Insolvency industry self regulates to build public confidence
In 2016 a number of high-profile businesses have hit troubled waters. Stories of company failures, liquidations, insolvencies and receiverships have dominated the business media, and many hundreds if not thousands of New Zealanders have been affected.
As most NBR readers will know, insolvency practitioners are appointed to take control of a company when it does not have enough money to stay in business. The appointed insolvency practitioner will get paid first out of whatever money the company has left. The decisions he or she makes will significantly affect outcomes for creditors, employees and shareholders. In light of all that, it is surprising that insolvency practitioners have been unregulated for so long.
The Restructuring, Insolvency and Turnaround Association of New Zealand (RITANZ) believes it is important to respond to comments made in NBR by Damien Grant opposing the self-regulation of insolvency practitioners and criticising the Ministerial Working Group investigating regulation.
Almost anyone over 18 can operate as an insolvency practitioner, regardless of their experience, qualifications or criminal background. There is no compulsory code of conduct. There is no regulator supervising all insolvency practitioners, to whom disgruntled creditors and other members of the public may complain. There is no doubt that this lack of regulation has led to poor outcomes. It is inconsistent with the approach taken to other finance professionals such as auditors and financial advisers who are increasingly regulated. It also puts New Zealand out of step with international standards – insolvency practitioners are regulated in all other countries with whom New Zealand is usually compared.
RITANZ wants this changed. RITANZ was formed in 2014, largely to bring higher standards of professionalism, ethics and trust to the industry. In the absence of any effective government regulation, RITANZ (together with the Chartered Accountants Association of New Zealand) has set up a system of self-regulation for its members. RITANZ members who wish to be appointed as liquidators, receivers and the like must demonstrate that they are sufficiently honest and qualified, experienced or otherwise competent to take the appointment. They commit to continuing professional development. They must be insured. They are subject to practice review, and to a complaints and disciplinary procedure.
They are held to clear standards of conduct. These standards are not onerous. They have been deliberately set at levels that will not exclude honest and competent practitioners. Contrary to Damien Grant's views ("Self-regulation just creates closed shop" – NBR October 22, 2016) this is not about limiting competition. It is about minimum standards and ensuring that those who work as insolvency practitioners are committed to meeting those standards.
RITANZ has nearly 400 members. Those members come from small, medium and large firms around the country, and membership continues to grow.
Nearly a quarter of our members are insolvency practitioners who take appointments as liquidators, receivers and the like. All of them have become accredited insolvency practitioners. That means they have volunteered to meet higher standards then they would otherwise have to meet. If they fail to meet those standards they can be stripped of their accreditation, censured or fined.
The Insolvency Working Group appointed by Commerce Minister Paul Goldsmith has recommended that a similar regulatory model be incorporated into the Insolvency Practitioners Bill and overseen by a government regulator such as the Financial Markets Authority or the Commerce Commission. The minister has sought submissions on that recommendation. RITANZ supports it. I suspect that many other submitters will support it too.
Insolvency practitioners operate in complex and challenging circumstances with people who are often under financial and other stress. Those people should be able to trust the credentials, integrity and competence of the insolvency practitioner involved. Quick and affordable remedies should be available when that trust proves to be misplaced.
RITANZ continues to work hard to provide a greater level of comfort and assurance to the business community we serve, enabling practitioners to point to membership of RITANZ as a mark of quality.
Brendon Gibson chairs the Restructuring, Insolvency and Turnaround Association of New Zealand (RITANZ) and is a partner at KordaMentha.