

I rise to take a very short call on this bill. The previous speaker has spoken of some of the requirements around who may practise—insolvency practitioners, and the like. I’m interested in the minimum standards to become licensed to become an insolvency practitioner. They’re contained in clause 35 of this bill—sorry, it’ll be subclause (2), and it’ll end up in a particular part of the legislation. It prescribes minimum standards for people who may be insolvency practitioners: you need a degree, a diploma, or a certificate, you might have to pass a specified exam, and you might have to demonstrate a certain level of competence. These are not just mere ticks in a box. What they are saying is that in order that someone holds themselves out as an insolvency practitioner, they must have the skills required to do the job.

We’ve had a few too many cowboys operating in this space—a few too many people who might have wanted to have practised well, but seem to have been unable to; a few too many people where things have gone wrong in insolvency practice—and, of course, by the nature of insolvency you’re already dealing with a business where something has gone wrong. We require a high standard of skill from our insolvency practitioners. From the work of the select committee and the work of successive Parliaments, we have now reached a stage where we are able to say who should be able to practise as an insolvency practitioner and to set standards for them, and that is part of what this bill does. I commend this bill to the House.

Thank you, Madam Assistant Speaker, for the opportunity to speak on the Insolvency Practitioners Bill—the consideration of the select committee report—this evening. The first thing that stands out for this bill is its age. It was first introduced in 2010 and, in fact, is just approaching its ninth birthday now, which doesn’t quite make it as old as Simeon Brown and doesn’t quite rival, I think it was, the Conservation (Protection of Trout as a Non-commercial Species) Amendment Bill, which, from memory, sat on the Order Paper for about 20 years and saw about six different Prime Ministers. So it’s not quite as old as that bill, but, I’m sure, it is much more worthy.

I would like to commend Minister Kris Faafoi for progressing this bill. He’s given a very good explanation this afternoon of what the bill does but also given a good explanation of why we’ve got to this position of having to debate a consideration of a select committee report, which is quite rare in this Parliament.

I, of course, sit on the Economic Development, Science Innovation Committee, which was previously called the Commerce Committee, which has now looked this bill twice and has recommended it both times with some amendments. I would like to commend it to the House. We will be voting for it this evening. Thank you.

This is a much-needed bill, and for a number of reasons. First of all, there is the danger of captive liquidators, who, essentially, do the bidding of the former owners and directors of firms. What this bill does is twofold. Not only does it have a licensing regime which means that liquidators will now have to pass a fit and proper person test and have the appropriate qualifications for the task, but it also requires as a matter of law for liquidators and insolvency practitioners to report director wrongdoing.

So in those kinds of situations where the liquidator sees something going wrong—looks back and sees that perhaps a director has failed to account for company funds or has operated in a position where the company was clearly insolvent or any of the other things set out in clause 71 of the bill here—then there will be an obligation to report that, and what will then happen is action will be able to be taken. This is really important because this is not about protecting the insolvent company or its owners; it’s actually about protecting creditors, and those creditors are ordinary folks, plasterers, painters, building contractors, and anyone else who the company has run up a debt with.

So what we have here is an integrity requirement that a liquidator brings to any liquidation a proper and reasonable and fair approach, so that where there are claims that can be made, because it has to be said that some liquidators are a little too focused at times on their liquidator’s fees and seeing that they get the best return on the hours they put in, whereas in many cases there is hard work to be done—hard investigative work and sometimes hard litigation management work. But that’s work that really should be done, because the creditors do not each and of themselves have the resources to do that.

Certainly, in my own practice, I’ve come across situations where liquidators have been appointed by a company director who’s put his or her own company into liquidation, and they’re more or less mates. The liquidator is in the pocket of the shareholder, and in that kind of situation it is a wrong in and of itself, but it’s a wrong that’s very hard to chase down. So one of the things with professional bodies and accredited bodies being able to accredit liquidators is it’ll make sure that people who are either poorly qualified but also not sufficiently independent, who don’t have an appropriate professional background, and who don’t understand the very significant task before them won’t be appointed as liquidators.

The other thing that this bill also does—which is very important—is it brings liquidators very clearly within the purview of the courts. Now, whilst an application can be made in courts under the existing framework, this makes the manner in which that can be done a lot clearer, it makes the powers of the courts a lot clearer, and it makes the obligations of liquidators and other insolvency practitioners a lot clearer as well. That is a very important step because with anything that’s done outside judicial scrutiny, things can go wrong. Of course, the other thing that must go on here is that there must be an appropriate report given by the liquidator at the end of any liquidation. So for that reason, I commend this bill to the House.

Just very briefly—

I call Jonathan Young.

Yes, I have called—thank you, Madam Assistant Speaker. Thank you very much for the work that the Minister has done on this bill. He’s certainly backed up the work that the Economic Development, Science and Innovation Committee have done. It’s a very technical bill, and it’s timely that we come to a closure, hopefully, on this debate now and send it to the vote. Thank you.

Motion agreed to.

The House adjourned at 6 p.m.