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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Breaking a bankruptcy monopoly in New Zealand

There are moves in NZ to break the monopoly of the Official Assignee in personal insolvency by allowing private insolvency practitioners to administer bankruptcies under the same structure as applies in Australia. A private member’s bill – the Insolvency (Private Administration of Personal Bankruptcy) Amendment Bill – would amend the Insolvency Act 2006 to allow this.

Each of Australia, New Zealand and England has a different structure for the public sector role in the administration of insolvencies.

The UK has the Official Receiver, which is the default insolvency appointee in court liquidations and bankruptcies; Australia has the Official Trustee in Bankruptcy, as the default trustee in bankruptcies but there is no Official Receiver in corporate insolvency; and New Zealand has its Official Assignee, which is the only trustee in personal insolvency, but which shares corporate insolvency with the private profession.[1]

Hence the two ‘monopolies’ are those in Australia, as to corporate insolvency, and New Zealand, as to personal insolvency.

Reasons in favour

As the Explanatory Note to the Bill explains, this change would bring New Zealand into line with Australia and the United Kingdom and it gives 5 reasons in support (as paraphrased):

  1. “Greater and speedier return to creditors of assets than at present. The Official Assignee’s Office has a different focus to the private sector. In the private sector, the market drives insolvency administrators to pursue valid claims where there is a financial return, speeding up the process …”.
  2. “The prospect of the actual use of enforcement provisions by private profession will drive better business behaviour”.
  3. “The Official Assignee’s resources would be freed up to work on matters in the public interest, such as public enforcement and regulatory obligations”.
  4. “Effective administration and a rise in confidence. A dual public and private regime will lead to a rise in public confidence, and that of the accounting and legal professions …”.
  5. “Cross-border issues will be dealt with more effectively. New Zealand is one of few jurisdictions where the Official Assignee has a statutory monopoly on the administration of bankrupt estates”.

Public and private functions

The Explanatory Note refers to a 2001 Law Commission[2] study paper recommending the change in response to a government request to advise on the proper role of the state in insolvency law. The paper expressed the view that

“private functions should be performed by the private sector and paid out of funds otherwise available for distribution among creditors, while public functions should be performed by public officials and paid for out of public funds …”,

and that an appropriate balance is one which

“requires the State to exercise public functions while providing an incentive for the private sector to act when recovery of debts is the prime objective”.[3]

Comment

Some of the five reasons need substantiation. If the private profession would in fact offer a “greater and speedier return to creditors” then we would need to compare the rates of return to creditors between the Official Assignee and the private profession in corporate insolvency, assuming like matters are administered. In Australia, there is little difference between the dividend return of the Official Trustee and private trustees, when taking into account the large number of assetless bankruptcies administered by the Official Trustee.

But there may be a case for saying that the Official Assignee’s resources should be freed up for public interest matters, such as enforcement and regulation.

Whether cross-border issues would be dealt with more effectively is moot.

The test of having private functions performed by the private sector and paid out of ‘creditors’’ funds and public functions performed by public officials and paid for out of public funds is useful, if the public-private distinction can be clearly drawn. Australia’s insolvency laws would not meet that test given that creditors fund many public functions of practitioners.

New Zealand’s corporate insolvency laws are undergoing changes with the Insolvency Practitioner Regulation Act 2019 coming into effect in June 2020. The timing of this Bill is opportune assuming that the experience of the profession in corporate insolvency can translate over to personal insolvency, and that personal insolvency regulation can be incorporated into the new co-regulatory regime.

Next

Next, Australia.

[1] On a limited basis – s 241 Companies Act 1993 (NZ)

[2] Study Paper 11, Insolvency Law Reform: Promoting Trust and Confidence, May 2001

[3] See also the article of the Commissioner, Paul Heath QC, Insolvency Law Reform: The Role of the State, (1999) NZLRev 569

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