Power to oust incompetent practitioners

Wednesday 30th September 2009

Commerce Minister Simon Power plans to force out “incompetent and unskilled” liquidators and receivers in a bid to improve the regulation of insolvency practitioners.

Courts will be able to ban incompetent or delinquent practitioners from operating as liquidators, receivers and voluntary administrators, Power told a business audience in Auckland today.

The proposal will also toughen up existing provisions around the appointment and replacement of the practitioners. The announcement comes amid corporate insolvencies almost doubling as the recession forces a growing number of companies into liquidation.

“These figures suggest that now, more than ever before, the regulatory framework for insolvency has to be effective for the efficient realisation and distribution of a debtor’s assets,” Power said. “Creditors are likely to have lower returns in incompetent and unskilled individuals take up insolvency appointments.”

The recession has wiped out a number of companies across a wide range of sectors such as clothing manufacturer Lane Walker Rudkin, EFTPOS equipment supplier Provenco Cadmus and a bevy of finance companies including Blue Chip and OPI Pacific Finance.

The number of firms that collapsed in the 12 months ended July 31 surged 99% to 377, the most in nine years, as companies struggled to cope with the first recession in a decade.

Some 9.8% of these firms owed creditors more than $1 million, with another 6.1% owing upwards of $500,000. The Insolvency and Trustee Service recovered some $3.4 million over the period, and distributed around $770,000 to creditors.

With the majority of liquidations administered by private liquidators, the Insolvency and Trustee Service’s statistics aren’t exhaustive, and it’s likely there were more corporate collapses in the period.

The new insolvency regulation will be a further “step towards harmonisation” with Australia and will foster greater investment for New Zealand busineses, Power said.

Work is underway on other areas to improve the operation of a trans-Tasman framework including the facilitation of cross-border insolvency proceedings; marrying up outcomes for insolvent firms or bankrupt individuals on both sides of the Tasman; making available to creditors the maximum amount of frozen capital, to through an efficient bilateral service; ensuring legal variations between the nations won’t impede the distribution of assets; and minimising compliance costs.

The government aims to introduce the new regulation next year.

Companies aren’t alone in seeking out, or being sent into, bankruptcy, with personal insolvency jumping 48% to 5,654, the highest in more than 15 years. Around 18% of the new bankrupts owe more than $100,000, with some 2.1% owing more than $1 million.

The rising tide of joblessness was the main reason for the surge in personal bankruptcies, with some 37% blaming unemployment or loss of income. This will be of small comfort to creditors with the jobless rate expected to rise above 7% next year, according to Treasury.

At 10%, excessive use of credit facilities was the second most popular reason.

Businesswire.co.nz

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