Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

New Zealand insolvency practitioner regulation – possible delay

The new corporate insolvency practitioner licensing regime in New Zealand, due to start in July 2020, may be put off for one year.

The Insolvency Practitioners Regulation Act 2019 and the Insolvency Practitioners Regulation (Amendments) Act 2019 are scheduled to come into force on 17 June 2020. However, the NZ government has said that while this start date is still being targeted, proposed insolvency law changes will provide that the date can be extended should there be unexpected COVID-19-related delays, for up to 12 months.[1]

The government had in fact already released regulations in March 2020 as to two aspects of the new scheme, as to the required qualifications and experience of IPs[2] and as to the qualities of the accredited co-regulatory bodies[3].

These two regulations of themselves are useful current statements of criteria and standards that may be applied to other similar regulatory arrangements. They can be compared with the ‘regulatory objectives’ of the recognised professional bodies in the UK, introduced by s 138 of the Small Business, Enterprise and Employment Act 2015.

NZ Insolvency practitioners (IPs)

As to IPs, a person seeking to be licensed as an IP in NZ must

  • be a member of an accredited body; or be exempt under s 57
  • have at least five years experience on insolvency engagements or in work sufficiently similar
  • hold a certificate of public practice (CPP) or equivalent and have completed at least 1,000 hours of work on insolvency engagements at a senior level within the 3 years immediately prior, or, if they do not hold a CPP, have completed at least 2,000 hours of such work. Both of these can be dispensed with if the person is otherwise competent to act as an insolvency practitioner.
  • comply with their accredited body’s rules, code of ethics etc and be appropriately insured.
  • complete at least 120 hours of continuing professional development in any 3 year period with at least 60 being verifiable; and at least 20 of the 60 hours being related to insolvency practice; and at least 2 hours of the verifiable training being in ethics; and at least 20 of the 120 hours being completed in any 1 year period.

 Accredited Bodies

There are then prescribed minimum standards for the accredited bodies. As the government has revealed, CAANZ supported by RITANZ is intending to apply, as well as CPA Australia. All three have noted the ‘likely upturn in insolvency-related activity, and the importance of a professional, well-run insolvency profession …’. Their approval will depend on whether they can meet these criteria.

Governance, finances etc

The standards cover organisational and governance arrangements – a constitution, a clearly defined organisational mandate and objectives, a governing body that is responsible and accountable, and includes an acceptable number or proportion of appropriate independent directors. Financial stability must be shown. There is a need for the body to be in good standing with the relevant regulators.

Regulation of IPs

As to regulation by the accredited bodies, there must be effective systems, policies and processes for monitoring licensed IPs and identifying current or emerging issues and strategies to address these, including those identified through complaints and monitoring.

Principles of natural justice must be applied at all times in relation to handling complaints, conducting enquiries and investigations, and conducting disciplinary proceedings (including appeals), with a ‘principled, fair and consistent approach being adopted to addressing misconduct’. There must also be a sufficiently independent disciplinary and appeals bodies. The range of penalties must be sufficiently stringent to address the most serious breaches and must include a scale of penalties which ensures proportionality. Transparency is important.

CPA and CAANZ

Both CPA and CAANZ are regulatory industry bodies under the Bankruptcy Act and the Corporations Act in Australia, with various responsibilities and legal authority for the regulation of their insolvency practitioner members.

It would be interesting to see what they say in their NZ applications for accreditation as to their attention to the statutory regulatory authority given them under Australian law, about which nothing much is evident.

Negative licensing

If the new scheme does not go ahead from 17 June 2020, and is deferred, that simply means that New Zealand continues with its negative licensing regime for liquidators that it has had for some years, although this has been reinforced by the de facto professional licensing arrangement established between RITANZ and CAANZ in recent times.

UK comparison

New Zealand is therefore at the stage that England was at in 1985, with its Insolvency Act 1986 requiring registration of liquidators and trustees for the first time. History shows us how the UK insolvency profession quickly garnered its resources to take on the major co-regulatory role offered it under the 1986 Act, through the various recognised professional bodies.

In 2020, that regulatory structure is under review.

Australia

From Australia’s perspective, while the 1988 Harmer Report proposed co-regulation through a statutory board and the professional bodies, Australia decided to continue with direct government regulation. The Harmer Report did not favour the government trustee and liquidator roles found in the UK and NZ, instead preferring a government assistance fund for liquidators.

In comparing Australia’s present IP registration system with the pending 2020 NZ changes, IPs in Australia need tertiary qualifications, need not belong to any industry body, need 5 years-experience, with relevant 4000 hours, and 40 hours of CPD annually, all to be assessed through a committee process, with some residual discretion.

While the NZ scheme would allow an Australian IP some latitude in taking an appointment in NZ, Australian law would need to be changed to allow reciprocation.

NZ bankruptcies

New Zealand is different again in having all bankruptcies handled by its government Official Assignee, with no real private practitioner involvement in bankruptcy. A NZ Law Commission recommendation of 2001 that bankruptcies be opened up to private work was never adopted, and the only recent indication of this being disturbed is a parliamentary move for this to be changed.

That 2001 Report also recommended a role of the state in insolvency, in the nature of a ‘new regulatory figure, an Inspector-General in Insolvency’, but this did not eventuate.

Next

The 17 June 2020 deadline may be met by all sides, although the existing RITANZ-CAANZ regime appears to be a worthy de facto regulatory arrangement in the meantime if the introduction of the new regime is delayed.

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[1] See the relevant Cabinet documents.

[2] Insolvency Practitioners Regulation Act (Prescribed Minimum Standards, Conditions, and Requirements for Ongoing Competence, for Licensed Insolvency Practitioners) Notice 2020

[3] Insolvency Practitioners Regulation Act (Prescribed Minimum Standards for Accreditation) Notice 2020

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