Minister Goldsmith eyes fake building company wind downs, Ponzi clawbacks

Thursday 19th November 2015

Commerce Minister Paul Goldsmith wants to know whether there are problems in the building sector where companies are wound up to dodge unpaid debts and whether better ways exist to claw back funds lost in Ponzi schemes, tasking a group of insolvency experts to test the current law.

The working group will look at whether there are problems with the voluntary liquidation of companies, including the use of phoenix firms where assets are transferred to a near-identical entity to dodge liabilities, and whether that's confined to the building sector or is a broader problem, according to the review's terms of reference. The group will also look at whether voidable transactions can be reformed, including whether law can be changed to aid the recover of lost funds in Ponzi schemes. A report is expected in the middle of next year.

"A working group of insolvency experts will be set up to provide independent advice to the government on important aspects of corporate insolvency law," Goldsmith said in a statement. "It is inevitable businesses get into trouble and fail. When that happens we must have an efficient insolvency law process that can recycle the capital back into the market."

The country's insolvency law was updated in 2006 by the previous government, introducing rules to allow voluntary administrations as an alternative to liquidations and imposing tougher sanctions on the use of phoenix firms to bring New Zealand's legislation more in line with Australia's.

The working group will be chaired by former Deloitte partner Graeme Mitchell and includes Chapman Tripp partner Michael Arthur, lawyer Crispin Vinnell of law firm Anthony Harper, KPMG director Vivian Fatupaito, PwC director John Fisk, Debtworks executive director David Young, and a nominee from the Official Assignee.

The group will also investigate whether the Insolvency Practitioners Act, which introduced a negative licensing regime for insolvency practitioners, is fit for purpose, and whether it should be replaced by a full licensing regime. The current regime means those practitioners who fall short of the expected standards attract the regulator's attention,

The insolvency practitioners law was introduced by former Commerce Minister Simon Power to try and force out what he called “incompetent and unskilled” liquidators and receivers after the numerous collapses of mezzanine finance providers in the late 2000s wiped out a number of companies.

The regulatory impact statement for the practitioners law preferred the negative licensing regime as the most cost-effective response for a small industry, though said it might not be as effective as the more expensive mandatory licensing option.

The working group has also been told to identify any other potential improvements to the law and what the priorities for reform should be.

BusinessDesk.co.nz

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