Over the years there has been quite a bit of judicial and parliamentary banter from New Zealand about Australian insolvency laws and perhaps other laws as well. This has been in the area of preference recoveries, the peak indebtedness rule, examination summonses, provable claims and more.
One NZ parliamentarian perceptively referred to the
“Australians having their hands full with their federal and state legal systems and a huge amount of material to wade through before they take a single step”.
And that NZ parliamentary drafters produce statutes that
occupy one page to every 5-6-7 pages in Australia.
Australia seems to either ignore to its detriment some of these comments, as if it could learn anything from its little neighbour.
It is unusual for this to be drawn out in judicial and parliamentary comments, let alone for someone to write about it, it being more expected in sporting contests.
As to that Australia necessarily has legal protection for its bankrupts’ Olympic and sporting medals from being divisible property. Necessarily NZ has had no need for such a law.
Australian and New Zealand insolvency laws are relatively similar in light of their English heritage. But there are differences which have led to competitive tensions evidenced by sniping remarks, more so from the New Zealand side about Australia’s approach to the law.[1] Many might find these comments justified particularly as Australia at the moment is agonising over its highly regulatory legislative drafting approach. Australia’s response to NZ criticism has generally been one of indifference, as if it could learn anything from its little neighbour.
The trouble is, it could. For example, most recently, in 2022-23, the PJC inquiry heard of the more favourable NZ corporate insolvency laws,[2] about which the PJC has recommended a comprehensive review.
Many of the past remarks may have been well enough forgotten by now, save that, in the interests of creative destruction, or legal dynamism, I am now re-reminding us of them.
Company law
The major difference is that Australia is a federation with powers shared between the Commonwealth and the States under a constitution, one which limits federal powers over companies. The NZ parliament has full legislative authority.
The first NZ general companies legislation replicated that of the UK and this continued up until the enactment of the predecessor to the current legislation, the Companies Act 1955 (NZ).
As to Australia, it intended at federation in 1901 to adopt both bankruptcy and companies federal laws based on those of the UK, and introduced the Bankruptcy Bill 1908 and the Companies Bill 1908 to do so. Each, significantly, provided for an official receiver role to be created.
However, company law in Australia was then stifled by its constitutional limitations.[3] The 1909 decision of the High Court of Australia in Huddart, Parker[4] raised limitations on the Commonwealth’s powers over companies, and while there was enacted the Bankruptcy Act 1924, no Commonwealth Companies Act eventuated.
Company law remained the responsibility of the various states, who applied it in their own idiosyncratic ways over the following decades. Even now the Corporations Act 2001 is in place, it remains compromised by state and local court interests.
Nevertheless, over in NZ, while the MacArthur Committee in the 1970s concluded that “Australian legislation forms the best solution for a good many of our problems”,[5] the NZ Law Commission took a different view, describing the Australian legislation of that time as “outdated and dense in form”,[6] and concluding that the Canadian Dickerson Report and subsequent Canadian companies statutes provided a better working model for NZ.[7]
Thus, by the late 1980s, the Australian corporate law was already being seen as “outdated and dense in form”, at least by the New Zealanders.
‘Ordinary course of business’ and right–thinking New Zealanders
Some begrudging concessions have been made to Australian law.
The term ‘ordinary course of business’ had been removed from the law in Australia in 1993 because of uncertainty as to its meaning.[8]
At the time, a NZ judge noted that
“New Zealand chose that moment to introduce into its own companies legislation the very phrase which Australia had just discarded. One of us must have got it wrong. Although in these situations right-thinking New Zealanders would normally assume it to be Australia”,
Australia
“may be right”.
Misgivings as to harmonisation with Australian law”
But not often.
As to Australian insolvency law generally, right-thinking New Zealanders prevailed. At the second reading of the NZ Companies Bill 1993, which introduced major changes to insolvency law comparable to those introduced in Australia at that time, misgivings were expressed
“relating to harmonisation with Australian commercial law”.[9]
That was the case both as to the legislative processes generally, and as to the then Australian Corporations Law in particular:
“the Australians have their hands full trying to untangle this matter. They have their federal legal system, their state legal systems, and a huge amount of material to wade through before they take a single step”.
And as to legislative drafting:
“I congratulate our local law draftsmen, as in New Zealand we manage to produce statutes that occupy 1 page to every 5, 6, 7, or 10 pages produced by the Australian draftsmen”.
The honourable member continued:
“From that point of view, and from the inquiries I have made, which ranged right up to staff in the Attorney-General’s office, the Australians actually acknowledge the quality of what we have been doing in New Zealand, and they are reasonably relaxed about the progress we have been making. …. and in so far as harmonisation with Australian law is concerned we are able to contribute something worthwhile to our Australian neighbours. That is the way it should be”.
Whether New Zealand wanted to take much back from Australia was not mentioned.
Peak indebtedness rule
In that respect, while NZ took some of our statutory insolvency law wording, namely our s 588FA(3), this did not include any gloss put on it by Australian courts, namely, the “peak indebtedness rule”: Timberworld v Levin [2015] NZCA 111.
Indeed,
“the Australian courts seem to have assumed the rule had the weight of authority and sufficient pedigree to warrant its direct application. We have located no Australian authorities offering a considered analysis of the rule”.
The Australian High Court later agreed and decided that the rule should no longer be applied: Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2. The High Court decision only footnoted Timberworld, as if begrudgingly.
Public Examinations
The NZ Court of Appeal has also been critical of another line of Australian decisions, those that allow an examination summons to be issued to test the financial capacity of a defendant to pay a judgment sum if obtained. According to the NZCA, Australian courts are misconceived in that they have misread certain 19th century English decisions on which they rely.
“Australian courts go too far, and base their reasoning on limited authority, in contrast to the more restrained and correct approaches taken in NZ and England”.
The leading Australian case of Grosvenor Hill (Queensland) Pty Limited v Barber [1994] FCA 921 anchored its reasoning on earlier English authorities which
“do not at all address the jurisdictional question of whether such powers permit an inquiry into private financial information so as to ascertain judgment worthiness”: see Finnigan v Ellis [2017] NZCA 488; [2018] 2 NZLR 123 at [42].
The Australian approach has long been established under our law and it was reaffirmed by the Full Federal Court in Pleash v Tucker [2018] FCAFC 144; (2018) 264 FCR 374 [53] referring to Grosvenor Hill. Oddly, no mention was made of the New Zealand view.
Costs orders as provable debts
In a similar vein, it may yet also be said that the High Court of Australia has relied upon unsound 19th century English authorities as to when a costs liability becomes a provable debt, the Court in Foots v Southern Cross Mine Management [2007] HCA 56 finding that a costs order made after the date of bankruptcy is not a provable debt.
There has not been NZ judicial criticism of that Australian High Court decision; rather it has been ignored, or not been cited, both in the UK and New Zealand.
In 2014, the UK Supreme Court in Nortel rejected the old 19th and early 20th century authorities upon which English courts, and the Australian High Court, relied in finding that a costs order after bankruptcy was not a provable debt –
“There a number of problems about these cases. …. They were wrongly decided”.[10]
Soon after Nortel, the New Zealand Supreme Court in Bradbury v Commissioner of Inland Revenue [2015] NZSC 80; [2015] 1 NZLR 739 decided to follow the Nortel reasoning, rejecting the old case authorities.
Neither the UK nor the NZ Supreme Courts referred to the decision of the Australian High Court in Foots.
Cross-border laws
Then there was the potential diplomatic incident back in 2007 when both Australia and NZ were introducing their respective cross-border insolvency legislation to adopt the Model Law on Cross-Border Insolvency.
It seems that NZ had anticipated, based on Australia’s CLERP 8,[11] that there would be bilateral arrangements between the two countries, the NZ government papers showing “an obvious anticipation that Australia would follow its own CLERP 8 recommendations” and introduce a bilateral provision.
However, Australia’s Cross-Border (Insolvency) Act 2008 (Cth) simply adopted the Model Law and did not follow the CLERP 8 recommendations to allow reciprocal arrangements. As was said,
“it seems that NZ is out on a limb … having gone the way it thought Australia was going but now finding Australia did not even climb the tree. Whether that has the potential to become a diplomatic incident in NZ, the Eye will not disclose, in the interests of trans-Tasman comity”.[12]
Olympic and other medals
It is perhaps unusual to find such a line of judicial and parliamentary criticism by one country of the other, more so for someone like me to highlight it.
Such banter typically arises in relation to the various sports in which Australia and New Zealand compete.
As to that, while Australia has seen the obvious need for protection under the law of a bankrupt’s Olympic or other sporting medals, expressed as having “sentimental value”.[13]
NZ law has necessarily not had the need to legislate to do so.
========================
[1] I am grateful to Professor Lynne Taylor of the University of Canterbury NZ for some references used here, shared in the interests of academic cooperation. Their use is totally my responsibility.
[2] 2023 PJC Report, at [3.87].
[3] cf Ashkaya Kamalnath “The Evolution of Australian Corporate Law – Looking Back to Look Ahead” (2025) 39(1) Bond Law Review 1.
[4] Huddart, Parker & Co Pty Ltd v Moorehead [1909] HCA 36; (1909) 8 CLR 330
[5] MacArthur Committee Final Report of the Special Committee to Review the Companies Act (1973) at 27.
[6] Law Commission Company Law Reform and Restatement at [38].
[7] Law Commission Company Law Reform and Restatement, Report No 9, June 1989, at [32]; see NZLC-R9.pdf.
[8] (2008) 9(1) INSLB 4. It reappeared, with no real explanation, in the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020. And it now continues to appear in Australian law. NZ did away with the ordinary course of business test in 2006.
[9] Historical Hansard – New Zealand Parliament (www.parliament.nz), 23 February 1993.
[10] See In re Nortel GmbH (in administration); In re Lehman Brothers International (Europe) (in administration) [2014] AC 209; and also BPE Solicitors & Anor v Gabriel [2015] UKSC 39.
[11] Cross-Border Insolvency Promoting international cooperation and coordination Corporate Law Economic Reform Program Proposals for Reform: Paper No. 8, 2002, Proposal 6G.
[12] Forward thinking New Zealanders — (2008) 9(1) INSLB 4.
[13] Bankruptcy Regulation 28 – “For the purposes of subparagraph 116(2)(ba)(ii) of the Act (“personal property of the bankrupt that … has sentimental value for the bankrupt”), non – monetary sporting, cultural, military or academic awards are a kind of property that is prescribed”.
