New NZ Insolvency Code of Professional Conduct

RITANZ, the Restructuring Insolvency and Turnaround Association of New Zealand, has released its Code of Professional Conduct for its members, described as being “the fundamental building block upon which the insolvency and restructuring profession sets and manages standards of professional conduct”. The Code will commence operation on 1 July 2018.

The Code is released at a time when the NZ parliament has before it the Insolvency Practitioners Bill for the regulation of insolvency practitioners, largely based on the UK system of professional body regulation by RITANZ and CAANZ, with an accreditation and licensing process in place since 2016. A report of the NZ Insolvency Working Group was given in July 2016 which endorsed the approach in the Bill but with some changes recommended. In contrast, Australia has direct regulation and licensing by the two government regulators, with only minor involvement of what are called ‘industry bodies’, including ARITA, CAANZ, CPA and IPA.

The Code of Conduct comes into effect on 1 July 2018 with training sessions on the code to be rolled out after the Annual RITANZ Conference on 9-11 May 2018.

As with any code, RITANZ acknowledges that it remains ‘subject to the views of the Court, which may decide not to accept or follow particular requirements or guidance in the Code.  If this happens, the Code will be amended to properly reflect the law’. RITANZ therefore describes the Code as ‘a living document’, meaning that it will be amended from time to time to reflect changes and developments in insolvency and restructuring law and practice.

The RITANZ Code acknowledges the 2014 3rd edition of the ARITA Code, itself said to be under review.  Like the ARITA Code, it lists the same general principles that apply.

While that seems sensible, there are sometime difficulties with transplanting another jurisdiction’s rules, given differences in law, practice and culture and perhaps for that reason there are both similarities and differences between the two Codes.

It may have been a little over-influenced by Australia’s focus on practitioner remuneration (‘remuneration’ appears 169 times), and on proportionality (saying that a practitioner may claim for work that may not have produced a positive outcome provided there was a proper exercise of professional judgment in deciding to do the work). The latter issue was accepted in NZ, for example in Five Star Finance [2015] NZHC 142, and now see Fann v Norrie [2017] NZHC 2019, although aspects of that finding (as to remuneration for pre-liquidation work) do not apply in Australia. Similarly, a NZ liquidator was found not to be motivated by any improper purpose in bring voidable transaction proceedings simply because the recovered moneys would go to his fees: McCullagh v Robt Jones Holdings Limited [2017] NZHC 218; in Australia, see Boensch v Pascoe.  Also, the RITANZ Code addresses the particular requirements under its remuneration case law: Re Roslea Path and Re Medforce Healthcare Services. As with Network Ten (below), NZ courts have also shown accommodation with administrators being appointed despite prior work in relation to the company. For example, in Cargill International S A v Solid Energy New Zealand Limited [2016] NZHC 1817, KordaMentha’s role as investigative accountant for two unsecured creditors meant it was “not therefore involved in advising secured creditors on how to improve their claims relative to unsecured creditors”.

As to the law, necessarily, a court may make orders that differ from requirements or guidance in the Code, for example in relation to independence.  This was a particular aspect of the Network Ten decision ([2017] FCA 914), the Court there saying that while the ARITA code was useful, ‘(a)ny question relating to the appearance of impartiality must be determined according to law … [it not being] the Court’s function in a case such as this to either apply or interpret the code’.

As to changes and developments in insolvency practice, the equivalent English code is presently under review for those reasons, in particular in relation to how insolvency work is referred, with potential changes to the independence rules.

Usefully, the Code binds RITANZ members practising in the field of insolvency or restructuring outside of New Zealand, unless in direct conflict with the laws of the jurisdiction in which they operate. That would allow the conduct of a NZ practitioner operating in Australia under the Model Law or legislative authority to be sanctioned by RITANZ, with some care needed in relation to different jurisdictional requirements.

In common with UK practice, the RITANZ Code imposes an obligation on any member who becomes aware of any other member failing to comply with the Code (or with relevant laws and regulations) ‘in a manner which is likely to bring discredit to RITANZ’ (and presumably, if unlawful), to report that member to RITANZ. The closest equivalent under Australian law are the whistleblowing obligations by way of statutory industry notices.

The Code covers not only formal statutory appointments but also “informal work outs and compromises”.  However, unlike the Australian TMA Code, for example, it does not address in any detail the particular issues and need for guidance that can arise in the pre-insolvency restructuring and turnaround field.

More soon.

 

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