Law Reform In Plain English Insolvency and Trustee Service August 2007

Outline Brief Overview of Current Regime Law Reform Background Law Reform Objectives Law Reform Changes Debtor Petitions Summary Instalment Orders No Asset Procedure Voluntary Administration Voidable Transactions Liquidations/Liquidators Phoenix Companies

Current Insolvency Regime

State monopoly on personal insolvency Bankruptcy: Debtor Petition or Creditor Petition through High Court Summary Instalment Orders through District Court Liquidations: voluntary or court-ordered Official Assignee administers some liquidations

Law Reform Background

Bankruptcy Numbers By Year and Petition Type

Debt Levels in NZ Bankruptcies

New Liquidations Filed With Registrar of Companies

Law Reform Background April 2004: Draft Insolvency Law Bill, Discussion Doc December 2005: Introduced to Parliament Submissions sought and collected Passed October 2006 Awaiting implementation

Law Reform Objectives

Objective regime that everyone has confidence in Cost effective Maximise returns to creditors People back contributing to the economy more quickly Promote international cooperation

Law Reform Changes

Bankruptcy Current: prospective bankrupt files Debtor’s Petition at High Court; bankrupt once accepted. Only court can annul. Change: Official Assignee to receive and process Debtor’s Petition via post, person, electronically. OA can annul Debtor’s Petition. Debtor’s application must be accompanied by Statement of Affairs (SOA) Discharge to be 3 years from date OA accepts a satisfactory SOA Record on public register to be removed 4 years after discharge

Summary Instalment Orders Current: registered by District Court $12,000 limit limited to three years stay of proceedings as long as payments made Comment: decentralised and paper-based

Change: Registered by OA $40,000 limit; over 3 years Creditors can apply to OA to resolve disputes with claims Offence to raise credit or take out HP over $1000 without disclosure OA will be approving Supervisors and may seek a bond Looking at having supervisors use OA’s trust account Fines and student loan excluded New public register of current SIOs Summary Instalment Orders

No Asset Procedure Current: all bankruptcies administered by same system – no NAP all subject to same restrictions, period of bankruptcy, obligations, stigma Change: genuine alternative targeted at consumer type debtors aspects of bankruptcy not appropriate for every debtor encourage debtors to seek earlier intervention/assistance get them back contributing to economy quicker less social stigma more cost effective

Entry Criteria: Min $1,000, max $40,000 (CPI-adjusted biannually) Statement of Affairs completed prior to admission No realisable assets No evidence of enforcement issues / no trust use Never used before / never bankrupt / no creditors petition pending Student loans/fines not provable Official Assignee has discretion not to allow entry Cannot obtain credit or HP over $1000 without disclosure Proceedings stayed No Asset Procedure

Completion: By discharge at end of term By entering bankruptcy Termination by OA – change of circumstances Termination by OA – if wrongly admitted Creditors can apply to OA for termination at any time during NAP If concealed assets OA can seek preservation order pending application for adjudication Part of public bankruptcy register whilst current No Asset Procedure

Company Provisions

Voluntary Administration First meeting of creditors to consider proposal within 8 days Watershed meeting to vote on proposal within 20 days 75% in value of those voting must approve Automatic stay binding unsecured creditors Secured creditor has 10 days to exercise security VA not available after 10 days from filing application for liquidation Stay of proceedings IRD preferences stay

Liquidations Removes 20 cent rule for filing reports Lists of creditors to be provided Resolution for voluntary liquidation only within 10 days of being served with liquidation application Liquidator can’t have provided professional services in previous 2 years

Phoenix Companies Restricts re-use of same/similar company name for 5 years Personal liability for debts of new company if it is a phoenix company $200,000 fine or 5 years imprisonment Exception where new company set up by arrangement with liquidator Doesn’t apply to receiverships

Liquidators Regulation Removed from current bill Current options: - Strengthen existing measures in Companies Act - Voluntary accreditation - Mandatory licensing – through government agency New option: - Competitive licensing – through professional organisations

Voidable Transactions Bringing bankruptcies and liquidations in line New “continuing business relationship” test More objective Aligns with Australia Liquidator must initiate proceedings

Debtor Petitions No Asset Procedure Summary Instalment Order

When? Company provisions likely to come into force October 2007 Personal Insolvency provisions likely to come into force December 2007

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