Insolvency Practitioners Bill

It’s a pleasure to speak to the Insolvency Practitioners Bill at this stage of the proceedings, and we do so generally in support. This bill has been before this Parliament for a number of years, and, if I look back at the notes, really, this started in 2010. It’s fair to say the aim of this bill is to make sure that there is a proper and decent insolvency industry in New Zealand. I’d outline to the House that this is a specialist skill, made up of a very small number of practitioners, but they do provide a vital service to companies and to creditors when companies get into distress or are in financial dire straits.

This bill, fundamentally, seeks to tighten up the industry. It also puts a regulatory regime over the top of the industry, and it seeks, through some Supplementary Order Papers (SOPs), actually, to work out how that regulation is funded. There was quite a lot of debate, and there has been quite a lot of debate, as to how that could occur. In many cases, it’s unlike many other professional entities. For a lot of other professional entities—doctors, lawyers, and accountants—there are a large number of practitioners. But, in this case, the number of practitioners is relatively small. The skills are very specialist, but they do make a real difference to the outcome for creditors and how the process is managed.

During the select committee stage, we had a variety of submissions and presentations from a variety of people expressing different views as to how this should be done. It’s my view that, after listening to those, this bill arrives at a reasonably fair position. We believe it’s quite pragmatic. To the Minister sitting in the chair, Stuart Nash, I think your Government and your people have done a reasonable job in getting us to this point.

Can I say, though, that it is different—how this is going to be approached—in terms of how the regulatory arm of this is going to be funded, from what might normally be the case. As it’s proposed—as I understand it—there’s likely to be a small charge to each company in New Zealand to fund the regulation of these services. That is very different from doctors and lawyers, who may pay their own charge, but I think, because of the small number of people involved, that’s a very suitable thing to do.

I also know that during the select committee process there was some debate about—for want of a better word—who the insolvency practitioner was actually acting for; so, whether you could go into voluntary liquidation, forced liquidation, and all the measures that are around that, and—for want of a better word—a gaming of that system and the conversations around whether that could happen. I believe we have reached agreement, and I think this Parliament can be proud of the fact that, for probably the first time since 2010, when this was first considered, we’re actually going to have a regulatory regime around insolvency practitioners which strikes the balance in providing a regulated industry full of a small number of highly qualified professionals, which will actually mean that creditors are treated fairly and appropriately in the process.

It’s not many years ago that there was a large number of insolvencies, and there are still some.

💬 Hon Member: And there will be more.

And there will be more. But what happens is that—particularly for the last five years—there has been an awful lot of media interest in people who have not felt that their rights as creditors have been adequately dealt with. This bill seeks to tidy that up, and those that are involved in corporate affairs or business, at the passing of this bill, once we’ve made the necessary changes in the SOPs, should feel a lot more comfortable that their rights are protected and that their innocent rights are actually protected against what can be large corporates. Thank you, Madam Chair.

Thank you, Madam Chair. I rise to continue the National Party’s support for this bill. I’d like to congratulate the Government on a couple of things. The first of those is that this week we have finally actually seen evidence of the Government actually being the most open and most transparent Government New Zealand’s ever seen. It was somewhat inadvertent on their part, but at least we got there. The second part I’d like to congratulate them on is continuing this work, which we started some years ago in our term of Government.

If we think about it, most of what we do we’re doing to make ordinary New Zealanders’ lives easier—easier to manage and easier to comply—or somehow protect or enhance their experience. There was very much, and has been for a long time, a perception of the insolvency arena being something, if not quite a wild west in New Zealand commerce, certainly an area that needed some serious attention. Whether it’s on the point of who the insolvency practitioner is actually working for, in whose interests they are engaged, or whether there are instances where there’s a natural motivation, of course, for them to seek to recover their own fees first, and how does that impact people a little further down the food chain. It’s been some time in its germination but it’s important that we amend the regime to give greater confidence to all participants. The participants are, obviously, not just the businesses that regrettably find themselves in need of such practitioners because they are being wound up but—not even equally so; in that situation even more importantly—those businesses that have found themselves as creditors to an insolvent business or a liquidated business who are at risk of not being able to recover the moneys that are due to them.

So I think that the general principle—that we need to tighten this up so that every participant can have more confidence in the people that will act and the way they will act and the grounds under which they will act—helps to provide, in commerce in general and business confidence in general, some reason to have a little more confidence.

The part I did want to spend some time talking about is Supplementary Order Paper (SOP) 240, which we will support. There’s no question about that. We’re not going to argue the toss on this tonight. It was discussed, albeit briefly, at the Economic Development, Science and Innovation Committee that it was the intention of officials to create a regulation-making power to see that a levy to pay for this practitioner regime would, instead of being levied against the practitioners themselves, be a much broader base and much lower levy across a larger group of companies—perhaps all entities that might at some stage be subject to liquidation under the Companies Act. We think that is the right thing in this case, but it’s not always the right thing to do.

We are very mindful on this side of the House—and I’m also mindful that the Minister in the chair at the moment also happens to be the Minister for Small Business—of the ability for Government to even inadvertently place great pressure on small businesses through small elements of compliance that in isolation might look like they are negligible or not all that serious. In this case, if we’re talking about levying this across every potential company-type entity—every entity that could be liquidated under the Companies Act—we probably are talking a couple of dollars, or not much more, per annum. We have no issue with that in this case, but the point I raise is that we should always be mindful that every few dollars we add here, there, or in other places ultimately adds up to something somewhat more than that to particularly the smaller businesses that end up carrying those burdens.

But we do think that, in this instance, the case was made by officials, and it is a very sensible case—that being that if the regime is going to cost between $750,000 and $1 million to administer each year, the alternatives are not many. Simply, you charge the practitioners, which some would argue is what we do with doctors or we do with lawyers or we do with other professions, but if we look at the number of practitioners we have taking official advice, that might mean that some of them would face levies of up to $10,000 a year. Now, that might force some of them out of business, but, equally, a point to bear in mind is that, ultimately, they would have to recover that levy somewhere. That would be recovered, when they did undertake an insolvency, from the assets of that business, and, ultimately, another creditor would then miss out. So we do support the SOP, we certainly support the bill, and we commend the Government on bringing it to fruition.

CHAIRPERSON (Poto Williams): Oh, that’s it? OK.

💬 Melissa Lee: Madam Chair.

CHAIRPERSON (Poto Williams): Melissa Lee—I call Melissa Lee. That was close.

Sorry—apologies to the members across. I was hoping that maybe the Government members might actually like to get up on their pins to speak on this bill, but obviously no one is interested. It’s a great pleasure to rise after our spokesperson has actually spoken. Brett Hudson has led us through this process of having a major discussion of whether the National Party would actually support it in terms of the Supplementary Order Paper, but this work actually began during the term of the National Government.

As both Lawrence Yule and Brett Hudson have actually said, insolvency practice is something that people really don’t want to talk about. I guess, you know, it is at the end of the business, when a business goes wrong, that insolvency practitioners come into play, but one of the key roles that they play in that process is—you know, we have to make sure that the insolvency practitioners are honourable in their role mitigating the losses for the investors. For example, are they working in the corner of the investors, or are they in the corner of the people who are, in fact, closing their business—hence, the company? Often, there may be some conflict for the practitioners—or, at least, perceived to be—and I think having people of integrity working in the insolvency practice is something that is much needed.

One of the things that this National Party is actually very big on is to make sure that we focus on the integrity of the financial systems, and that’s one of the reasons why we actually wanted to improve the system. We wanted to make sure that there was simplicity and to improve what it was from the previous term of the Labour Government, and we tried to actually do that. I’m glad that this Government is actually continuing the good work of the National Government as well.

I guess, for most of us, it is hoped that none of us ever gets involved in this situation, but for those people who are involved in insolvency cases, it is quite a stressful time. Having people who are professional in their mannerism, in their work and the way that they actually go about it, and the very fact that we worked to introduce a registration scheme with a bare minimum requirement—but to make sure that people who have the skills and people who actually deal with them know that these people have the integrity to work in this area.

💬 Chris Penk: That’s right.

That’s right—thank you. I have had a business which I had to close after a certain time. I have been involved in business over the years, and when I came into Parliament after three years of running the business, I could no longer remotely run a business, and I had to close it down. For my case, it was actually a solvent ending of that business, but for some people, when they get into trouble, it becomes an insolvent closure of their business. What that means is that whatever assets they have they need to distribute to their investors, to their shareholders, and there might be some people who are actually non-secured as well, and it is very, very stressful.

One of the things that Brett Hudson talked about was this whole issue of the Supplementary Order Paper that the Minister has introduced. It is my belief that it actually came quite late in the piece, but this party on this side of the Chamber will be happy to support that, to make sure that we continue on the path to making sure that we provide the integrity and the support of this committee behind this good bill. I commend this bill.

Thank you, Madam Chair. It’s my pleasure to speak on this bill. Look, I mean, the National Party is not generally one for introducing new regulations and regulatory systems. We do it reluctantly. In this case, I was the Minister when we reinvigorated this bill, and we did it on the basis that the successful running of any economy relies on clear and well-enforced rules around the formations and breaking up of companies. It depends on the ability of people to be able to have confidence in the way that the money that they invest in companies, or the money that they are owed by companies for work that they’re doing, has a reasonable prospect of getting paid, and if something goes wrong—which it sometimes does—that there are effective systems in place so that people can be fairly treated.

The reality of business is that things sometimes go wrong. Companies go bust in the middle of constructing buildings, for example, and there has to be a clear and robust system in place so that creditors have a reasonable chance of getting the money back, or some portion of the money back, without it (a) being eaten up entirely by fees of insolvency practitioners, and (b) being too easy for the directors of the companies that have gone bust to get out of paying their fair share to creditors.

The system that we’ve had in the past has been, I believe, too loose and not regulated sufficiently. Now, the original plan, as we know, back in 2010, was to have a kind of negative licensing regime, whereby you could do it unless you weren’t allowed to, and we didn’t think that was sufficient. So, when I was the Minister in the previous Government, we reviewed all that and came up with a positive licensing system, whereby insolvency practitioners would be regulated and there would be much more effective ways of dealing with practitioners who weren’t performing in the interests of everybody. In practice, that was very difficult to deal with under the current regime.

So we support the broad thrust of this bill. I note that, during the select committee process, there was quite a lot of concern raised by practitioners about the wording of various elements of the bill, and I was frustrated that there didn’t seem to be a meeting of minds between the officials drawing up the legislation and the industry it was seeking to work alongside. So the select committee did recommend quite a few changes to the Supplementary Order Paper, trying to make things more workable in practice, particularly for solvent liquidation. There are two basic divisions between companies that go bust and owe more than they have in assets—insolvent. Those that actually have more assets than they owe are solvent and shouldn’t have to jump through quite so many hoops in that circumstance.

The other point that I would make is there was a fair and lengthy debate about how the regime should be funded. Normally, the group that are being regulated pay for that themselves through some sort of levy, but because they’re such a very small group of practitioners, it would be a very considerable sum for each of that small group. It was felt—and I agree quite strongly—that it’s far better to have a small addition to the annual companies levy for all 500,000 companies across New Zealand, and I think that is absolutely a worthwhile levy to be paid in order to maintain the integrity of the insolvency system, so that more New Zealanders can have confidence in the way that things will be dealt with in an untidy breakup.

On that basis, we broadly support what’s been worked on here and would be very interested to continue to hear feedback from all parties concerned as it works its way through these final stages. Thank you, Madam Chair.

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2Amendments to Receiverships Act 1993

The question was put that the amendment set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 2 be agreed to.

Amendment agreed to.

Part 2 as amended agreed to.

Part 3 Preliminary provisions

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 3 be agreed to.

Amendments agreed to.

Part 3 as amended agreed to.

Part 4 Licences, accreditation, and role of Registrar

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 4 be agreed to.

Amendments agreed to.

Part 4 as amended agreed to.

Part 5 Provisions relating to insolvency practitioners

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 5 be agreed to.

Amendments agreed to.

Part 5 as amended agreed to.

Part 6 Solvent company liquidators, miscellaneous matters, and regulations

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Part 6 be agreed to.

Amendments agreed to.

Part 6 as amended agreed to.

Schedule 1

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Schedule 1 be agreed to.

Amendments agreed to.

Schedule 1 as amended agreed to.

Schedule 2

The question was put that the amendment set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Schedule 2 be agreed to.

Amendment agreed to.

Schedule 2 as amended agreed to.

Schedule 3

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Schedule 3 be agreed to.

Amendments agreed to.

Schedule 3 as amended agreed to.

Schedule 4

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to Schedule 4 be agreed to.

Amendments agreed to.

Schedule 4 as amended agreed to.

Schedule 5 agreed to.

Clause 1 agreed to.

Clause 2

The question was put that the amendments set out on Supplementary Order Paper 240 in the name of the Hon Kris Faafoi to clause 2 be agreed to.

Amendments agreed to.

Clause 2 as amended agreed to.

The Committee divided the bill into the Insolvency Practitioners Regulation (Amendments) Bill, and the Insolvency Practitioners Regulation Bill, pursuant to Supplementary Order Paper 239.

House resumed.

The Chairperson reported the Building Amendment Bill with amendment, and the Insolvency Practitioners Bill with amendment, and that the committee has divided it into two bills.

Report adopted.