Is There a Need for Greater Regulation of Insolvency Practitioners in New Zealand? Exploring the Options for Reform
| Author | Celeste Brown |
| Position | Winner of the 2016 Canterbury Law Review Student Prize |
| Pages | 111-145 |
111
IS THER E A NEED FOR GR EATER R EGULATION OF
INSOLVENCY PR ACTITIONERS IN NEW ZEALAND?
EXPLOR ING THE OPTIONS FOR REFORM
C B*
I. I
e success of any insolvency system is largely dependent on those that
administer it, namely insolvency practitioners (IPs).1 ere is no statutory
denition for an IP in New Zeala nd (NZ), though it is accepted that the
role encompasses holding oce as a liquidator, administrator or receiver.2
ese individuals carry out the most signicant formal procedures ava ilable
in NZ corporate insolvency law: liquidation, voluntary administration
and receivership.3 ese procedures are distinct from those that apply in
the personal insolvency law framework.4e formal corporate insolvency
procedures are designed to benet creditors as a collective group, with the
ultimate goal of maximising their returns.5 Ostensibly, IPs carrying out these
procedures must act with a high level of professionalism a nd honesty. Further,
they should not only have practical experience in the liquidation process, but
also strong investigative and negotiat ion skills, and a sound underst anding of
insolvency law.6 e UNCITRA L Legislative Guide on Insolvency Law
1 Vanessa Finch Corpor ate Insolvency Law: Perspec tives and Principles (2nd ed, Ca mbridge
University Press, Ne w York, 2009) at 178.
2 David Brown, David Vance a nd Je Hart “Insolvency Pract itioners” in P Heath and M
Whale (eds) Heath an d Whale on Insolvency (online loose leaf ed, LexisNex is NZ) at 1.
3 Lynne Taylor “Corporate Colla pse” in John Farrar, Susan Watson, and Ly nne Taylor (eds)
Company and Secu rity Law in New Zealand (2nd ed, Bro okers, Wellington, 2013) at 674.
Other formal c orporate procedures include comprom ise with the creditors and st atutory
manag ement.
4 See, general ly, Lynne Taylor and Grant Slev in e Law of Insolvency in New Zea land
(omas Reuters , Welling ton, 2016) at [1.3.2]. ese procedures are for t he most part
administe red by the Insolvency and Trustee Ser vice, which is a part of t he Ministry of
Business, In novation and Employment. e Insolvency a nd Trustee Service does ad minister
some Court-appointed cor porate liquidations. However, thi s is generally conned to t hose
that are ass et-less. erefore, this paper foc uses on those private IPs who are re sponsible to
maximi se any potential return to t he creditors of a company.
5 Ministr y of Economic Development Insolvency L aw Review: Tier One Public Disc ussion
Documents (Minist ry of Economic Development, Welling ton, 2001) at 15.
6 Brown, above n 2, at 4.
* Winner of t he 2016 Canterbury L aw Review Student Prize. e aut hor would like to thank
Associate Profe ssor Lynne Taylor for her supervision. Celeste i s now a lawyer working in the
corporate commerc ial team at Anderson Lloyd i n Dunedin.
112 C anterbury Law Review [Vol 23, 2017]
suggests that it is essentia l for an IP to have (1) appropriate qualications,
(2) adequate experience, and (3) certain personal qualities before ta king oce.7
ese requirements “ensure not only the eective and ecient conduct of the
proceedings and but also that there is condence in the insolvency regime”.8
e UNCITR AL suggested requirements are absent from the NZ regime.
e current rules that regulate IPs in NZ are predominantly found in the
Companies Act 1993 (CA) and the Receivership Act 1993 (RA). In reality,
almost anyone can be an IP provided they a re not disqualied by the un-
burdensome rules set out in the legislation. ere is no requirement to obtain
any qualication relating to accounting or law, and no practical experience is
needed. ere is no ‘t and proper’ person test for appointment, nor does an
appointee have to be resident in NZ. Making these requirements mandatory
in NZ has proven dicult given the small number of IPs.9 It is estimated that
only 100 practitioners regularly provide insolvency services.10
Fortunately, the majority of IPs that regularly take oce in NZ are
drawn from the accounting, a nd in some circumstances, legal profession.
ese individuals are subject to ethical and professional obligations of
their governing body: Chartered Ac countants Australia and New Zealand
(CAANZ) or the New Zealand Law Society (NZLS) respectively. e
Restructuring Insolvency and Turnaround Association of New Zealand
(RITANZ) also have regulatory powers over IPs, though membership is
optional. e regulatory regime under the C A and RA that IPs are subject to
is dependent on the supervisory jurisdiction of the Court, which is inevitably
associated with cost and delay. Moreover, the statutory provisions that
should warrant accountability are highly technical, which often allows IPs to
circu mvent punish ment.11 ere is no professional body with supervisory and
investigatory powers that al l IPs must be registered with.12 is means th at in
a minority of cases a reckless and/or incompetent person will be appointed to
oce, and the existing leg islative regime is inappropriate to deal with this. In
this circumsta nce, the collective benet for creditors the formal procedures
are designed to ensure is arguably illusory.
7 United Nations Commi ssion on International Trade Law (UNC ITRAL) Legislative Guide
on Insolvency Law ( United Nations, 2005, accesse d 28 November 2016), at 175
uncitral.org >. ese are only the minimum requi rements.
8 At 174.
9 See generall y Companies Oce “Statis tics” (4 November 2016)
govt.nz>. In 2015 companies subject to t he appointment of a liquidator was 2,337, a receiver
was 90, and in volunt ary administr ation was 31.
10 Ministr y of Business, Innovation and Employ ment “Terms of Reference Insolvency Rev iew
Working Group” (15 October 2015) at 8.
11 e problems are mos t evident when IPs are appointed on an ad hoc b asis in small to
medium size compa nies.
12 David Brown and Chris topher Symes “e Regulation of In solvency Practitioners: Gett ing
to ‘Trust and Condenc e’” (2013) 19 NZBLQ 226 at 228.
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
113
Both regulators and commentators accept that the laissez faire policy
approach that prevails in NZ is unsatisfactory: “e status quo has a
proven record of being unsatisfactory as it lacks a ny regulatory measures for
eectively dealing with the minority of practitioners who are substandard.”13
One commentator notes that the regulation is very much “after the fact”,
with little control into the profession and only reactive measures in place.14
In 2010, the Government introduced the Insolvency Practitioners Bill
(IPB) to “restrict or prohibit certain individuals from providing corporate
insolvency services”.15 However, almost seven years have passed since the Bill
was introduced, and rogue practitioners have continued to take advantage of
the lacuna in the legislation. Appropriately, the Government has since put
IP regulation back on the agenda with t he establishment of the Insolvency
Review Working Group (IRWG).16
is paper will be divided into two parts. Firstly, it will examine the
statutory regulatory regime and the case law it has generated to demonstrate
that the status quo is undesirable. It also sug gests that the proposed IPB fails
to address the regulatory gap that exists in NZ. A s such, this paper secondly
explores options for reform. It analyses the IP regulatory regimes that exist
in Australia, t he United Kingdom (UK) and Ireland to provide guidance for
legislators in NZ. It contends that the NZ Government should introduce a
positive licensing system that mandates that IPs are, inter alia, appropriately
qualied, have sucient experience, and satisfy a ‘t and proper’ person
test before appointment. Under this regime, an existing professional body
would be given overall regulatory power, while a Government entity retains
a supervisory role over this body. is co-regulatory approach is t he most
feasible given NZ’s insolvency climate.
II. I T N G R I
P N Z
A. A Statutory Regime in New Zealand
ere are no statutory requirements that an IP must satisf y in order to
be appointed. Rather, an individual may take oce provided they a re not
13 Ministry of E conomic Development “Regulation of In solvency Practitioners Reg ulatory
Impact Statement” (27 Apri l 2010) 977783 at 2. e Min istry of Economic Development
was replaced w ith the Ministry of Bus iness, Innovation and Employment i n July 2012.
14 Matthew B erkahn “Regulat ion of Insolvency Practitioners in Ne w Zealand” (2010) 18
Insolv LJ 148 at 150. is is because mi sconduct is generally only rev iewable if claims are
brought agai nst the IPs in Court proceed ings.
15 Insolvenc y Practitioners Bill 2010 (141-1) (explanatory note) at 1.
16 Ministr y of Business, Innovation and E mployment Terms of Reference Insolvency Review
Working Group (15 October 2015) at 2. is group aims to dete rmine whether the IPB
should be withdra wn, progressed or replaced. e g roup released the rst of tw o reports in
July 2016.
114 Canter bury Law Review [Vol 23, 2017]
disqualied by the ru les set out in the CA and the R A. e rules in the CA
apply to liquidators and administrators, while the rules in the RA apply only
to receivers. is paper predominantly focuses on the regulatory framework
governing liquidators. is is because liquidations are the most common
corporate insolvency procedure.17 As such, it is liquidators that have mainly
featured in the case law. It is important to note that the legislative provisions
applicable to liquidators are largely replicated in relation to those that apply
for administrators and receivers. us, the supervisory and enforcement
regime is very similar for all three oce-holders.
Section 280 of the CA provides that, unless the High Court (the Court)
directs otherwise, anyone can be appointed as a liquidator provided they are
over 18 years old; are not in a direct continuous business relationship with the
company; are not an undischar ged bankrupt; and are not subject to treatment
under the Mental Health (Compulsory Assessment and Treatment) Act
199 2.18 Understandably, the individuals that are excluded by the legislation
are those who are most likely to experience a conict of interest in their role,
and those who are expected to lack the necessary competence.19
Despite these prohibitions, for such a specialised profession it is arguable
that the absence of any positive requirements in the legislation prima facie seems
incongruous given a liquidator’s statutory duties and powers. For example,
the principal duty of a liquidator is to take possession of, protect, realise and
distribute the company’s assets or proceeds to the company’s creditors in
accordance with the CA, and then to distribute any surplus assets to those
entitled in a reasonable and ecient manner.20 A liquidator is a company’s
agent.21 ey have the power to, inter alia, commence legal proceedings, sell
or dispose of property, and set aside specied types of transactions occurring
prior to liquidation.22 Accordingly, a liquidator owes the duciary duties and
duties of care that all a gents owe to their principals. is ma kes them “subject
to external rules a nd ethical obligations”.23 ey are also ocers of the Cour t
who are “obliged to act in a manner consistent with the highest principles”
and are “not permitted to take advantage of the strict legal rights available
to them if to do so would mean that they were acting u njustly, inequitably,
or un fai rly ”.24 Creditors and other concerned parties should be assured that
competent individuals are carr ying out these roles. is, however, cannot be
guaranteed under the current statutory scheme.
17 Companies O ce, above n 9.
18 Companies A ct 1993, s280. Similar rules apply to ad ministrators and rec eivers. See
Companies Ac t 1993, s239F; Receivership A ct 1993, s5.
19 Lynne Taylor “Receiversh ip” in John Farrar, Susan Watson, and Lynne Taylor (eds)
Company and Secu rity Law in New Zealand (2nd ed, Bro okers, Wellington, 2013) at 687.
20 Companies Act 1993, s253.
21 Dunphy v Sle epyhead Manufacturing Co Ltd [20 07] 3 NZLR 602 (CA).
22 Companies Act 1993 sch 6 cl (a), (e), and (g).
23 Dunphy v Sleepyh ead Manufacturing Co Ltd, ab ove n 21, at [22].
24 Strategic Fina nce Ltd (in rec & in liq) v Bridgman [2013] 3 NZLR 650 at [108].
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
115
It is important here to distinguish the methods in which liquidators
may be appointed. ey may be appointed by a special resolution of the
shareholders, a resolution of the board on the occurrence of an event specied
in the company’s constitution, or the Court.25 Appointment of a liquidator
is also an option open to creditors of a company in administration at what
is known as the “watershed meeting”.26 It is via shareholder and director
appointments that there is most risk of incompetent practitioners being
appointed.27 Another risk is the appointment of “friendly liquidators” who
may not act in the interest of creditors as a collective group by failing to
pursue valid claims a gainst the shareholders and directors should they arise.28
It is relatively easy for delinquent individuals to assume appointment under
this method and gain access to signicant monies and assets that IPs are
regularly entrusted with. All liquidators, however appointed, are subject to
the Court’s oversight and are on an “equal footing”. Liquidators appointed by
shareholders, however, are likely to need more supervision, given that they are
generally appointed on an ad hoc basis.29
e legislation does not require IPs to be registered with a professional
body with supervisory a nd investigatory powers, such as CA ANZ or the
NZLS. is means t hat if a creditor or other concerned wishes to have the
conduct of an IP reviewed, when the IP is not a member of the aforesaid
bodies, the concerned party must apply to the Court under the appropriate
sections of the legislation: ss 284 and 286 of the CA where the pract itioner is
a liquidator, and ss 239ADS - 239ADV if the individual is an administrator.
e Court has simila r supervisory powers available under ss 34, 35 and 37 of
the RA if t he practitioner is a receiver.30 ese methods are not only costly,
but as will be demonstrated below, some of the sections are highly technica l
and have a number of shortcomings.
25 An adminis trator may be appointed to a company by the c ompany itself via a resolution of
the board of dire ctors, and also by a liquidator, sec ured creditor and the Court : Companies
Act 1993, s239H(a)(e). e Court may a lso appoint receivers. However, they a re most
commonly appointed priv ately pursuant to a right acc orded to a secured creditor under
the terms of its ar rangement (usually in the form of a g eneral security ar rangement) with a
debtor company: Rec eivership Act 1993, ss2 and 6.
26 Companies Act 1993, ss241(2) and 239ABA(c).
27 e Court in Jacobsen Creat ive Surfaces v Smiths City Ltd (1993) 6 NZCLC 68, 422 at 4 37
set out its own principles t hat should be taken into acc ount when a liquidator is appointed.
is includes inde pendence; resources of the liqu idator; the wishes of the cred itors and
contributories; compet ence and experience; promptnes s; and the liquidator’s familia rity
with the company. See late r discussion at Section II(B)(2)(b)(iii).
28 Brown, above n 2, at 5.
29 ANZ National Ba nk Ltd v Sheahan [2013] NZLR 674 at [137][138].
30 e Court also has a gener al power under s 301 of the CA to inquire into t he conduct
of all IPs and order t hem to repay money or return property i f they are found guilt y of
misfeasance.
116 Cante rbury Law Review [Vol 23, 2017]
B. Summary of Case Law
An up-to-date summary of relevant case law provides a useful way to
illustrate the need for greater regulation of IPs in NZ. It is also the only
reliable information regarding issues a nd concerns about the conduct of IPs
at the moment. Other evidence is merely anecdotal.31 It is important to note
that the case law is not likely to be tr uly representative of the extent of the
problem, given the lack of incentives available for creditors to take action
against IPs. Summa rising ss 284, 286, and 283 will provide a framework
to highlight how these provisions have been used to address relevant issues
related to liquidators including general misconduct, remuneration and
matters of conicts of interest or independence.
(1) Section 284
is section grants the Cour t general supervisory powers over the
conduct of liquidators. ose entitled to make an application as of right
are the liquidator and the liquidation committee. A creditor, shareholder,
other entitled person32 or director may also make an application, though
they will need the leave of the Court. e eight orders the Court may make
are listed in s 284(1). ese include giving directions in relation to any
matter arising in connection with t he liquidation; conrming, reversing or
modifying t he acts of the liquidator; granting a declaration as to the validity
of a liquidator’s appointment; or reviewing and xing the remuneration of
the liquidator to ensure that it is reasonable.33 ese powers are in addition
to any other powers a Court may exercise in its jurisdiction relating to
liquidators under pt 16 of the Act. ey are also exercisable if the liquidator
is no longer acting, or if the company has been removed from the register.34
(a) Seeking leave
In Trinity Foundation (Services No 1) Ltd v Downey the Court held that
a creditor seeking leave to make an application under s 284 must establish
that they have an arguable case. is has two characteristics. First, a
credible factual basis a nd second, a reasonable likelihood that, if the cla im
31 Because t he number of IPs in NZ is based on anecd otal evidence only, coming up wit h
a solution is not an eas y task. is makes it pa rticularly di cult to determine whether
stringent reg ulation recommendations, su ch as imposing quali cation requirements or
establish ing a supervisory body t hat would result in complianc e costs, would be justie d
based on the siz e of the industry.
32 Section 2 of the Compan ies Act 1993 denes an “entitled person” as a per son upon whom
the constitution c onfers any of the rights and pow ers of a shareholder.
33 Companies Act 1993, s284(1)(a), (b), (e), (f) and ( g). e other orders include directi ng an
audit of the account s of the liquidator, and making ot her orders that the auditor request s,
directing t he retention or disposition of records of t he liquidator or company itself.
34 Companies Act 1993, s284(2).
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
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is established, the Court w ill disturb the act or decision in question. e
liquidator’s decision thus needs to be regarded as “unreasonable”35 and the
onus of proof in establishing this lies with t he challenger.36 is threshold for
leave strikes a balance b etween preserving the rights of meritorious claimants,
while ensuring that t he assets of a company are not frittered away as a result of
the claims that a re not likely to succeed.37 It also “favours allowing liquidators
to make business decisions which they, as the persons appointed to exercise
statutory responsibilities, are better qualied than the Courts to make”.38
Applicants who do have an “arguable case” will not be able to pursue the
claim if they are not listed a s an entitled person under s 284(1). is was
conrmed in Ocial Assign ee v Norris.39 Beginning in June 2010, the Registrar
of Companies (the Registrar) received signicant complaints about Norris,
thorough investigation, the information was referred to the Ocia l Assignee
(OA). e OA made wide-ranging allegations against Norris, including that
he failed to comply with his principal duty under s 253 of the CA; combined
the funds of the companies’ and his own business; charged unreasonable and
excessive fees; and failed to keep f ull and accurate records.41
Having regard to the gravity of Norris’s conduct, the OA rst sought orders
under s 284(1)(a).42 However, Norris was conveniently able to strike out the
claim, as the OA was not listed as a n entitled person to seek the exercise of
the Court’s supervisory power.43 Mallon J noted that s 284(1) operates as
a “ltering mechanism” designed to ensure that the actions of liquidators
are challenged only in appropriate cases.44 His Honour added that s 284 “is
also designed to ensure that such challenges are brought only by those with
a suciently direct interest in the liquidation.”45 e OA sought to rely on
the Court’s inherent jurisdiction, but the Court was reluctant to exercise its
jurisdiction as a way around the limits prescribed by the statute.46 is case
suggests that it may be appropriate to amend s 284(1) to enable any other
person, who is able to show the Court that they have a direct interest in the
liquidation, to make an application. e OA, being the person appointed by
35 Trinity Foundatio n (Services No 1) Ltd v Downey (2005) 9 NZCLC 263 at [21].
36 Commissioner of Inla nd Revenue v Hulst (2000) 8 NZCL C 262, 266 (HC) at [28].
37 Trinity Foundation (Ser vices No 1) Ltd v Downey, above n 35, at [22].
38 Levin v Lawrence [2012] NZHC 1452 at [54].
39 is is a leading ca se regularly cited whic h exemplies the inadequ acies of New Zealand ’s
current regime. S ee generally M Tingey, D Friar and A Sm ith “Deciencies exposed in
regulation of in solvency practitioners” (1 August 2 012) National Busi ness Review
nbr.co.nz>.
40 Ocial Assign ee v Norris [2012] NZHC 961 at [5].
41 At [9].
42 At [1]. Section 284(1)(a) allows the Court to give di rection in relation to any matt er arising
in connection wit h the liquidation.
43 Ocial Assignee, above n 40, at [28].
44 At [18]. Citing Trinity Foundation (Servic es No 1) Ltd v Downey (20 05) 9 NZCLC 263 at
[21].
45 At [18].
46 At [30].
118 Cante rbury Law Review [Vol 23, 2017]
the Registrar to review the complaints about Norris, would arguably have a
sucient interest in the circumstances.
(b) Remuneration of liquidator: s 284(1)(e) and (f)
An application to review or refund the remuneration of a liquidator
appears to be the most common claim made under s 284(1). While a number
of applicants have been successful in challenging the fees of unscrupulous
IPs, the case law illustrates the diculties of bringing such a clai m. A clear
example is Rai v Chapman. e liquidator, Chapman, refused to make his
records available to an independent accountant to assess t he reasonableness of
his work; he failed to respond to the requests to hold shareholders meetings;
he failed to respond to telephone calls and any form of correspondence; and
charged excessive fees.47
Invoices provided by Chapman showed that he charged fees of $62,767.89
pl us GS T.48 A ssociate Judge Bell analysed Chapman’s time records, stating
that they were simply not accurate enough to determine what he was doing
for days on end. He was also particu larly critical of Chapman’s decision to put
the company into liquidation before the completion of the sale of the business
and assets. His Honour considered that this decision was a mistake and that
any IP would have advised the company to carr y on trading under current
management.49 Accordingly, the Court found that this error of judgment
resulted in a lot of unnecessar y charges and diculties that Chapman should
be personally re sponsible for.50
In his concluding remarks, Associate Judge Bell drew attention to the
practical and emotional diculties of bringing a claim against a liquidator.
He noted that most times it is not even worthwhile bringing a claim a gainst
them, which “leaves the liquidator in a position of some immunity”.51 He
therefore praised Rai for challenging the conduct of Chapman, indicating
that an amount of unprofessional conduct by IPs is likely not detected.
Interestingly, in a subsequent hearing Chapman was ned $2,000 for not
adhering to a Court order to hand over all records relating to the liquidation
after being replaced as liquidator by a shareholders’ resolution.52 Associate
Judge Bell determined that his “tardiness deserves punishment” and that his
slow compliance reects badly on him as a liquidator.53 Notwithstanding
this, Chapman is still legally able to practice as an IP today.
47 Rai v Chapman HC A K CIV-2010-404 -002300 [30 July 2010] at [6] and [17].
48 At [11] and [25]. He had charge d himself out at $200 an hour a nd his secretary out at $140,
plu s GS T.
49 At [28].
50 At [29]. Chapman’s expenses were xed at $25,000 a nd he was required to return a ll
payments he received i n excess.
51 At [35].
52 Rai v Chapman , above n 47. Chapman had a lso failed to repay the money owe d from the
original judgment.
53 At [8].
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
119
e facts of Chapman were similar to those in Healy Holmberg Trading
Partnership v Grant. In this case the applicant claimed that t he appointed
liquidators, Grant and Khov, acted unreasonably and improperly by taking
signicantly high fees for themselves.54 e Court rst acknowledged that
liquidators appointed by shareholders resolution are not bound by reg 28
of the Liquidation Regulations 1994.55 is means that the Court ha s no
formula to determine what a reasonable fee is for liquidators appointed via this
method, as the case wa s here. Rather, it must refer to previous jurisprudence
to decide a fee for the case before it, taking into account the complexity of
the liquidation, the experience of the practitioner, and the actual work carried
out.
Citing Hammond J in Re Goldamost Dynamics (NZ) Limited (In
Liquidation), Robinson J noted “liquidations are not a bottomless well
from which insolvency practitioners may drink” and that “where there is
demonstrated misconduct on the part of the liquidator, fees may be disallowed
in whole or in part”.56 On the facts, his Honour observed that the liquidators
could not provide sucient evidence that allowed the Court to identify t he
true prot from their fees, and that they had been guilty for double charging
in a number of instances.57 Additionally, he established that there was
evidence that unnecessa ry costs were incurred as a resu lt of the practitioners’
inadequate preparation for the liquidation as a whole.58 Specically, they
made little eort to obtain the best possible price for the assets they seized.
Robinson J, therefore, found that the liquidators were guilty of misconduct
and the remuneration for their work was xed at $20,000.59
e distinction between liquidators appointed by the Court and those
appointed by shareholders was also discussed in Re Roslea Path Ltd (in
liquidation).60 Heath and Venning JJ drew attention to the diculties of
determining what ‘reasonable remuneration’ is when private individuals
are appointed under s 241(2)(a) of the CA. In practice, it means that
creditors must take an active stance in challenging remuneration charged
by these liquidators. Otherwise “unscrupulous liquidators may charge as
they like.”61 eir Honours held that fair and reasonable remuneration was
reected in the value of services provided. However, value in this sense went
54 e Healy Holmberg Trading Partnershi p v Grant HC AK CIV 2009- 404-002279 [15
December 2009] at [8]. e liquidator s charged fees of $74,825.46 (charged the mselves
out at $350 an hour) and there was a n additional deduction of $27,939.84 for unspecied
disbursements . e applicant accordingly s ought relief under s 284 (1)(e) and (f).
55 At [32]. Reg 28 of the Liquidation Reg ulations 1994 species that t he Ocial Assignee
and Court appoi nted liquidators are to charge f ees of no more than $200 per hour, and
employees of the liquida tor no more than $140 per hour.
56 At [40].
57 At [ 41].
58 At [49].
59 At [64].
60 Central to this cas e was an order under s 284(1)(f) of the CA to deduc t some of the
remuneration of interim l iquidators appointed over a farmi ng business.
61 Re Resola Path Ltd (in liquidation) [2013] 1 NZLR 297 at [40].
120 Canterbur y Law Review [Vol 23, 2017]
beyond mathematical application of hourly rates and hours administering
the company’s aairs. Instead, it had to be proportionate to the nature,
complexity and extent of the work undertaken.62 A lthough Re Roslea Path was
a liquidation case, there is “no reason in principle why the Court’s approach to
xing a liquidator’s remuneration should dier from that applied to a receiver
or an administrator.”63
ese cases raise the question whether dierent remuneration procedures
should apply to liquidators if they are appointed by dierent mechanisms.
In Re Roslea Path Heath and Venning JJ stated that “the premise [that the]
liquidator is an experienced insolvency practitioner in whom the Court could
have trust and condence in is not a feature of the 1993 Act”.64 erefore, it
is arguable that there needs to be more regulation around the fees that IPs
appointed by shareholders can charge. is is, of course, in addition to the
changes that a re needed with regard to the regulations that govern the criteria
for admission, and the existing super vision and enforcement provisions.
(2) Section 286
is section gives the Court t he power to make a range of orders. Most
important are orders for a liquidator to comply with a relevant duty imposed on
him or her (s 286(3)),65 an order removing the liquidator from oce (s 286(4)),
and an order prohibiting the liquidator from acting as such for a specied period
(s 286(5)). e persons who have standing to apply for these orders are listed
in s 286(1). e list includes a liquidator,66 a liquidation committee, a creditor,
shareholder, director, other entitled person, and the OA. It also includes in
some circumstances a receiver, the President of CAA NZ, and the President of
the NZLS .67 In contrast to s 284, no special leave is required from the Court for
any party. However, a number of procedural requirements must be satised.
(a) Procedural requirements
First, a notice of the failure to comply must be served on the liquidator not
less than ve working days before the date of the application.68 is is to give
the liquidator the opportunity to remedy the alleged fa ilure and to avoid the
Court’s involvement.69 Second, the failure to comply must still be continuing
when the application is heard. If these two requirements are met, it lays the
62 At [10 2][108 ].
63 At [182].
64 At [36].
65 e duty may aris e under statute, the rule of law or t he Court. See s 285 of the CA.
66 It also includes a person seeki ng appointment as a liquidator.
67 Under the Insolvency Prac titioners Bill 2010, it is proposed that the Re gistrar of Companies
be added to the list .
68 Companies Act 1993 a 286(2). “Failure to comply” is de ned in s 285 of the Companies
Ac t 1993.
69 Taylor and Slevin, above n 4, at 618.
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basis for the Court to make a n order enforcing the liquidator to comply with
their duty or relieving the liquidator from having to comply either wholly or
in part.70 e Court may also remove the liquidator from oce if these two
requirements are met or if the person becomes disqualied under s 280.71 If
the Court is satised that a person is unt to act as a liquidator by reason of
persistent failures to comply or the failure is considered serious, the person
may be prohibited from acting as a liquidator.72 However, this order has an
additional procedural requirement: the applicant must par ticularise the ground
upon which the order is sought.73 e period of time the liquidator will be
prohibited for is a matter for the Court, which may be an indenite period.74
(b) Removal orders – specic examples
Where the liquidator becomes disqualied under s 280, removal under s
286(4) will not generally be complicated as demonstrated by Commissioner of
Inland Revenue v Xu. e applicant arg ued that the liquidator, Xu, had a clear
conict of interest as he, and his employer, provided professional services to
the company less than two years before it entered liquidation and he had
a continuing business relationship with the company, having shared their
operation premises.75 ere was also evidence that Xu had failed to comply with
a number of statutory obligations.76 Gendall J was, t herefore, satised that there
were sucient circumstances to remove Xu from oce under s 286(4)(a).77
(i) Is s 286(4) a stand-alone removal provision?
Orders to remove liquidators from oce, on the basis of general
misconduct, are regularly dismissed by the Court if they fail to satisfy the
stri ngent notic e requirem ents.78 is has given rise to an is sue of whether s 286
is a stand-alone section that gives the Cou rt the power to remove a liquidator,
or whether s 284 also grants the power of removal under the auspices of
its supervisory controls. Associate Judge Bell in McMahon v Ah Sam sought
to clarify the position.79 His Honour drew attention to the Companies Act
70 Companies Act 1993, s286(3).
71 Companies Act 1993, s286(4).
72 Companies Act 1993, s286(5).
73 Namely a matter of persist ent failures or the seriousnes s of the failure. See Ocia l Assignee v
Norris, above n 40.
74 Companie s Act 1993, s286(5)(b).
75 Commissioner of Inl and Revenue v Xu [2009] NZCCLR 10 at [9].
76 At [11]. i s included failing to adv ise the Registrar of h is appointment within 10 working
days and fai ling to send a report to the creditor s within 5 working days.
77 Accordingly, an order was als o made reversing Xu’s nal report u nder s 284(1)(b).
78 See generally Ra i v Chapman, above n 47, at [21]; e Healy Holmberg Trading Partne rship v
Grant, above n 54, at [30]; Ocial Assi gnee v Norris, above n 40.
79 In this case the a ctions of the liquidator were not considere d inappropriate. However, the
judgment is importa nt as it claries the sc ope of ss 284 and 286.
122 Canterbur y Law Review [Vol 23, 2017]
1955, which allowed the Court to remove a liquidator “on cause shown”.80
However, he noted that the provisions under the 1993 Act a re quite dierent,
and that ss 284 and 286 gra nt separate powers. 81 He interpreted s 286 to be
a stand-alone provision that enables the Court to remove a liquidator. His
Honour found that “the carefully prescribed procedures under that section
cannot be outanked by applying under s 284.”82 He went on to note that
s 286 has been criticised for being “too narrow” especially when compared
with the wide-ranging power under the 1955 Act.83 However, the reasons for
these procedural requirements were to “spare liquidators from being subject
to general wide-ranging attacks”.84 Associate Judge Bell remarked t hat it was
not his job to comment on the law further, but simply to apply it.
On the basis of this authority s 284 ca nnot be used to remove a liquidator
from oce.85 However, in Hyndman v Newson, seven months after McMahon
was delivered, Associate Judge Osborne declined to interpret s 286 as a sta nd-
alone provision. His Honour concluded that “the s 284(1)(a) jurisdiction
includes in appropriate circumstances the removal of a liquidator”.86
is decision, therefore, casts doubt on the scope of the provisions and
adds further uncer tainty, making reform of these sections necessary.
(ii) Reviewing a liquidator’s appointment: s 283(4)
A vacancy in the oce of liquidator of a company may arise if t he holder
of that oce resigns, dies or becomes disqua lied under s 280.87 In the event
of a resignation, the departing liquidator may appoint a successor liquidator.88
However, the Court may review the appointment of the successor liquidator
and, if appropriate, appoint another person.89 is limited provision,
therefore, provides another avenue to remove a liquidator (separate from s
286(4)) if the liquidator’s initia l appointment is declared invalid. e persons
entitled to make an application for review include the company; a shareholder
or other entitled person; a director; or a creditor of the company. 90 e case
of Fisher International Trustees Ltd v Waterloo Buildings Ltd (In Liquidation)
illustrates this procedure and, also highlights t he high threshold that is
required for removal under this method. e director of Waterloo Buildings
Limited, Brent Clode, initially appointed his brother-in-law, Michael Cooper
80 Companies Act 1955, s237(1).
81 McMahon v Ah Sam [2014] NZHC 659 at [13].
82 At [27].
83 At [34].
84 At [34].
85 is was cert ainly the approach take n in Chapman, Healy Holmberg Trading Partnersh ip,
and Norris.
86 Hyndman v Newson [2014] NZHC 2513 at [51].
87 Companies Act 1993, s283(1).
88 Companies Act 1993, s283(2).
89 Companies Act, s283(4) and (7). See R e Hilltop Group Ltd (in liq) (1998) 8 NZCLC 261,
505 (HC).
90 Companies Act 1993, s283(4).
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as l iquid ator.91 However, Cooper later had to resign from oce, as he was
declared bankr upt. Accordingly, Brent made a second appointment, Peter
Clode, who was supposedly Brent’s brother and a sports masseuse living in the
United States.92 Peter was later replaced by one of Brent’s Facebook friends,
Melisa Watson. Watson had a Bachelor of Science, but did not appear to have
any signicant experience in winding up companies.93 It was also suggested
that she was under the inuence of the company’s sole director.94
e creditor, Fisher International, challenged the appointment of Watson
under s 283(4) of the CA, arguing that she was not qualied or independent
and should be replaced as liquidator. White J noted that under ss 256 - 258A
a liquidator has a number of statutory duties that require a level of skill,
and competence. As such, they should have the appropriate qualications,
experience and resources to carry these duties in a reasonable and ecient
man ner.95 His Honour stated: “the Court has a duty, in the wider public
interest, to ensure that interests of persons concerned in the winding up are
best served by the appointment.”96 Citing Re Trafalgar Supply (In Liquidation),
he also noted that there must be a factua l foundation to support any suspicion
before the person’s appointment can be reviewed.97 is would need to be
proven on the balance of probabilities.98 However, in the circumstances, a
further hurdle needed to be satised : the liquidator had a lack of independence
that had been overwhelmingly demonstrated, and that there was a great
urgency to replace them.99
Despite being satised that there was a factual foundation for suspicion,
the Judge was not convinced that it had been overwhelmingly demonstrated
or that it was urgent to replace her. An order was, therefore, made to le and
serve an adavit to prove that she was appropriately qualied, e xperienced, and
impart ial.100 In a subsequent hearing, Watson failed to ta ke the opportunity
given to her.101 White J held that this behaviour showed that she was not
competent to act as a liquidator and removed her from her position.102 is
case exemplies the frustrations on behalf of the judiciary, which expressed
that IPs should be appropriately qualied to take an appointment of such
responsibility. However, it is limited in the way it can cha llenge appointments,
given that there are no positive statutory requirements to take oce.
91 Fisher International Trustees Ltd v Waterloo Buildings Ltd (in liquidation) and HC AK CIV-
2009-40 4-00640 [12 November 2009] at [7].
92 Jane Phare “Clode Meets his Waterloo” (8 November 20 09) .
93 Fisher International Trustees Ltd v Waterloo Buildings Ltd (in liquidation), above n 91, at [5].
94 Westlaw NZ Company Law (online loosele af ed, omson Reuters) at [CA283.02].
95 Fisher International Trustees Ltd, above n 91, at [19][20].
96 At [21].
97 At [23].
98 At [25].
99 At [28].
100 A t [31].
101 Fisher International Trustees Ltd, above n 91. She did not make an attempt to provide any
adavit evid ence, nor did she make an attempt to be he ard orally.
102 A t [7].
124 Canterbur y Law Review [Vol 23, 2017]
(iii) Suitability of incoming liquidator – criteria of the Court
e decision of Waterloo Buildings is also important as it discussed the
competence requirements to be considered following an application by
creditors under s 243(7) to replace a liquidator appointed by the Court.103
e requirements, which were established in Jacobsen Creative Surfaces
Ltd v Smiths City Ltd,104 are a lso relevant to the exercise of the Court’s
discretion under s 283(4) today.105 Briey, the incom ing liquidator should
be independent, competent and have sucient experience and resources to
conduct the liquidation. ey should also consider the wishes of the creditors
and contributories, have familiarity with the company, and carry out the
liquidation eciently and promptly.106 ese criteria stand alongside the
disqualif ying requirements listed in s 280.107 However, as demonstrated,
these specic criteria need not be satised when private individuals a re
appointed by shareholders or the board of directors under s 241(2)(a) and (b).
It is, therefore, arguable that similar criteria, particularly those that require
experience and competence, should be incorporated into the statutory regime
to ensure that appropriate individuals are appointed at the outset. is
will allow the company to be wound up in a more ecient manner.108
(c) Prohibition orders – specic examples
e recent case of Commissioner of Inland Revenue v Kamal highlights the
procedural dicultie s of s 286(5). Kamal was the liquidator of two c ompanies
known as Hillm an Ltd and GDZ Ltd. e Commissioner alleged that Kamal
had a continuing business relationship with the directors of both companies.
Accordingly, she claimed that Kam al failed to certify that he wa s disqualied
by s 280(1) of the CA. 109 e Commissioner requested that Kamal rectif y
his failures by resigning from the companies and providing an undertaking
that he would not accept appointment as liquidator of any company for ve
years.110 If Ka mal did not do as requested, the Commissioner advised that
she would apply for a prohibition order under s 286(5). Kamal resigned as
liquidator from the companies but did not agree to the undertaking.
Kamal wa s subsequently able to strike out the application for the
prohibition order. is was because Kamal’s “failures to comply” were no
longer “continuing” as required by s 286(5), when the Commissioner’s
103 Compa nies Act 1993, s243(7).
104 Jacobsen Creative Surfaces, above n 27. ese factors were developed to provide g uidance
when appointing a repla cement liquidator under s 235(c) of the Companies Act 1995. e
equivalent provision i s today found in s 243(7) of the Compan ies Act 1993.
105 Fisher International Trustees Ltd, above n 91, at [22].
106 Jacobsen Creative Surfaces, above n 27, at 437.
107 Lynne Taylor “e R egulation of Insolvency Pra ctitioners in New Zeala nd” (2008) 16
Insolv LJ 150 at 156.
108 Compa nies Act 1993, s253.
109 Commis sioner of Inland Revenue v Ka mal [2016] NZHC 1053 at [9][10].
110 At [20].
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proceedings were led.111 e Commissioner sought to rely on the Court’s
inherent supervisory jurisdiction under s 284(2) to prohibit Kamal from
taking oce in t he future. However, Smith J stated that this provision could
not be relied on when interpreting s 286.112 His Honour drew attention to
the “arguably unfortunate consequence” of this interpretation noting that
“a defaulting liquidator will always be able to avoid a prohibition order
by the simple expedient of resigning before the creditor’s proceeding is
commenced.”11 3 His Honour stated that if this lim itation was not intended by
Parliament, it ought to be corrected by the legislature. However, until this was
done, he could not stretch the wording to bear a contrary interpretation.114
In Ocial Assignee v Norris, the OA also sought to rely on s 286(5).
However, the Court held that the notice given by way of a draft statement
claim was not ‘notice’ as Norris was left in a position not knowing how to
rectify his failure to comply.115 Furthermore, the OA did not specify the
grounds on which he sought the prohibition order, namely he did not specify
whether he was relying on “the seriousness of the alleged failures or their
persistency”.116 In Rai v Chapman the Court noted that it had the power to
make a prohibition order under s 286(5) though, while Chapman’s conduct
was concerning, it considered that the circum stances were not serious enough
to make such an order. 117 At present, the statute provides little guida nce
of when conduct will be ‘serious’ enough to warrant a prohibition order.
(i) A lack of ‘tness’ will not warrant a prohibition order
e case of Kamal also conrms that previous convictions, including
those relating to dishonesty, will not preclude a liquidator from taking oce.
Kamal had prev ious convictions under the Tax Administration Act 1994
for aiding and abetting a company in providing false income tax and GST
returns, and by supplying misleading information to the Commissioner.118
In light of this, the Commissioner argued that Kamal wa s not ‘t’ to act
as a liquidator and should be prohibited from acting. e Commissioner
argued that the list in s 280, which disqualies liquidators from acting, is
not exhaustive.119 On this interpretation she relied on s 286(5), as well as
the Courts supervisory jurisdiction under s 284, to found a broad duty of
tness.120 However, the Court was reluctant to adopt this argument nding
111 At [68].
112 At [69].
113 At [77].
114 At [78].
115 Ocial Assignee, above n 40, at [57].
116 At [74]. e proceedings were staye d until the OA gave sucient notice a nd properly
particularised its claim.
117 Rai v Cha pman, above n 47, at [22].
118 Commissioner of Inland Revenue, above n 109.
119 At [36].
120 At [45].
126 Canterbur y Law Review [Vol 23, 2017]
that there is no overarching ‘tness’ requirement for liquidators. Smith J
was of the opinion that, because Parliament had set out such a lengthy and
detailed list in s 280, it was not appropriate to add to that list.121 Undoubtedly,
this case reinforces that the absence of a ‘t and proper’ person test in the
legislation ought to be reviewed.
(3) General misconduct with no ss 284 or 286 application
e recent judgement of McKay v Johnson highlights once again the need
for regulation of IPs.122 However, the Court made no mention of removing or
prohibiting Smith from oce under ss 284 or 286. e key issue before the
Court was whether Smith had received monies belonging to t he companies
that were secured to Westpac, and failed to account for such receipts.123
Westpac had only become aware of Smith’s appointment in March 2014,
when he led the rst liquidator’s report identifying Westpac incorrectly as
an unsecured creditor.124 Subsequently, Smith was ordered to le an adavit
setting out, inter alia, details of the companies’ assets that he had dea lt with
since his appointment, and the details of any assets that he had previously
had in his possession. Smith’s adavit evidence was considered decient and
it was established that Smith had fa iled to comply with his statutory duties to
le reports in respect of the companies at six-month intervals.125
In a later adavit, Smith made a claim t hat had never been advanced.
is was that, in December 2013, he had sent notice to Westpac under s 305
of the CA requiring Westpac’s election, which if defaulted, its security would
be deemed abandoned.126 Annexed to that document was a letter recording
discussions of a meeting where the s 305 notice had been considered. 127 e
result of these documents, Smith claimed, wa s that Westpac’s security was
invalid.
e Court held that Smith had fabricated the documents. is was
supported by forensic evidence that suggested the documents were created
on dates that were signicantly later than those suggested by Smith.128 It
was also relevant that Smith had a history of dishonesty, which included
convictions for tax evasion, theft, fraud and falsifying documents.129 Muir J
noted that the work undertaken by a liquidator must result in an indisputable
121 A t [57][58].
122 McKay v Johnson [2 016] NZ HC 1691.
123 At [4].
124 At [7].
125 At [13][17]. Under s 255(2)(d) of the CA the liquidator is r equired to “prepare and send to
every known c reditor and every sharehold er, and send or deliver to the Registra r, a report …
on the conduct of the liquid ation during the precedi ng 6 months.”
126 At [20].
127 At [15].
128 At [32]. is nding enable d the Court to consider the liabi lity of Smith for conversion by
not accounting to Westp ac secured assets.
129 At [28 ].
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benet to the secured creditor.130 However, it was clear that Smith had fa iled
to act in this way. Smith had set up two bank accounts whereby he swept
the companies’ funds from the pre-liquidation accounts into the liquidations
account, and the disbursed fu nds totalling $852,988.54 were secured to
Westpac.131 Accordingly, Smith was ordered to pay $540,402.82 plus interest.
(4) Summary of case law
e case law conrms t wo things. First, there are a number of incompetent
and reckless individua ls that are able to enter the profession with ease. Some
individuals appear to ta ke oce as an IP in an attempt to help friends or
relatives out of nancial dicu lties without realising the level of responsibility
the statutory duties impose. Other self-interested individuals have cha rged
absurd fees for the amount of work they carried out, and even fraudulently
obtained monies belonging to creditors. Second, the case law conrms that
these individuals are able to practice with virtually no accountability. When
creditors, or others concerned, do challenge the conduct of incompetent and
unscrupulous practitioners in Court, the procedural diculties of ss 284
and 286 often allow them to circumvent punishment. Consequently, it is
arguable that the jurisprudence is not tru ly representative of the extent of
the problem. Challenging the conduct of IPs should be aordable, accessible
and relatively easy. It should also preclude incompetent individuals from
practising in the rst place. However, the current regime does not provide this.
C. e Response us Far
e absence of meaningful regulation of IPs has been the subject of
extensive debate among Government ocials, academics and even the media
in recent times.132 ere is consensus that there is a need for greater regulat ion
of IPs. However, the Government has been extraordinarily slow to respond
with a denitive recommendation to reduce the regulatory gap. e length
of time is unusual as the same problem was identied in the early 2000s. e
Law Commission in its 2001 Study Paper Insolvency Law Reform Promoting
Trust and Condence, recommended that the regulatory regime should
minimise the concerns of “rogue” liquidators.133 e issue rested for a number
of years, but in 2004 the NZ Ministry of Economic Development released
130 At [57].
131 A t [98].
132 Hamis h Fletcher “Business Insider: Sher i xing to draw a bead on l iquidators?” (6 August
2016) .
133 NZLC Insolv ency Law Reform: Promoti ng Trust and Con dence SP 11 (2001) at [157]. It
raised doubts ab out the safeguards t hat were in place, which ensu red that only properly
qualied a nd impartial pract itioners were being appointed.
128 Canterbur y Law Review [Vol 23, 2017]
a Discussion Document considering IP regulation.134 Frustratingly, nothing
eventuated from these deliberations either. e Insolvency Practitioners Bill
(IPB), which was introduced in April 2010, has since put IP regulation back
on the agenda. However, any legislative progression of the Bill has come to a
standstill.
(1) Insolvency Practitioners Bill
e explanatory note to the IPB stipulated that at present there are a
number of practitioners continuously underperforming.135Accordingly, the
Bill sought to strengthen existing remedies to deal with rogue practitioners.
It introduced “a negative licensing system that [would give the Registrar] the
power to restrict or prohibit individuals from providing corporate insolvency
services.”136 It also sought to introduce a number of new disqualifying
requirements. For example, someone who has been convicted of a crime
involving dishonesty would not be able to be appointed, nor would someone
who has been expelled from the NZL S.137 It considered that a licensing system
would not be cost eective.138
e IPB was referred to the Commerce Select Committee in Aug ust 2010,
who reported back in May 2011. e Committee recommended that the Bill
be passed, albeit with a number of signica nt changes. Most importantly, this
included the abandonment of the proposed negative licensing regime in favour
of a registration system for IPs. e Committee was of the opinion that the
proposed system “would not address the problems and risks associated with
practitioners who are dishonest, or lack i ndependence”.139 Furthermore, t he
Committee noted “it would be preferable to prevent such practitioners from
undertaking insolvency duties before damage has been done.”140 As a leading
NZ law rm commented, the Committee favoured an approach that wa s like
a fence at the top of the cli, as opposed to an ambulance at the bottom of
the cli that was suggested in the Bill.141
e objective of the recommended registration system was to enable the
public to access information about practitioners, and also for the Registrar to
134 Minist ry of Economic Development Draf t Insolvency Law Reform B ill Discussion Document
(200 4).
135 Insolv ency Practitioners Bill 2010 (141-1) (explanatory note) at 2. i s is because it is
possible for people who have ver y little knowledge of comme rcial law or the relevant
legislation to wi nd up an insolvent company
136 At 2.
137 Insolvenc y Practitioners Bill 2010 (141-1) cl 5. It, however, should b e noted that the Court
will reta in a power to appoint a practitioner even if t hey are excluded by the speci c
categories.
138 Insolvenc y Practitioners Bill 2010 (141-1) (explan atory note) at 2.
139 Insolvenc y Practitioners Bill 2010 (141-2) (Select Committee R eport) at 1.
140 At 1.
141 James McMilla n “All Insol vency Practitioners to be Regi stered” (11 May 2011)
chapmantr ipp.com>.
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collect information from IPs in order to regulate them more eectively.142 A
person would be eligible for registration if they satised t wo requirements.
First, that they are a natural person over the age of 18, and second if they
do not fall within one of the specic categories.143 It was proposed that
once the IP is registered, their ful l name, business address, membership of
relevant professional organisation (if any) would be specied.144 e Regist rar
would also be given the power to cancel a person’s registration in certain
circumstances.145
With respect, the proposed IPB as it stands does not address the
regulation gap that exists for IPs in NZ. e Select Committee noted that
a certain class of individuals need to be excluded under the registration
system, yet paradoxical ly it recommended that the eligibility requi rements for
registr ation should be m inimal.146 e registration scheme merely provides
that rst, someone has bothered to apply to register and second, that they a re
not otherwise disqualied.147 It is also arguable that the registration system
will provide false assu rance that the practitioners are in fact qua lied and
experienced to take appointments. is is misleading for the public and
undesirable. e register is a step in the right direct ion when compared
to the negative licencing scheme. However, the proposed system will not
exclude those IPs that are incompetent and unethical f rom practising, at least
not before the damage is done. ere are no positive requirements such as
academic qualications, professional experience or a ‘t and proper’ person
test. Furthermore, the Bill does not adequately amend the provisions that
allow the Court to hold IPs account, which are fraug ht with problems as
illustrated by the case law summary.
(2) Working Group
In November 2015, the Minister of Commerce and Consumer Aairs,
Paul Goldsmith, announced the formation of the IRWG to evaluate NZ’s
corporate insolvency laws, including the regulation of IPs.148 A fundamental
reason for the establishment of the group was to determine whether the
142 Insolvency Practit ioners Bill 2010 (141-2) (Select Committee Report) at 4.
143 ese ‘specic prohibitions’ inc lude most of the disqualif ying requirements present ly set out
in s280 of the CA w ith a number of additional factor s.
144 Taylor and Slevin, above n 4, at 622.
145 Insolvency Practit ioners Bill 2010 (141-2) (Select Committee Report) at 5. es e
circumsta nces are: (1) if the person fails to comply w ith the requirements of the legi slation
on two or more occas ions or the failure is considered s erious or signicant; (2) if the ir
registration i s based on false or mislea ding information; or (3) if the person no lon ger meets
the eligibilit y requirement for registrat ion.
146 At 4.
147 Brown, above n 12, at 231.
148 Paul Goldsmith, New Ze aland Government “Exper t Group Set Up to Review Insolvency
Law” (press relea se, 18 November 2015) .
130 Canterbur y Law Review [Vol 23, 2017]
IPB should be withdrawn, progressed or replaced.149 ere is no ocial
explanation for the delay between the Select Committee Report on the IPB
and the establishment of the IRWG. However, it is evident that dierent
Ministers have prioritised IP regulation more than others.150 e IPB was
also subject to wide criticism. 151 is m ade research into an alternative option
necessary, resulting in more delays.
In July 2016, the working group released the rst of two reports, which
examined and provided independent advice on the regime that regulates IPs.
e report undoubtedly conrms that the statu s quo is unsatisfactory.152
is includes the statutory proposals for reform in the IPB. In brief, the
group identied two signicant reasons why a number of IPs fall short of
the standard that the public are entitled to expect. First, it is too easy for
an individual to become an IP. e current disqualif ying requirements do
not guarantee that a person with integrity, knowledge or the appropriate
experience is carrying out the roles that are often associated with immense
complexity. Second, there is a lack of accountability for poor behaviour. e
likelihood of a creditor, or other concerned party challenging the conduct of
an IP in Court are slender. is is not only because of the co sts associated with
litigation, but also because of the technica l hurdles in the primary legislation.
For practical reasons, the recommendations of the IRWG will be disc ussed
in the forthcoming discussions. is paper contends that the working group
makes some perfectly acceptable recommendations, though does not go
far enough in other recommendations to rectif y the regulatory lacuna. It is
important to note that the report is not yet law, but merely suggestions at this
stage.
III. E O R
A. Examination of the Regulation Regimes in other Jurisdictions
It is necessary to exa mine the regimes that regulate IPs in jurisdictions
similar to NZ. For ease of comparison, the examination will be limited
to the regulatory regime that governs liquidators. Australia provides a
helpful comparison given the Trans-Tasman Mutual Recognition Act 1997.
149 Ministry of Bu siness, Innovation and Employment “ Terms of Reference I nsolvency Review
Working Group” (15 October 2015) at 2.
150 Simon Power was the Mi nister of Commerce when the Bil l was introduced. He also held
oce in this po sition for the Bill’s rst readin g, and when the Select Comm ittee reported
back. Power was succ eeded by Craig Foss who introduc ed the Bill for a second readi ng
in November 2013. e Bill did not progre ss past this stage a nd Foss made no signicant
attempts for it to be. Paul Gold smith assumed oce in Oc tober 2014 and eventually set up
the working group t he following year.
151 See genera lly INSOL New Zealand Consultation Document: Insolvency Practitioner
Regulation (June 2013).
152 Minist ry of Business Innovation a nd Employment, on behalf of Insolvenc y Working Group
“Review of Corp orate Insolvency Law” (Repor t No 1) (27 July 2016) at 3.
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is Act aims to, inter alia, enable persons who have obtained the same
occupation in either NZ or Australia to practice without further testing or
examination.153 At present, licensed IPs in Australia are able to practice in
NZ, though the reverse situation is not permitted, given Australia’s more
onerous requirements for entry. e UK has analogous company laws given
our colonial history and similarities in corporate insolvency procedures,
making it a useful jurisdiction for comparison.154 Ireland, on the other hand,
provides a practical comparison as it has a similar population size to NZ
and thus number of practitioners.155 All jurisdict ions vary in the regulatory
model that they use. However, they all have simila r prerequisite criteria to be
appointed as a liquidator. is comprises academic qualications, sucient
experience in conducting liquidations, and a ‘t and proper’ person test.
(1) Australia
e regime in Australia is considered to be one of the most onerous in
the develope d world.156 is is a reection of the size of the industry, and
a response to high levels of corporate and regulatory failure in the past.157
e Corporations Act 2001 (Cth) (Corporations Act) is the primary statute
that regulates IPs in Australia. e Australian Securities and Investments
Commission (ASIC), an independent Commonwealth Government Body,
is given the power of general administration of this Act.158 ASIC must
register a person wishing to be appointed as liquidator provided they satisf y
a number of stringent requirements.159 ere are 703 liquidators registered in
Australia today.160 ASIC also monitors whether the liquidators are suciently
performing their duties, and has t he power to bring complaints before the
Companies Auditors and Liquidators Disciplinary Boa rd, who may refer the
matter to the Administrative Appeals Tribunal or the Federal Court if the
matter is s erious enough.161 e Courts also maintain a broad supervisory
and investigatory funct ion over IPs and, like in NZ, have the power to
review any act, omission or function of liquidators. NZ may seek guida nce
from the supervision powers that ASIC has over IPs. However, it may not be
153 Trans-Tasman Mutual Rec ognition Act 1997, s15.
154 NZLS “Submi ssion on the Insolvency Practitioner s Bill” (11 October 2010) at 3
www.parlia ment.nz>.
155 Brown, above n 12, at 237.
156 is als o makes it one of the most success ful in excluding rogue a nd incompetent
individual s from the profession.
157 Brown, above n 12, at 150.
158 Corporati ons Act 2001 (Cth), s5B. ASIC was establis hed by the Australian S ecurities and
Investments Com mission Act 2001 (Cth).
159 Anneli L oubser “An International Perspect ive on the Regulation of Insolvenc y
Practitioners” (200 7) 19 SA Merc LJ 123 at 131. es e rules are stipulated i n s 1282 of the
Corporations Ac t 2001 (Cth).
160 Au stralian Secu rities and Investment Commi ssion Australian Insolvency Statistics (October
2016).
161 Brown, above n 12, at 234.
132 Canterbury L aw Review [Vol 23, 2017]
particularly fea sible to establish a similar independent body in NZ given the
size of the industry.
(2) United Kingdom
Since 1986 the UK has adopted a co-regulatory model for its IPs.162
Staunch criticism of the preceding self-regulatory model was a driving factor
for reform.163 In order to practice a s a liquidator today, a person must have a
licence from one of seven recognised professional bodies (RPB),16 4 or directly
from the Insolvency Service (IS). e IS operates on behalf of the Secreta ry of
State for Business, Innovation and Skills (SOSBIS)165 and has an overarching
supervisory responsibility over the R PBs by conducting regular visits and
practice reviews.166 e RPB’s have their own membership rules, though they
all must ensure that the applica nt meets a number of minimum requirements
that are stipulated in the Insolvency Act 1986 (UK) a nd the Insolvency
Practitioners Regulations 2005 (UK ). Each RPB has its own procedures to
deal with complaints and disciplinary action. However, in order to maintain
some degree of consistency, all bodies are subject to a memorandum of
understanding with t he SOSBIS. e Joint Insolvency Committee also meets
on a quarterly basis. is group comprises representatives from each R PB
and is mainly concerned with the harmonization of professional and ethical
standards amongst IPs.167 ere are approximately 1,700 IPs licenced in the
UK today, the majority of which are licenced by the Institute of Chartered
Accountants in Engla nd and Wales (a RPB).168 e co-regul atory model used
in the UK provides a possible option for NZ. However, caution should be
given to whet her there should be mu ltiple regulatory b odies.169 is is because
the inevitable variation in style and form of regu lation among the dierent
bodies may lead to inconsistency.170
162 A numb er of reforms were introduced follow ing the completion of the Cork Report , a
report produced by a n insolvency review comm ittee led by Sir Kenneth Cork.
163 Brow n, above n 12, at 236.
164 e R PBs must be recognised u nder the Insolvency Act 1986 (UK), s391. e seven
RPB’s are: e Associ ation of Chartered Cert ied Accountants (ACC A); e Insolvency
Practitioners A ssociation (IPA); e Institute of Cha rtered Accountants in E ngland and
Wales (ICAEW ); e Institute of Charter ed Accountants in Irela nd (ICAI); e Institute
of Chartered Ac countants in Scotla nd (ICAS); e Solicitors Regu lation Authority; e
Law Society of S cotland.
165 e I nsolvency Service “How Insolve ncy Practitioners are Authori sed in Great Britain” (7
April 2014) .
166 Finc h, above n 1, at 184.
167 In solvency Service, above n 165, at 3.
168 Finc h, above n 1, at 183.
169 e U K Government in a report indicate d that seven regulator y bodies are far too ma ny,
and that one sing le-regulator should be a long-term goa l. See e Insolvency Serv ice
Consultation on R eforms to the Regulatio n of Insolvency Practitioner s (February 2011)
bis .gov.u k>.
170 Finch, above n 1, at 184.
Is ere a Need for Greater Re gulation of Insolvency Practitioners
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(3) Ireland
In the past, Ireland has u sed a limited regulatory model which, like NZ,
imposed no positive statutory requirements.171 However, the Irish Government
recently introduced a number of reforms through the Companies Act 2014
(IE), resulting in a co-regulatory model similar to the UK. Today, liquidators
need to be registered with a prescribed accountancy body (PAB), the Law
Society of Ireland (LSI) or a simi lar body recognised by the Irish Auditing and
Accounting Supervisory Authority (IAA SA). Approximately 230 liquidators
are registered with these bodies.172
Chartered Accountants Ireland (CAI) is the most active PAB in Ireland
and the Chartered Accountants Regulatory Board (CA RB) issues insolvency
practice certicates, monitors compliance, and takes disciplinary action
where appropriate.173 e IAASA directly regulates the liquidators that are
not members of a PAB or the LSI, and also supervises how these bodies
regulate and monitor its members.174 Ireland’s co-regulatory model has only
been in place since June 2015, thus it is too early to determine the actual
eect it has had in the insolvency industry. However, the reforms have no
doubt been welcomed with open arms. One observation of the Irish regime
is that the Government has a less active sta nce compared to the UK, leaving
the majority of the regulation to the accounting agencies. It will be useful for
the Government to have an active role, particularly in drafting the licensing
criteria. Furthermore, selecting a professional body that largely focuses on
insolvency, such as RITANZ, wil l be benecial. is will allow those wishi ng
to practice solely in the insolvency industry to be distinguished from the
accounting profession.
B. Criteria for Admission
All of the jurisdictions discussed above have similar requirements to
practice as a liquidator. ese requirements reect the position of responsibility
and are designed to protect the general body of creditors, establish condence
in the insolvency system and to ensure the best possible returns.175
171 Christopher Symes “A Postcard from “Mou rning” Ireland: e Freck led Nation of
Insolvency” (2012) 12(6) Insolv LB 126 at 127. Like NZ , this meant that the regi me was
largely “reactive”.
172 Brown, above n 12, at 237.
173 At 237.
174 Companies Act 2014 (IE), s904(1)(a).
175 Colin Anderson a nd Catherine Brown “Mind the Ins olvency Gap: Lessons to be Le arned
from Audit Expec tations Gap eory” (2014) 22 Insolv LJ 178 at 180.
134 Canterbu ry Law Review [Vol 23, 2017]
(1) Qualications
e specic qualications required to ta ke oce vary in each jurisdiction.
In Australia, a person must have completed a degree, diploma or certicate
from a university or institution comprising at least a three-year course of
study in accountancy, as well as a t wo-year course of study in commercial
law (including company law).176 Unlike Austral ia, liquidators are not required
to have an accountancy background in the UK, though in practice most
will. Rather, a person must rst pass the Joint Insolvency Examination
Board (JIEB) exa ms. ese exams comprise three sepa rate exams and cover
material in liquidations; administrations, company voluntary arrangements
and receiverships; and personal insolvency.177 A person will be qualied in
Ireland if they fall into one of the ve listed categories. 178 ese categories
predominantly rely on the qualication requirements to practice as a c hartered
accountant or lawyer.
(2) Experience
e person must have experience in winding up corporate entities in each
jurisdiction. Experience simply enables people to develop particular sk ills to
deal with issues th at may arise, which often occur early in an IP appointment.
NZ High Court authority has noted that, when a n IP is known to be
experienced, the Court is more likely to have condence in them to abide by
ethical standards of any professional organisation to which they belong, and
to adhere to their fundamental obligation as ocers of the High Court.179
In Australia, it is ex pected that the person has worked in corporate in solvency
full time for the past ve yea rs, and three of those years at a very senior
level.180 Exa mples of the complexity and breadth of a person’s experience, and
how they resolved complex tasks must be provided. Additionally, two referees
must accompany this evidence that support s the experience claimed.181 In the
176 Corporations Act 2 001 (Cth), s1282(2)(a)(ii). e person may also have in the opinion of
ASIC, qual ications that are equiv alent to those mentioned in subpara graph (ii).
177 Finch, above n 1, at 183.
178 Companies Act (I E), s633. is includes if the person is (1) a member of a prescribe d
accountanc y body (PAB); (2) a member of the Law Society of Irel and (LSI); (3) a member
of another professiona l body recognised by the Sup ervisory Authority ; (4) a person who
is qualie d as a liquidator in the Europea n Economic Area; or (5) a person who, in t he
opinion of the Superv ising Authority, has obtained s ucient relevant experience i n winding
up companies.
179 Re Re sola Path Ltd, above n 61, at [107].
180 S enior level work will typic ally involve preparing dr aft documents for creditors on b ehalf
of the externa l administrator, superv ising a team that report s back, and forming opinions
and maki ng professional recommendat ions about the nancial and le gal position of the
corporate entities.
181 A ustralian Secu rities and Investment Comm ission Registered Liquida tors – ASIC’s Approach
to Registering Liquidators (November 2016) at 1. One of the referees must be fr om a
registered liqu idator who has supervised t he person over the past three ye ars
gov. au>.
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UK, the applicant182 must have completed either 30 cases a s an oce holder
over the past 10 years, or acquired 7,000 hours of insolvency work experience,
with 1,400 of those hours being in the last two yea rs.183 In regard to the
latter, the person must also demonstrate that they have engaged in higher
insolvency work as dened by the regulations.184 In Irela nd, the experience
requirements are not specied in the legislation. Instead, the I AASA relies on
the experience requirements of the co-regulatory bodies before an individual
can carr y out liquidations. For example, the CARB requires t he individual
to obtain two years of “post membership experience” in corporate insolvency
work before they can be issued with an “ insolvency practicing certicate”.185
If the person is not an accountant or lawyer, the IA ASA will determine
whether, in the opinion of that body, they have “sucient experience”.186
(3) ‘Fit and proper’ person
In each jurisdiction, the applicant must also be a “t and proper” person.
is test dates back to the 18th century in England when candidates
running for town councils were elected.187 Since then it has been used in a
subjective manner to determine whether an applicant is suitable for a specic
profession.188 Generally, for someone to prove that they are a t and proper
person, they must show integrity, reliability and honesty.189
In Australia, t he applicant must be capable of performing the tasks
required. is requires an ex amination of the person’s personal and practice
capacities. ASIC must be satised that the person has access to, inter alia,
adequate human and technological resource s, and appropriate processes for
ongoing supervision and training. An applicant’s personal capacity will be
assessed by his or her ability to perform duties and functions relevant to
corporate insolvency. Furthermore, applicants must demonstrate that they are
honest, have integrity, a good reputation and are personally solvent.190 In the
UK, the RPB must take into account an applicant’s history of inappropriate
182 e r egulations distin guish between applic ants who have never been authorise d to act as an
IP and those who have he ld oce previously.
183 I nsolvency Practitioners Reg ulations 2005 (UK ) reg 7.
184 R egulation 5 “Higher insol vency work experience” means e ngagement in work in relation
to insolvency proce edings where the work involves t he management or supervision of t he
conduct of those proce edings on behalf of the o ce-holder acting in relation to t hem.
185 C ARB Guidance on Public Practice Regulations (5 January 2015) at 29.
186 I AASA Consul tation Document on the Autho risation Process of Certain Ind ividuals as
Liquidators (25 June 2015) at 2. is deter mination is made on a case-by- case basis.
187 E P Hen nock Fit and Proper Persons: Idea l and Reality in Nineteenth -Century Urban
Government (Edward A rnold, London, 1973).
188 M agda Slabbert “e Requi rement of Being ‘Fit and Proper’ Person for the Leg al
Profession” (2011) 14 Potchefstroom Elec LJ 20 8 at 209.
189 A t 212. More aspects will come into play de pending on the circumsta nces in which it is
being applied.
190 Australi an Securities and Inves tment Commission Register ed Liquidators – ASIC’s Appr oach
to Registering Liquidators, above n 181, at 34.
136 Canterbur y Law Review [Vol 23, 2017]
behaviour and criminal oences, if any.191 In Ireland, the IAASA again relies
on the tests applied by the co-regulatory bodies. For example, the CARB
conducts a review of the applicant’s nancial integrity, disciplinary record
and na ncial sta nding.192
(4) Miscellaneous
A number of miscellaneous requirements should also provide guidance.
Each jurisdiction has a requirement to obtain sucient indemnity
insurance.193 e purpose of this insurance is to ensure that nances are
available in the event that a registered liquidator needs to compensate
creditors or other claimants for loss suered that is caused by inadequate
or improper performance of their legal obligations. e UK legislat ion also
stipulates that if a liquidator is seekin g renewal of a licence to practice, which
they must do every three yea rs, they must also demonstrate that they have
completed at least 108 hours of continuing professional development (CPD)
in between the applications.194 Activities that may satisfy this requirement
include attendance of courses, seminars or conferences, or producing written
material for publication.195 La stly, i n each jurisdiction the person must not be
disqualied by the speci ed factors in the legislation. ese factors are similar
to those set out in s 280 of the CA.196 Interesting ly in Australia, the liquidator
will not be able to take oce if they a re not ordinarily resident there.197
It is noteworthy that the Australian Government has recently introduced
the Insolvency Law Reform Bill 2015, which aims to strengthen existing
bankruptcy and corporate insolvency laws even further.198 e Bill is the
product of a long-winded review process that was deemed necessa ry following,
among other factors, the actions of an Austra lian IP that was disqualied for
191 Insolvency Pract itioners Regulations 20 05 (UK) reg 6(a)(f). is includes whe ther
the applicant ha s: (1) been convicted of a n oence involving fraud or dishone sty; (2)
contravened any in solvency legislation; (3) engaged i n any deceitful, oppressive or i mproper
conduct in the cour se of their profession; (4) access to adequ ate control systems to support
professional conduc t; (5) previously carried out thei r practice, and will c ontinue to do so,
with independence , integrity and professiona l skills; and (6) formerly fa iled to disclose any
conict of interes t when acting as an IP.
192 C ARB Guidance on Public Practice Regulations, above n 185, at 31.
193 For Australia s ee Corporations Act (Cth), s1284; for the UK se e Insolvency Practitioners
Act 1986 (UK), s390(3) and Ins olvency Practitioners Regu lations 2005 sch 2 cl 3; for
Ireland see Compa nies Act 2014 (IE), s634. is insura nce in Ireland also mus t comply
with the recent ly introduced regulation s: Companies Act 2014 (Professional Indem nity
Insurance)(Liquidators) Regu lations 2016.
194 Insolvency Pract itioners Regulations 20 05 (UK) reg 8(2)(b).
195 Regulation 8(3)(b)(i) and (ii).
196 For Australia s ee Corporations Act 2001 (Cth), s532; For the UK see In solvency
Practitioners Ac t 1986 (UK), s390(4); For Irela nd see Companies Act 2014 (IE), s635.
197 Australi an Securities and Inves tment Commission Register ed Liquidators – ASIC’s Appr oach
to Registering Liquidators, above n 181, at 4. Ordinarily resident is not de ned in the Act,
though it is presu med that a common-sense approach w ill be taken.
198 ese change s will mainly be made to t he Corporations Act 2001 (Cth).
Is ere a Need for Greater Re gulation of Insolvency Practitioners
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life in 2009 for serious misconduct.199 A number of the reforms require brief
comment. First, liquidators will now be required to renew their registration
every three years in order to promote professionalism and competence in
practitioners.200 Second, creditors will benet from increased rights, including
the ability to appoint an independent specialist to review the performance of
an incumbent IP.201 ird, the Bill introduces statutory defau lt remuneration
amounts for liquidators. And fourth, ASIC will be granted additional
surveillance powers to review the conduct of IPs.202 e Bill received royal
assent on 29 February 2016 and is likely to come into eect in early 2017.
C. Sug gested Reforms
e above comparison conrms that IPs in NZ are, by international
standards, u nder-regulated.203 Furthermore, the proposals made in the IPB
will not move NZ any closer to the systems of insolvency regulat ion common
overseas.204 It is, therefore, tting to investigate an option that will place NZ
on more of an equal footing with other developed nations like Australia, the
UK and Ireland. It is rst necessary to explore possible regulatory models,
and then the criteria for admission.
(1) Self-Regulation
Self-regulation is an option that relies on industry bod ies to encourage and
promote its own ethical and professional standards. It is a system of private
regulation, whereby the Government has no active stance.205 In Januar y 2016,
RITANZ, in collaboration with CAA NZ, developed a framework of self-
regulation for IPs.206 ose individuals that meet t he criteria specied in the
framework will be able to hold themselves out as an “Accredited Insolvency
Practitioner” (AIP).207 Once a person is granted with accredited status, the
person’s name, business details and the date at which they became accredited
are added to the CA ANZ public register. As at August 2016, there are 94
AIP’s registered under the scheme.208
199 Australian Securities and Investments Commission v Stuart Karim Ari [2009] NSWSC 829.
200 Insolvency Law Refor m Bill 2015 cl 20-1.
201 At c l 80-50.
202 Paula Pyburne Ins olvency Law Reform Bill 2 015 ( Bill Digest No. 82, 22 Februar y 2016)
203 INSOL New Zea land, above n 151, at 5.
204 At 5.
205 Eva Hüpkes “Regula tion, Self-regulation or Co-reg ulation?” (2009) 5 JBL 427 at 427.
206 RITANZ is an org anization ali ated with the International A ssociation of Restruc turing,
Insolvency and B ankruptcy Professiona ls, also known as I NSOL.
207 is criterion wil l be discussed in Part D of t his section.
208 Chartered Acc ountants Australi a and New Zealand “AIP Reg ister” (25 August 2016)
138 Canterbur y Law Review [Vol 23, 2017]
In regard to compliance, CA ANZ continue to have a supervisory role
over its members. RITANZ members who are not aliates of that body will
also become subject to the New Zeala nd Institute of Chartered Accountants’
(NZICA) rules, which reg ulates NZ residents of CAA NZ.209 is includes
the Service Engagement Standard of Insolvency, SES 1, which sets a code of
ethics containing f undamental principles that should guide how IPs conduct
their profe ssional obligations.210 e Professional Conduct Committee, the
Disciplinary Tribunal and the Appeals Council, which were established by
the New Zealand Institute of Chartered Accountants Act 1996, operate to
deal with complaints and disciplinary action of AIPs.
e newly introduced self-regulatory framework is certainly welcomed.
e public can be assured that those individuals who have accredited status
are qualied, experienced a nd t to carry out the insolvency appointments,
something that the current regime or the proposed IPB does not guarantee.
e accreditation criterion also aligns NZ with other equivalent overseas
models. However, and most importantly, the accreditation process is not
mandatory. Equivocally, it is not even a requirement for members of the
CAA NZ to be accredited to accept regulated insolvency appointments.211 is
model is, therefore, not likely to address the problem that is most pertinent:
rogue and incompetent practitioners. As the IRWG notes, under this option
the status quo prevails, which is not a viable long-term option.212 erefore,
although this is a per fectly acceptable stepping stone, it is not the nal option
for reform that should be accepted.
(2) Government Licensing
Another possible option of reform would be to establish an independent
Government body that would directly regulate IPs. is would require
inaugurating a licencing regime, compliance body and disciplinary board
specically for IPs. is is essentially the option that has been implemented
in Australia.
is option is not particularly appealing for NZ. Although it would
have the positive consequence of limiting, or even precluding, incompetent
practitioners from acting, it does have a number of drawbacks. e rst
is that it is simply not cost-eective. Although the exact number of IPs in
NZ has not been established, it is estimated that there are around 100 that
regularly take appointments. is number is markedly less than the number
209 New Zealand I nstitute of Chartered Acc ountants Rules 2015.
210 Ser vice Engagement Stand ard 1: Performance of Insolvency En gagements (New Zea land
Institute of Cha rtered Accountants, Febr uary 2003) para 8. e princ iples are integrity,
objectivity a nd independence, competence, qua lity performance a nd professional behaviour.
211 However, from 30 November 2015, RITANZ require s that its members are accre dited
before they acc ept insolvency engagements .
212 Min istry of Business In novation and Employment, above n 152, at 25.
Is ere a Need for Greater Re gulation of Insolvency Practitioners
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of acting IPs in Australia where the regime is successful.213 e Government
considers that the insolvency profession in NZ is merely not large enough
to fund an independent body to regulate it. It estimates that it would cost
several thousand dollars per person each year to operate. ese costs would
eventually be borne by creditors, which is not particularly attractive. 214
e second reason why this option is not desirable, which was highl ighted
by the IRWG, is that an independent Government body would not have
sucient market knowledge that a professional body may have.215 Further, it
has been contended that this option may exclude practitioners’ involvement
from their own regulation. 216 ere is much to commend about involving
those who act on the frontline, as evinced by law yers with the NZLS.
(3) Co-Regulation
Another option of reform for NZ would be to adopt a co-regulatory model,
similar to the one that operates in the UK and Ireland. is is the option
that that this paper endorses, and also the option that was recommended by
the IRWG.2 17 Under this regime, an existing professional body (or bodies)
would be given overall regulatory power, while a Government entity retains
a supervisory role over these bodies. ese pa rties should be partners that
work together to produce a model that is ecient, eective and fair.218 e
professional body would be required to determine applications and issue
licences in accordance with t he standards set by the Government entity,
monitor compliance of ethical and professional standards, conduct practice
reviews, investigate complaints and, where appropriate, take disciplinary
action. is option is far more cost-eective than Government licensing a s it
provides a mechanism of regulation that leverages o the architecture that is
already in place by professional bodies in t he insolvency industry.
Serious consideration will need to be given to who the appropriate
professional body will be. e IRWG suggested making both CAA NZ
and RITANZ accredited professional bodies.219 However, this paper
contends that having more than one body is unfavourable. Despite having
a monitoring Government entity, there is a possibility that inconsistency
will develop between professional bodies with regard to compliance and
disciplinary sta ndards. is is a problem that exists in t he UK.220 Having
213 ere a re over 700 liquidators alone. is doe s not include administrator s and receivers.
214 Insolvency Practit ioners Bill 2010 (141-1) (explanatory not e) at 2.
215 Minist ry of Business Innovation a nd Employment, above n 152, at 27.
216 Ja mes McMillan “Submiss ion to the Ministry of Busine ss, Innovation and Employment
by Kensington Swa n on Report No. 1 of the Insolvency Working Group rel ating to
insolvency prac titioner regulation and volunta ry liquidations” (7 October 2016)
kensington swan.com>.
217 Ministry of Bu siness Innovation and Employment, a bove n 152, at 23.
218 Hüpke s, above n 205, at 427.
219 Ministry of Bu siness Innovation and Employme nt, above n 152, at 30.
220 Loubser, above n 159, at 130.
140 Canterbury Law Revie w [Vol 23, 2017]
one body is more likely to lead to transparency in the regulation of IPs
generally, and remove any confusion the public may face when they wish to
make a complaint about an IP.221 Lastly, given the small size of the in solvency
industry in NZ, it is a number that can easily be accommodated under the
auspices of a single body.222 Arguably, the more favourable candidate for this
position is RITANZ. is is because its focus is conned to insolvency and
turnaround services, as opposed to the accounting profession generally, like
CAA NZ. Similarly, this body already ca rries out what the IRWG identies
as frontline regu lation.223
Consideration will also need to be given to who the supervising
Government entity will be. e IRWG made no formal recommendation
but suggested either the Financial Market s Authority (FMA) or the
Registrar of Companies. e Registrar has more industry k nowledge and
existing responsibilities relating to insolvency under the CA, including its
general power of inspection under s 365.224 e FMA, on the other hand,
already has occupational regulation-related responsibilities, such as oversight
responsibility under the Auditor Regulation Act 2011. Under this Act, the
FMA prescribes the licensing a nd registration criteria of auditors and monitors
the regulatory system s of accredited bodies. 225 ese are functions that would
be easily transferrable to the insolvency sector. is paper contends that the
more appropriate body of the two is the FMA. It is already very familiar
with co-regulation principles and practices. Furthermore, it will develop
industry knowledge by working a longside the chosen professional body.
D. Suggested Licensing Criteria for an IP in New Zealand
e IRWG simply suggested that an IP would need to be a t and proper
person, and be “suciently skilled”.226 It did not discuss any possible criteria in
detail, but suggested that it could bui ld upon the CA ANZ/RITANZ criteria.
e criteria for accreditation reect many of the requirements operative in
Australia, t he UK and Ireland.
e fact that IPs are presently able to practice as an IP without any
qualications whatsoe ver seems absurd, particularly as they are able to cha rge
themselves out at $350 plus an hour.227 In order to be qualied under the
CAA NZ/RITANZ criteria, the applicant must be a member of either of these
professional bodies. If the member is not a practising char tered accountant, it
relies on the existing membership requirements of RI TANZ, which restricts
221 At 130.
222 Chapman Tripp “Chapman Tripp submission to t he Insolvency Working Group” (7
October 2016) .
223 Ministry of Bu siness Innovation and Employment, a bove n 152, at 24.
224 At 30.
225 Auditor Reg ulation Act 2011, s5.
226 Ministry of Bus iness Innovation and Employment, ab ove n 152, at 24.
227 e Healy Holmberg Trading Pa rtnership, above n 54, .
Is ere a Need for Greater Re gulation of Insolvency Practitioners
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entry to individuals who practice i n the insolvency eld, such as lawyers. is
requirement is not likely to be burdensome because the majority of IPs in NZ
come from the accounting or legal profession with appropriate qualications
already. is is the approach adopted in Ireland. However, there a liquidator
will also be qua lied if they are a member of a professional body recognised
by the supervising authority. is option should be adopted in NZ to extend
to practitioners that are qualied under sucient authorities abroad, such as
ASIC. If the foreign applicant is not a member of an Australian authority, it
will be appropriate for them to sit an exam similar to t he UK JIEB exams
to determine the applicant’s understanding of corporate insolvency laws in
NZ.228
e IP should be able to demonstrate that they have practical exp erience in
corporate insolvency work. e current CAANZ/RITANZ criteria suggests
that the applicant must have 1,000 hours of practical experience i n insolvency
work at a senior level in the preceding three years (2,000 if they are not a
chartered accountant). In order to ensure that there is consistency, it will be
preferable to only have one standard, and not separate hour requirements
depending on the person’s membership. A requirement of 2,000 hours is
more in line with international standards. It should also be possible for a
person to be licensed who has not obtained the appropriate hours, but can
show that they are otherwise competent, also known as a grandfather clause.
A “t and proper” person test should also be employed. It is helpful to
determine the way in which the test has been applied in the legal profession
in NZ to understand how it works in practice. Under s 55 of the Lawyers
and Conveyances Act 2006 (LCA), for a person to be admitted as a solicitor
and barrister of the High Cour t, the matters taken into account include
whether the person, inter alia, is of good character; has been convicted of any
oence; or has been subject to any mental or physical health condition.229 e
judiciary suggests that the test requires that the person must possess “such
integrity and moral rectitude of character that he may be safely accredited
by the Court to the public to be entrusted with [a client’s] business and
private aairs.”230e person seeking admission must have probity and
trustworthiness,231 and recognise that t hey are in a delicate position that
“carries exceptional privileges and exceptional obligations”232 e position
of an IP has considerable similarities to that of a lawyer. Practitioners are
entrusted with signica nt monies and assets, which will often inuence the
livelihoods of creditors. ey are the person to whom creditors turn to when
they are in a dicult and often emotional situation, much like a lawyer. is
228 Australia shou ld be excluded given the objective s of the Trans-Tasman Mutua l Recognition
Act 1997.
229 Lawyers a nd Conveyances Act 200 6, s55(a), (b), (c) and (l).
230 Re Lundon [1926] NZLR 656 at 658.
231 Re Ow en [2005] 2 NZLR 536.
232 Ziems v Proth onotary of the Supreme Cou rt of New South Wales (1957) 97CLR279 at 298.
142 Canterbury Law Revie w [Vol 23, 2017]
gives rise to a general duty of care.233 erefore, it is arguable that a similar
sort of tness for purpose test should be adopted in the insolvency profession.
e existing tness for purpose criteria under the CAANZ/R ITANZ
regime requires the body to take into account 11 factors. ese factors are
mainly focused on whether the applicant has been convicted of any crimes
that involve perverting the course of justice, such as those relating to bribery,
corruption, forgery or fraud. It also includes if they have been dismi ssed from
any position of management, trust, or duciary obligation. 234 e factors
mainly focus on improper behaviour that has been detected. In other words,
they are restricted to negative considerations and do not asse ss the applicant’s
eligibility entirely. erefore, this paper contends that it is benecial to add
general positive requirements such as if the person is of good character, like
that used in the LCA . Or a requirement to demonstrate honesty, integrity,
and good reputation as used under the Austra lian regime. ese positive
factors are more likely to ensure that the appropriate person takes oce.
Presently an IP may take regu lar appointments despite not living in the
country or having a NZ business address.235 Arguably the statu s quo enables
practitioners to act without accountability, and does not allow them to
suciently comply with their duties. For example, their physical absence
may compromise their duty to have regard to the views of creditors and
shareholders, or to report any suspected oences.236 Where non-resident IPs
have been appointed, they have often had to resign once it became evident
that it was unfeasible to conduct their obligations from abroad.237 is does
not ensure that that the company is wound up reasonably or eciently.238 e
requirement to be a resident is articulated in the Austra lian regime in order
to avoid these problems.239 Accordingly, this paper contends that NZ adopt
the same approach.
e list of disqualif ying requirements for liquidators is already convoluted
and does not need additional factors added to it. 240 In fact, the IRWG
ttingly recommended that some of the factors be removed. is includes
the “professional services relationship” provision and the “continuing
business relationsh ip’” provision.241 ese provisions unnecessarily exclude
the more experienced and capable IPs who are actually most suitable for
233 Sleepyhe ad Manufacturing Co Ltd v Dunph y (2006) 9 NZCLC 264,00 0 (HC) at [26].
234 Chartered Acc ountants Austral ia and New Zealand “Accred itation Framework” (2016)
235 Lynne Taylor “Furt her Changes Mooted to the Reg ulation of Insolvency Pract itioners in
New Zeala nd” (2011) 19 Insolv LJ 20 9 at 216.
236 Companies Act 1993, s258 and 258A.
237 See Fisher International Trustees Ltd v Waterloo Buildings Ltd (in liquidation), above n 91.
238 Companies Act 1993, s253.
239 Corporation s Act 2001 (Cth), s1282(2)(5).
240 Companies Act 1993, s280. Se e also ss 239F of the CA for the list t hat disqualies
administ rators and s 5 of the RA for the l ist that disquali es receivers.
241 Min istry of Business Innovat ion and Employment, above n 152, at 2021. ese factors are
found in s 280(1)(ca) and (cb) of the Companies Act 1993.
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
143
appoint ment.242 For example, where a professional has been brought in at
the end of a company’s trading life, they will later be excluded from acting as
the liquidator. Paradoxically, this is the person who is likely to have the most
knowledge about the company, and who will be most able to perform the
liquidation eciently. Similarly, where the IP is more experienced, it is more
likely that they will have a relationship with the trading bank s, namely the
secured creditors, thus disqualifying them from appointment. is situation
is undesirable.
A number of other factors listed in s 280 also need to be removed
if the proposed regime is adopted. is is because ma ny of the factors
already listed would be used to determine whether, in the opinion of the
professional body, the person is a t and proper person for appointment.
Specically, this paper contends that the criteria that disqualify persons who
have been prohibited from managing companies,243 limited partnerships,244
incorporated or uninc orporated corporate bod ies,245 or for being unt to act
as an administrator246 be removed from s 280(1). It is also unnecessary to
specify that persons will be disqualied if t hey have been prohibited from
acting as a liquidator or receiver previously.247 e existing disqua lifying
requirements will thus be restricted to age,248 conicts of interest,2 49
undischarged bankrupts,250 and mental incapacity and incompetence in
managing properties.251 is position is more harmonised with international
standa rds.
e CAA NZ/RITANZ regime contains a number of factors that this
paper contends are perfectly acceptable and should be added to the criteria
for appointment. is includes the requirement to engage in CPD, have
adequate professional indemnity insurance cover, and to pass all practice
reviews conducted by the professional body.252
242 At 20.
243 Companies Act 1993, s280(1)(k) and (l). A person may b e prohibited by way of an order
under ss 382, 283, 385 or 385AA of t he Companies Act 1993 or by way of an order under s
299(1) of the Insolvency Act 200 6 for reason of bankruptc y.
244 Companies Act 1993, s280(1)(kaa). See ss 103A, 103B, 103D or 103E of the Limited
Partnership Ac t 2008.
245 Compa nies Act 1993, s280(1)(ka). See the Financial Ma rkets Conduct Act 2013 or the
Takeovers Act 1993.
246 Companies Act 1993, s280(1)(m). See s 239ADV of the Companies Ac t 1993.
247 Compan ies Act 1993, s280(1)(g) and ( h). See 286(5) of the Companies Act 1993 and s
37(5) of the Receivership Act 1993.
248 Companies Act 1993, s280(1)(a).
249 Section 28 0(b), which prohibits a creditor of the company, and (c), which prohibits a per son
who has withi n the last two years be en a shareholder, director, auditor or receiver of t he
company in liqui dation or a related company.
250 Section 280(1)(d).
251 Section 280(1)(e) and (f).
252 Cha rtered Accountants Au stralia and New Zea land, above n 234. Furthe r discussion on
these factors i s not necessary.
144 Canterbury Law Revi ew [Vol 23, 2017]
e above criteria, if adopted, will bring NZ into line with international
standards of IP regulation. e regulation requirements will also enable
someone who is registered as an IP in NZ to practice in Australia.253 Most
importantly, the collective benet for creditors the corporate insolvency
procedures are designed to ensure is more likely to be atta ined with these
conditions. It guarantees that al l persons carrying out these roles are qual ied,
experienced and t to be appointed to this position of immense trust and
responsibility.
E Recommendations
e current statutory regime and case law summary conrms that there
is a need for greater regulation of IPs in NZ. is paper, therefore, recommends
that NZ:
1) Does not proceed with the current IPB. It does not ensure that IPs are
suciently qualied, experience or competent for appointment.
2) Adopts a co-regulatory model for IPs. RITANZ is t he best candidate to
carry out the frontline regu lation given its conned focus in insolvency
services, and the FM A is the most appropriate supervising body. is
is because it already has supervisory functions over other registered
professionals (such as auditors) that can be extended to the insolvency
profession without dicult y.
3) Introduces a licensing scheme that ensures the applica nt:
1. is appropriately qualied;
2. has sucient experience in the winding up of companies;
3. is a t and proper person for appointment;
4. is ordinarily resident in NZ;
5. has sucient indemnit y insurance;
6. is not disqualied by the factors in t he primary legislation;
7. engages in continuing professional development; and
8. passes all pract ice reviews.
4) Amends the technical dicu lties in the legislation that enable
interested parties to hold IPs account. Priority should be given to ss
284 and 286 of the CA.
I V. C
IPs play a fundamental role in the corporate insolvency procedure. ey
are placed in a position of trust and responsibility to ensure t hat the interests
of creditors and other concerned parties are protected. However, the present
253 See Trans-Tasman Mutua l Recognition Act 1997, s15.
Is ere a Need for Greater Re gulation of Insolvency Practitioners
in New Zealand? Explo ring the Options for Reform
145
statutory regime does not adequately ensure that the appropriate individuals
are appointed to oce. e Government has recognised the current lacuna
in the regime, but has been unusually slow to implement any signicant
changes to address the problem. e IRWG has recently made a number
of useful, although incomplete, recommendations for change. A lthough,
it is unclear whether and, if so, when these will be acted upon.254 In the
meantime, incompetent and/or dishonest IPs may continue to take advantage
of the weak insolvency regulation.
It is evident that greater regulation of IPs is needed, and simila r jurisdictions
including Australia, the UK and Ireland provide helpful guidance for the
form it should take. is paper has arg ued that NZ adopts a co-regulatory
model whereby RITANZ is given the overall power to regulate entr y into the
profession, compliance and disciplinary action. e FMA should be given
a supervisory role over this body and the power to set the licensing criteria.
In order to bring NZ into line with international standards, this criterion
should include minimum academic qualications related to accounting and/
or law, professional experience, and a t and proper person test. Additional
requirements such as indemnity insura nce, being resident in NZ and engaging
in CPD will also be benecial.
Consideration also needs to be given to the provisions in the CA and the
RA that a llow the Court to review the conduct of an IP. An analysis of the
amendment options is beyond the scope of this article. However, removing the
procedural diculties in ss 284 and 286 of the CA should be given priority.
e strengthening of the regulation of IPs will benet company law at
large. is is becau se the performance of IPs is undoubtedly intertwined with
the behaviour of shareholders, directors and creditors. Moreover, the proposed
changes wil l facilitate international recognition and assist IPs that are licensed
in NZ to practice abroad if they wish to do so.255 e recommendations made,
therefore, demand consideration more than ever.
254 Recent de velopments are promising. However, at the time of w riting this paper, the IPB
is not formally be fore Parliament for consideration. Se e Fiona Rotherham “Insolvency
Practitioners to be L icensed under New Regime to Stop Poor Be havior, Goldsmith Says”
(30 November 2016) .
255 INS OL New Zealand, above n 151, at 5.
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