The Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) is pleased to announce a Commencement Order has been made by Parliament today to bring into effect the Insolvency Practitioners Regulation Act 2019 on 1 September 2020, despite an initial delay to the start date due to the impact of COVID-19.
Under the new law, the insolvency profession will be subject to mandatory licensing, a first for New Zealand. Practitioners must be of good character, a fit and proper person and have the skills and experience to complete the technical and challenging work of restructuring and insolvency professionals.
RITANZ has tirelessly advocated for the protection of creditors and licensing of insolvency practitioners over the years and were delighted when the government enacted the Insolvency Practitioners Regulation Act and the Insolvency Practitioners Regulation (Amendments) Act which was set to come into force and effect on 17 June 2020.
As a result of the COVID-19 lockdown the government rushed to introduce relief measures to keep businesses afloat and money flowing through the economy. RITANZ worked closely with MBIE and other stakeholders to drive the insolvency measures and provide tangible mechanisms and amendments to legislation to give directors of companies a toolkit to work with during these unprecedented times.
On 5 May 2020 the COVID-19 Response (Further Management Measures) Legislation Bill was introduced and had its First Reading in Parliament 8 May 2020. The Bill includes the proposed Safe Harbour and the Business Debt Hibernation amendments to the Companies Act 1993 which make up the backbone of this tool kit. RITANZ prepared a written and oral submission for the Select Committee supporting the Safe Harbour provisions and Business Debt Hibernation regime but asking that any delay to implementing Insolvency Practitioner regulation be as short as possible, if needed at all.
The government has released the details of its proposed insolvency law relief package. The proposed changes will be welcomed by directors, many of whom are facing difficult choices about whether and how to continue to trade through the COVID-19 crisis.
The package forms part of the COVID-19 Response (Further Management Measures) Legislation Bill that was introduced yesterday afternoon. The Bill is expected to be progressed quickly, with Parliament’s Epidemic Response Committee expected to report on the Bill by next Tuesday, 12 May 2020.
The Bill is broad in scope and amends or modifies some 45 different pieces of legislation. In this update we focus on two of the proposed changes to the Companies Act 1993: relief from directors’ duties and a new business debt hibernation scheme. We then outline when and how directors might make use of them.
Directors’ duties relief
The Bill proposes significant, but temporary amendments to the two directors’ duties that apply specifically to insolvency scenarios:
the duty not to trade recklessly, and
the duty not to allow the company to incur obligations without a reasonable belief that they will be met when due.
Together, these duties protect the interests of the company’s existing creditors. They also protect the interests of new creditors that may arise from ongoing trading. Effectively, the duties prohibit directors from taking unreasonable business risks at the expense of creditors who will not be paid.
The Beehive has released the following press release today:
“Support is on the way for businesses facing insolvency due to COVID-19, with the Government introducing a package of measures in Parliament today to further boost New Zealand’s economic recovery.
“The Government is ensuring businesses affected by the economic impacts of COVID-19 can access the assistance they need to stay afloat as we get New Zealand moving again,” Minister of Finance Grant Robertson said.
Changes to insolvency and company law are progressing through the COVID-19 Response (Further Management Measures) Legislation Bill, which contains a range of measures to support business through the pandemic.
RITANZ, together with leaders in the industry has worked closely with MBIE to provide proposals to address certain corporate governance risks that now exist as a result of the Covid-19 pandemic and the Level 4 lockdown.
We have lobbied for urgent steps to be taken to both provide directors with some comfort that they will not be held liable for actions they take in this period as well as providing mechanisms to assist directors in the period following the lockdown as they attempt to rebuild their businesses.
We are pleased to share the following announcement made today by MBIE:
“The Government will be introducing legislation to make changes to the Companies Act to help companies facing insolvency due to COVID-19 to remain viable and keep New Zealanders in jobs.
Following the recommendations in the Insolvency Working Group’s (IWG) second paper in 2017, the government this week released details of further insolvency law reform being proposed for gift vouchers, voidable transactions, preferential employee claims and other changes to existing rules.
Additional discussion on new legislation dealing with ponzi schemes has been deferred for the time being.
The government has accepted many of the recommendations made by the IWG; the professional body for insolvency practitioners, RITANZ, believes most of these are both sensible and prudent. Our view on the key aspects of the changes are:
Article copied with permission from Kensington Swan.
The Primary Production Select Committee has reported back to the house on the Farm Debt Mediation Bill (No 2). The select committee has unanimously recommended that the Bill be passed by the House with some amendments to the original bill. The Bill will require secured lenders, as a prerequisite to taking any enforcement action, to offer mediation to a farmer and participate in the process in good faith. Farmers who are in financial trouble will also be able to initiate mediation regardless of whether a default has occurred.
RITANZ recently met with the Treasurer to discuss Phase 2 of the Reserve Bank Act, in particular whether NZ should introduce Depositor Preference or a Depositor Insurance Scheme, or a combination on both into the Reserve Bank Act. They are calling for public submissions and RITANZ is currently preparing a written submission in this regard.
Please feel free to send us your comments and feedback so that we can incorporate your views into our report.
The full Phase 2 Consultation Document is available here to read.
RITANZ’s Chairperson John Fisk and Vice Chair Matt Kersey recently presented an oral submission to the Select Committee in Parliament on the Supplementary Order Paper to the Insolvency Practitioners Bill.