Insolvency Practitioners Bill inches closer

More than two years after the Commerce Committee reported back on the Insolvency Practitioners Bill, Parliament took up the second reading of the Bill on September 26 – the next step in what has been a long and protracted process.

Under the current law, the restrictions on who can be an insolvency practitioner (such as a liquidator or receiver) are limited.  You must be over 18, not bankrupt or subject to the Mental Health Act, not related to the company, and not have a dishonesty conviction in the past 5 years.

There is no requirement that the practitioner have any minimum skills, qualification or experience, or even any requirement that the practitioner live in New Zealand.  There are also difficulties in enforcing the requirements as to who can be an insolvency practitioner. 

The Insolvency Practitioners Bill was introduced in April 2010 to address the enforcement difficulties.  It proposed a negative licensing regime, under which the Registrar of Companies would have the power to prohibit individuals from acting as insolvency practitioners. 

However, the Bill made few changes to the limited list of people who could not act as an insolvency practitioner.  The key additions were struck off lawyers, suspended accountants, and people with a dishonesty conviction at any time.

Most significantly, the Bill did not set any minimum requirement for qualifications or experience.

As a result, many in the insolvency industry considered the Bill to be an unsatisfactory ambulance at the bottom of the hill. 

The Commerce Committee reported back on the Bill in May 2011. 

It considered that a negative licensing system was not appropriate, for three reasons.  It said that some practitioners do not have the skills to recognise whether a business was viable or not, and which strategy to put in place. 

In addition, practitioners may misinform creditors and take advantage of the process for their own benefit.  Further, there would be no systematic monitoring of whether practitioners are acting incompetently and/or dishonestly.

It recommended changing the negative licensing to a registration system, under which all insolvency practitioners would need to be registered.

 However, the registration system proposed by the Commerce Committee would still not require insolvency practitioners to have any minimum qualifications or experience. 

As long as a person was not on the limited list of people who could not act, he or she would be entitled to register under the Act. 

This means that people will be able to hold themselves out as “registered insolvency practitioners”, implying that they meet a minimum standard of proficiency – even though they may not be qualified at all.

As a result, the amended Bill has been the subject of widespread criticism. 

In response, INSOL New Zealand and the New Zealand Institute of Chartered Accountant have jointly proposed an alternative initiative for self-regulation by the industry. 

This proposal requires an insolvency practitioner to have a licence issued by NZICA that would, among other things, require the practitioner to comply with minimum experience requirements, mandatory professional development obligations and minimum professional indemnity insurance arrangements.

However, this initiative is voluntary, and insolvency practitioners will not be required to comply with it.

In light of the criticism of the Bill, and given that more than two years have now passed since the Commerce Committee’s report, all eyes have been on the government’s response. 

During the second reading, the Minister of Commerce said that the government supports the Commerce Committee’s recommendation for registration. 

The Minister also said that a “substantial amount of work has been going on behind the scenes since the bill was reported back from the select committee”, and that the government will be introducing a supplementary order paper that proposes further amendments to the Bill. 

Interestingly, although the Minister did not specifically address the criticism of the Bill, he said that it is “especially important” that investors and creditors have confidence that “the insolvency practitioner has the minimum skills for the job”. 

Given that the current Bill sets no minimum skill level, it remains to be seen whether the supplementary order paper will address this issue. 

Progress, however, continues to be slow.  Although 12 speeches are scheduled for the second reading of the Bill, debate was interrupted half way through the third speech.  It is not clear when the supplementary order paper will be introduced, or when the Bill will progress through the remaining stages. 

If it’s anything like its path to date, progress will be slow.

Murray Tingey, David Friar and Wayne Hofer are insolvency specialists at law firm Bell Gully.