Self-regulation in insolvency sector is a positive step

Insolvency is a word that conjures up a range of emotions – most of them negative. Insolvency practitioners are placed in a position of trust. Their job is to realise assets and pursue recoveries on behalf of an insolvent company’s creditors.

The proper conduct of an insolvency process requires a broad range of commercial, financial and legal expertise. In addition, experience, sound judgment and empathy are necessary to manage the complexity and inherent stresses on creditors and other stakeholders affected to maximise outcomes.

It is therefore surprising that, under New Zealand law, almost anybody over the age of 18 – who is of sound mind, has not been bankrupt in the previous two years, and has no direct continuing business relationship with the insolvent company – can be appointed as a receiver, liquidator or administrator (an Insolvency Practitioner or IP).

Unless these individuals are members of a professional body such as Chartered Accountants Australia New Zealand (Chartered Accountants ANZ), only lengthy and costly court proceedings are available to hold them formally accountable for their actions when dealing with failed businesses. 

In sharp contrast, for a company to be registered in New Zealand, it must have at least one New Zealand-domiciled director. This, at minimum, means someone in New Zealand who is accountable for their actions. In the case of IPs, with virtually unfettered ability to direct actions in respect of a failed company, there is not even a requirement they be resident in New Zealand. 

This lack of meaningful regulation in such a specialised profession can compromise the perception of both performance and integrity. In other jurisdictions only qualified, experienced individuals can act as insolvency practitioners and are subject to statutory regulation and disciplinary processes.

In Australia, a formal licensing regime exists and New Zealand practitioners are not permitted to take appointments as they do not qualify under that regime. However, the reverse is not true, meaning that Australian practitioners are free to take appointments in New Zealand.

The Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ), an industry body, has developed a framework of self-regulation for IPs in partnership with Chartered Accountants ANZ.

As part of this framework, RITANZ members are required to become Chartered Accountants ANZ Accredited Insolvency Practitioners (NZ) before being able to take formal insolvency appointments. As at December 31, 2015, there were 80 accredited individuals across New Zealand, with a public register established on the Chartered Accountants ANZ website. These practitioners were required to provide evidence of their relevant experience, skills, "fit and proper" character and are subject to Chartered Accountants ANZ rules and its complaints/disciplinary procedures.

We believe this self-regulation regime will distinguish the quality of service provided, increase public confidence, align the New Zealand framework more closely with equivalent overseas models and, ultimately, raise standards and consistency among practitioners operating in the insolvency sector. This can only improve the outcomes for creditors and other stakeholders impacted by a failed company.

With greater awareness, it is hoped that this self-regulatory regime will follow a logical progression toward similar measures becoming law, making compliance mandatory for all practitioners, not just those who obtain accreditation through Chartered Accountants ANZ.

Craig Sanson is a Director at PwC

Tune into NBR Radio’s Sunday Business with Andrew Patterson on Sunday morning, for analysis and feature-length interviews.