Insolvency practitioners to be licensed under new regime to stop poor behaviour, Goldsmith says

The government is introducing a long-awaited licensing regime for insolvency practitioners after finding the current system "too loose" and enabling dishonesty and incompetence.

Commerce and Consumer Affairs Minister Paul Goldsmith said hundreds of New Zealand companies go into liquidation, receivership or administration each year with outstanding debts running into many millions of dollars and it was essential there is a high level of trust and transparency around the process.

The minister set up an Insolvency Working Group last year to investigate problems with voluntary company liquidations, including the use of phoenix companies where assets are transferred to a near-identical entity to dodge liabilities. It recommended law changes after finding too many insolvency practitioners fell well short of the standards the public should expect by overcharging or failing to protect creditors' interests.

The group identified two primary causes – that it was too easy for people to become an insolvency practitioner and a lack of accountability for poor behaviour.

Mr Goldsmith cited an example earlier this year where the High Court found a liquidator had forged a document and not accounted for $540,000 worth of receipts.

"There are insufficient effective sanctions against 'self-interested' practitioners who overcharge for their services or carry out unnecessary work to obtain larger fees, or against 'debtor-friendly' liquidators who fail to comply with their statutory duty to protect the interests of creditors," he said.

Under existing rules a person can be convicted of tax evasion or other serious knowledge-based criminal behaviour, yet still operate as an insolvency practitioner.

Mr Goldsmith said the new co-regulation regime suggested by the working group includes monitoring compliance with legislative obligations and the code of ethics, professional standards and rules issued by the Chartered Accountants of Australia and New Zealand.

The changes will be made through a supplementary order paper to the Insolvency Practitioner's Bill which is before the House.

The working group recommended introducing co-regulation of insolvency practitioners with accredited bodies to license the sector and ensure minimum standards are met. It also recommended removing some procedural issues around the High Court's powers to enforce a liquidator's duties or remove them from office.

The NZ Bankers Association submission on the proposed changes said in many circumstances having to initiate court action was a costly and time-consuming exercise and not one made lightly by creditors. The association supported greater legal clarity and the courts being empowered to exercise a more effective supervisory role.

Licensed practitioners and professional bodies will meet the cost of the new frontline regulation, including licensing, managing complaints, disciplinary action and continuing professional development. Independent oversight by the Companies Office will cost between $750,000 and $1 million a year, which will be initially met by a surplus in the office's memorandum account.

The working group also considered whether voidable transactions should be reformed, including legal changes to aid the recovery of lost funds in ponzi schemes. A second report on that is due out early next year.

(BusinessDesk)