New Zealand

NZ's personal and corporate insolvency law was refreshed with the implementation of the Companies Amendment Act 2006 (amended the Companies Act 1993) on 1 November 2007 and the Insolvency Act 2006 on 3 December 2007. NZ's insolvency law had been the subject of review since 1999. A draft bill was released on 14 April 2004 along with a discussion paper and Public submissions were sought. The bill was developed by the Regulatory and Competition Policy Branch of the Ministry of Economic Development with input from the Insolvency and Trustee Service (ITS). All relevant materials are available on the website of the Ministry for Economic Development.

Key reforms implemented include:

Personal Insolvency

• Introduction of a 'no asset' procedure as an alternative to bankruptcy for low-income debtors with no realisable assets and no means to repay their debts.
• Bankruptcy administration will be updated with the state (through the Official Assignee) continuing to administer all personal bankruptcies.
• Debtor petitions and summary instalment order applications to be filed with the Official Assignee rather than the Court.
• Amendments to the summary instalment orders procedure to make it a more efficient mechanism for avoiding bankruptcy.

Corporate Insolvency

• Business Rehabilitation - adoption of a 'voluntary administration' scheme based on the Australian model.
• Measures to address phoenix companies.
• Restrictions on liquidators - individuals will not be able to act as the liquidator of any insolvent company with which they are or have been closely involved.

General

• NZ has enacted the UNCITRAL Model Law in November 2006 and is intending to implement it when Australia adopts the UNCITRAL Model Law on cross-border insolvency in its insolvency legislation.
• Voidable transactions - there is now greater consistency between the provisions in the Insolvency Act and the Companies Act. The 'ordinary course of business' test for voidable preferences has been abolished and replaced by the fairer and more objective 'running account' test adopted from Australia.
• Priority claims have been reviewed.
  
  

Key Legislation

• Insolvency Act 2006
• Companies Act 1993
  
  

Insolvency Procedures

Personal Insolvency Procedures

Bankruptcy and its alternatives (no asset procedure and summary instalment order) are administered under the Insolvency Act 2006. The Official Assignee continues to administer all bankruptcies and will now take responsibility for the administration of no asset procedures and summary instalment orders.

Applications for entry to bankruptcy, a no asset procedure or a summary instalment order are filed with the Official Assignee. A debtor is required to complete a Statement of Affairs and an application for entry to these procedures. The Statement of Affairs and application can be completed and submitted online via the ITS website, by post or by phone. The Official Assignee reviews the Statement of Affairs and makes a decision on eligibility for entry to these procedures. Debtors are informed of the outcome of their application by post.

Bankruptcy

Debtors wishing to enter bankruptcy can do so by completing and submitting a Statement of Affairs and application form to the Official Assignee. The Official Assignee will review the Statement of Affairs and confirm entry to bankruptcy in writing to the debtor. Upon entry, the debtor becomes subject to certain restrictions for the three year period of bankruptcy. These restrictions include trading whilst bankrupt, acting as a director of a company, obtaining credit of more than $NZ1,000 and overseas travel. Debtors that initiate their own bankruptcy are discharged three years after entry. A debtor can also be adjudicated bankrupt by a Court on the petition of a creditor. A debtor that is adjudicated bankrupt in this fashion is discharged three years from the date that they file a satisfactory Statement of Affairs with the Official Assignee. All bankruptcies are administered by the Official Assignee. All debts excluding court fines, criminal reparation, maintenance and child support, and debts incurred after adjudication are extinguished upon discharge which occurs 12 months after entry.

No Asset Procedure

This is an alternative to bankruptcy for debtors with no realisable assets (assets below statutory limits) and no means to repay their debt. All debts excluding student loans, court fines, criminal reparation, maintenance and child support, and debts incurred after adjudication are extinguished upon discharge which occurs 12 months after entry. Upon entry the debtor is prohibited from incurring debt of more than $NZ1,000 without disclosing that they are in a no asset procedure. To qualify for entry to this procedure, the debtor must:

• have no realisable assets (realisable assets exclude cash up to $NZ1,000, a motor vehicle up to $NZ5,000, tools of trade, and personal and household effects);
• not previously been admitted to the no asset procedure; o not previously bankrupt;
• have total debts (excluding student loan) not less than $NZ1,000 and not more than $NZ40,000 (unsecured and secured debt); and
• complete a means test showing that they have no means of repaying any amount towards your debts.

The Official Assignee can refuse entry if:

• creditor(s) object to entry; or
• bankruptcy proceedings have been initiated and the likely outcome for the creditor would be materially better if the proceeding continued; or
• the debtor has concealed assets; or
• the debtor has committed an act that would be an offence under the Insolvency Act 2006 if the debtor were bankrupt; or
• the debtor has incurred debts knowing they had no means to pay them.

The Official Assignee on his own volition or on application by a creditor may terminate a no asset procedure where the debtor was wrongly admitted to the procedure because the debtor has concealed assets or misled the Official Assignee; or where the Official Assignee is satisfied that the debtor's financial circumstances have changed enabling them to repay an amount towards their debts.

Summary Instalment Order

This is another alternative to bankruptcy for debtors who have the means to repay their debt with an opportunity to pay part or all of their debt over a period of three years (or up to five years if special circumstances exist). A debtor or a creditor (with the debtor's consent) can apply for entry into a summary instalment order. The Official Assignee may grant a summary instalment order if:

• A debtors total unsecured debts (excluding student loans, fines, penalties, and reparation orders) are less than $NZ40,000; and
• The debtor is unable to pay those debts immediately.

Before granting a summary instalment order, the Official Assignee will allow the debtor and their creditors to make representations about the making of the order.

Corporate Insolvency Procedures

Liquidation - administered pursuant to the Companies Act 1993.

Voluntary Administration

This is a rehabilitative tool for companies in financial difficulty. This procedure has been modelled on the voluntary administration procedure that has been in neighbouring Australia since 1993. Voluntary administration gives a company some breathing space from creditor enforcement of debt while an administrator examines the company's financial circumstances and prepares a plan to rearrange the company's affairs so that it can avoid liquidation.

Creditors are involved in the process through attendance at meetings held by the administrator and are given the opportunity to vote on the administrator's proposed plan or Deed of Company Arrangement (DOCA). Creditors can vote to return the company into the control of its directors; vote in favour of the DOCA; or vote that the company be placed into liquidation.

Roles

Role played by Government

The Official Assignee, a statutory position created by the Insolvency Act 2006, administers all bankruptcies, no asset procedures, summary instalment orders and some Court-appointed liquidations in New Zealand. When an Official Assignee is appointed to act in respect of a bankruptcy, they act as an officer of the court. An Insolvency Officer from the Insolvency and Trustee Service is assigned shortly after the adjudication and will administer the bankruptcy of the Official Assignees' behalf. The Official Assignee is also able to be appointed Liquidator by the High Court to administer corporate insolvencies known in New Zealand as liquidations. The NZ Government is still considering whether there should be some type of licensing system for insolvency practitioners. A discussion document on the issue and options for reform of this area have been released with submissions sought. If such a regime were introduced, a government agency may become the licensing authority.

Role played by private sector practitioners

Private sector practitioners can be appointed administrators where a company chooses to enter voluntary administration and can also be appointed liquidators where a company is placed into liquidation voluntarily or by way of court order. However, no register is kept of these practitioners. It is generally believed that the practitioners are mainly accountants with some lawyers also practising in the area. The NZ government is currently looking at whether some type of licensing system should be introduced for private sector practitioners.

Role played by the Court

The High Court in New Zealand makes orders for bankruptcies in creditor-initiated bankruptcies and liquidations.  

At a Glance

Does the insolvency system in New Zealand allow for:

1.	Different procedures for the insolvency of individuals and the insolvency of companies?
2.	Creditors to accept an arrangement outside of formal bankruptcy/liquidation proceedings?
3.	Priority payment for employee creditors?
4.	Priority payment for taxation debts?
5.	Automatic disqualification of directors of failed companies from managing other companies?
6.	Recognition of insolvency proceedings being conducted in another jurisdiction?
7.	A government agency to undertake insolvency administration work?
8.	Some form of licensing of private sector practitioners?
9.	A review of the remuneration claimed by an insolvency practitioner by either a court or other government regulator?
10.	A mandatory scale of fees applicable to insolvency practitioner remuneration?
11.	Surveillance of the work of private sector practitioners by a government regulator?
12.	Collation of insolvency statistics by a government regulator?