1. Law Reform In Plain English Insolvency and Trustee Service August 2007

2. 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

3. Current Insolvency Regime

4. 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

5. Law Reform Background

6. Bankruptcy Numbers By Year and Petition Type

7. Debt Levels in NZ Bankruptcies

8. New Liquidations Filed With Registrar of Companies

9. 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

10. Law Reform Objectives

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

12. Law Reform Changes

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. Company Provisions

20. 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

21. 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

22. 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

23. 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

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

25. Debtor Petitions No Asset Procedure Summary Instalment Order

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

27. Keep up to Date Via Website – www.insolvency.govt.nzwww.insolvency.govt.nz Subscribe to Business update – http://news.business.govt.nzhttp://news.business.govt.nz