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Prescribed Forms and Notices

11. The Insolvency Act allows for the content, rather than the form, of prescribed forms and notices to be set out in regulations. Where possible, it is proposed that this approach be taken rather than including the specific form in the regulations.

12. It is further proposed that applications by a debtor for adjudication as a bankrupt, entry into the NAP and an application for a summary instalment order be able to be filed electronically. Where this is the case, the Insolvency and Trustee Services (ITS) will send a print-out of the application form to the applicant for his or her signature and return. Alternatively, applicants will be able to print out a form from the ITS website or obtain one from the ITS directly, and then submit it.

13. It is proposed that regulation 17 of the Insolvency Regulations 1970 be carried over to provide for the service of notices under the Act. This will ensure that the process under the High Court Rules will apply to the notice of bankruptcy under section 68 of the Act. The regulations should require the service of documents on the Official Assignee ("the Assignee"), which includes the Official Assignee and Deputy Assignees, at the office of the Official Assignee.

Manner of Advertising

14. It is proposed that advertising of all notices by the Assignee under the Insolvency Act (e.g. that a person is adjudged bankrupt) will be by publication on the ITS Website and in the Gazette. It is also proposed that notices advertising bankruptcy be able to refer to more than one matter or bankruptcy, as is currently provided for under regulation 13 of the Insolvency Regulations 1970.

15. These proposals are a change from the requirements under the Insolvency Act 1967, which requires publication in at least one newspaper published or generally circulating where the bankruptcy proceedings are filed. The reasons for dropping this requirement are cost savings for the Assignee; it will be easier to correct any errors in advertised information; it will avoid debtors filing for bankruptcy in a region other than which they live in; and that newspaper advertising is not very effective where there is more than one newspaper commonly read in a region.

16. The ITS website can be accessed and updated at almost any time. As most people have access to the internet, it is considered that advertising on the ITS website and the Gazette only will be as effective as the current system of advertising by newspaper. In terms of cost, the savings for ITS are estimated to be approximately $185,000 per year. As some of these costs are recovered from insolvent estates, the proposal to only advertise on the website and in the Gazette will result in slightly more funds being returned to creditors.

Bankruptcy

17. An application by a debtor to be adjudged bankrupt must be filed with the Assignee. It is proposed that the regulations require each application to set out the full name of the applicant, address and contact details, occupation and date of birth.

18. If a person is adjudged bankrupt, the Insolvency Act requires the Assignee to send a notice in the prescribed form to the bankrupt. It is proposed that two forms be specified: one if a statement of affairs has already been filed (i.e. for a debtor's application) and a second form for where a statement of affairs still needs to be filed (e.g. where adjudication occurs on application of a creditor). The form will also contain the information specified in the Act for this form, namely that the bankrupt has been adjudicated bankrupt, that the bankrupt must file a statement of affairs (if applicable) and the time the statement of affairs must be filed. It will also refer to the ITS website, for any queries.

19. After a person is adjudged bankrupt, the process of creditors making claims against the bankrupt's estate begins. The Insolvency Act sets out the requirements for dealing with creditors' claims. It is proposed that the regulations require creditors' claims to include the name of the bankrupt, the contact details of the creditor, the name of the person completing the form, the amount of the claim, details of debt, date/s the debt was incurred, GST number of the creditor, whether or not security is held for the debt and if so, the details of the security and estimated value, signature (if completed manually), and the date the form is completed. It is also proposed that the regulations require evidence of the claim accompany the form.

20. An undischarged bankrupt must obtain the Assignee's consent to leave New Zealand. It is proposed that a bankrupt, or his or her authorised representative, must make an application in writing containing the particulars of the bankrupt's proposed departure, including the reasons for leaving New Zealand, whether the applicant is intending to return, and the approximate date of departure and return and other such particulars as the Assignee may require. It is also proposed that regulations permit the Assignee, having regard to the interests of the creditors and the bankrupt, to refuse any such application or grant it either unconditionally or upon or subject to such conditions as he or she thinks fit.

21. An undischarged bankrupt is prohibited from entering into or carrying on business without the consent of the Assignee. It is proposed that the regulations require an application in writing to be made by the bankrupt, or his or her authorised representative, for such consent, setting out the reasons for the application, whether the business is a new business, the capital of the business and such other particulars as the Assignee may require. This information will need to be verified by affidavit. The Assignee, having regard to the interests of the creditors and the bankrupt, may in his or her discretion refuse any such application or grant it either unconditionally or upon or subject to such conditions as he or she thinks fit including the interests of the bankrupt.

22. Persons may be summonsed to attend an examination by the Assignee or a District Court Judge. It is proposed that, given the examination can be before a District Court Judge, the regulations require that the District Court practice and procedure for issuing a summons be followed. Personal service would also be required.

23. Further, if the examination is before a District Court Judge, the regulations should require the Court to allocate a date, time and place of examination before the summons is sent.

24. Any person summonsed for a private examination, and any bankrupt who attends a public examination is entitled to the prescribed expenses. It is proposed that any person other than the bankrupt be paid the expenses provided for in the Witnesses and Interpreters' Fees Regulations. However, it is proposed that a bankrupt be only entitled to receive the travelling expenses provided for in regulation 8 of those regulations.

25. The Insolvency Regulations 1970 set out regulations relating to adjudication against a firm or partnership. It is proposed that the content of the regulations 27 and 29-32 be included in the proposed regulations.

26. A creditor must give notice to the Assignee and the bankrupt opposing the bankrupt's automatic discharge under section 292 of the Insolvency Act and discharge by a Court under section 297 of the Insolvency Act. It is proposed that the regulations provide for opposition to be notified not less than 5 working days before a hearing to avoid last minute objections and, further, to allow the bankrupt or his/her representative time to prepare and respond to the objections at the hearing.

27. It is proposed that regulation 63 of the Insolvency Regulations 1970 be included in the proposed regulations. The regulations provide that where a bankrupt has no available assets, the Assignee will not be required to incur any expense without a guarantee from the creditors.

Compositions

28. Compositions are able to be entered into during bankruptcy, as an alternative arrangement to the normal bankruptcy rules, with the agreement by 75% in value and number of creditors. They are approved by the Court, but some regulations are needed. It is proposed that the content of the following regulations set out in the Insolvency Regulations 1970, be carried over in the proposed regulations:

• regulation 28, which relates to the terms of a proposal for a composition; and
• regulations 35 to 39, which relate to the manner in which payments under the composition are to be secured, the consequences of a debtor defaulting under a composition, disputes as to the amount of a claim that the Court may order and the requirement that a creditor be required to prove his or her debt before the debt becomes payable under a composition.

Proposals

29. Proposals are alternatives to a debtor being adjudged bankrupt. They are entered into with the agreement by a majority in number and 75% by value of creditors, and are approved by the High Court. The proposal sets out how a person's debts will be met, under the supervision of a trustee. Regulations are needed, largely dealing with meetings of creditors. It is proposed that the content of regulations 51 to 62 of the Insolvency Regulations be carried over except:

• actual form for notices of meeting not be prescribed;
• regulation 52, relating to the quorum of 2 creditors to be present at a meeting in order for a proposal to be accepted by creditors, be modified to allow postal voting;
• creditor's claims be required to be filed with the trustee in the same form as for bankruptcies; and

a trustee under a proposal be required to file a summary of receipts and payments in the same form as the summary required for a summary instalment order, as discussed in paragraph 39 below.

30. It is also proposed that the regulations set out a procedure for creditor's meetings under proposals to ensure they run smoothly and in a way that is not unfair to the debtor. These regulations will be similar to the procedure that applies in bankruptcy. Regulations are also needed to provide the procedure for the proving of creditor's claims. It is proposed that these be similar to the procedures that apply under summary instalment orders.

31. In addition, it is proposed to replicate regulation 20 of the Companies Act 1993 Liquidation Regulations 1994 to allow provisional trustees of a proposal to approve or reject creditor's claims, for the purposes of the creditor's meeting under a proposal. This will facilitate such meetings.

Summary Instalment Orders

32. Summary instalment orders are an alternative to bankruptcy, for persons with debts (excluding student loans) of $40,000 or less. The order sets out the basis for payment of the debtor's debts. A change made by the Insolvency Act is that summary instalment orders will be made by the Assignee rather than the Court, given that it is an administrative process. The Official Assignee's will also be able to provide a range of options and services to debtors in financial difficulties.

33. An application for a summary instalment order must be filed with the Assignee by a debtor or creditor. Some information is already specified in the Act (e.g. the applicant's name). In addition, it is proposed that the regulations require the debtor's occupation and date of birth on the application form, and a statement of affairs (discussed further below).

34. Before making an order, the Assignee must allow a debtor or creditor to make representations. To facilitate this, it is proposed that the Assignee give notice of the application for the summary instalment order. The regulation should specify the contents of the notice, being details of the application and an explanation that the debtor or creditor may make representations in writing to the Assignee within 10 working days of the notice.

35. It is proposed that a notice of a summary instalment order be sent by the supervisor to every creditor within 15 working days of the date of issue of the order. Creditors will be required to prove the debt by submitting a creditor's claim form, in the same form as applies for bankruptcy, to the supervisor within 15 working days of receiving notice of the order from the supervisor. The supervisor will notify creditors within 15 working days of receiving the claim as to whether their claims have been accepted or rejected, the reasons for the decision and the right of creditors to appeal the supervisor's decision to the Assignee.

36. It is proposed that creditors be able to object to a rejection of their claim within 15 working days of receipt of the supervisor's decision. The Assignee will then be required to give notice to the supervisor, debtor and creditor inviting them to make representations to the Assignee within 15 working days of receiving the objection.

37. The Insolvency Act provides for an application to be made for a variation of an order. It is proposed that an application from a debtor, creditor or the supervisor to the Assignee to vary or discharge a order be in writing, that all affected parties be notified of the application (if the variation will detrimentally affect the interests of creditors) and the reasons for a decision to vary or discharge the order. It is also proposed that the supervisor notify creditors of all variations after the order is made.

38. The Insolvency Act requires a supervisor to notify the Assignee as soon as practicable of a default by a debtor. It is proposed that the supervisor also notify creditors as soon as practicable so they can begin any proceedings that were previously halted due to the summary instalment order.

39. It is proposed that a notice be given to the Assignee by the supervisor (if required by the Assignee) within 20 working days of the summary instalment order being discharged, together with a statement of account showing amounts received and paid under the order (if the supervisor is not using the Assignee's trust account). Any excess money at the completion of the order should be paid to the debtor.

40. The Insolvency Act provides for a suitable and willing person to supervise compliance by the debtor with the terms of a summary instalment order. It is proposed that prior to the appointment, a proposed supervisor may be required to provide credit and security checks to the Assignee, verified by statutory declaration, and the Assignee approve the appointment on the terms and conditions he or she thinks appropriate.

41. It is proposed that the payment of any money (i.e. dividends) to creditors by the supervisor be accompanied by a description identifying the payment. It is also proposed that the supervisor's and Assignee's remuneration costs be deducted before any payment of dividends is made to creditors. Where payments are made by a debtor to the Assignee, regulations will require these to be made electronically to the account specified by the Assignee.

42. The Insolvency Act provides for payment of part of a debtor's earnings to be made to the supervisor, and then remitted to the creditors. It is proposed that the supervisor should give a written direction specifying the date of commencement for the direction, and that such direction be served either personally or by post.

43. It is proposed that the supervisor be able to either use the trust account operated by the Official Assignee for bankruptcies or a joint account in own name and the name of debtor, or a trust account opened by the supervisor. If a supervisor elects not to use the Official Assignee's trust account, the regulations will require the supervisor to bear the cost of any bank fees. The reason for this is that the Assignee will be able to negotiate much lower bank fees than individual supervisors and, possibly, higher interest rate returns. Making supervisors liable to pay any bank fees they incur themselves will provide an incentive for them to utilise the bank account operated by the Assignee.

44. It is also proposed that the content of the following rules set out in the Summary Instalment Orders (District Court) Rules 1970 be included in the proposed regulations, with appropriate changes to reflect that summary instalment orders will be made by the Assignee, rather than the District Court:

• rule 19, which sets out the obligations of the supervisor, except that the regulations will also make it clear that, if the debtor is appointed as supervisor, the debtor must perform all the obligations applying to supervisors;
• rules 20(5) and (6), which provide for the inspection and amendment of a creditor's claims by a creditor;
• rule 22, which specifies the procedures to be followed if a proof of debt is received late but without the current reference to fault on the part of the claimant. The regulations should also provide for payment of a dividend only after creditors who became creditors of the debtor before the order was made have been paid;
• rule 23, which specifies how the money received by a supervisor must be managed, with changes to reflect the proposals in paragraph 43 above relating to use of the trust account operated by the Official Assignee. In addition, the current thresholds for the liquidation of smaller debts will be updated from $5 to $200 and for the accumulation of dividends from $2 to $20 to make the process more cost effective;
• rule 25, which provides for an application by the debtor or creditor to discharge the supervisor from his or her obligations and specifies the consequences of termination;
• rule 26, which provides for the supervisor to render accounts at six monthly intervals if required by the Court; and
• rule 29, which prohibits second applications for summary instalment orders within six months of the Court refusing to make a first order, or the setting aside, rescinding or discharge of the first order.

No Asset Procedure

45. An application must be filed with the Assignee for a debtor to apply to enter the NAP. It is proposed that the content of each application include the full name of the applicant, address and contact details, occupation and date of birth, as for applications for bankruptcy.

46. A debtor is admitted to the NAP when the Assignee sends the debtor a written notice in the prescribed form. It is proposed that the regulations require the written notice to include the name of the debtor, date of birth, address, date of admission to the NAP, and a statement of the statutory obligations of the person admitted to the NAP.

47. Section 363(1)(e) of the Insolvency Act refers to a prescribed means test for entry into the NAP. It is proposed that the regulations specify a test based on whether the applicant's income and income from any related persons, taking into account their and their dependents' living expenses, is sufficient to pay their debts.

48. It is proposed that a notice from the Assignee to the debtor terminating the debtor's participation in the NAP include the name of the debtor, date of birth, a unique identifying number, the date of admission to the NAP, date of termination of the NAP and a summary of the effect of the termination of the NAP.

Statement of Affairs

49. The Insolvency Act requires that debtor's applications for bankruptcy and applications for entry into the NAP be accompanied by a statement of affairs. The Act also requires a debtor who is adjudged bankrupt on the application of a creditor and in other situations, to file a statement of affairs within 10 working days of receiving notice of bankruptcy from the Assignee. For summary instalment orders, the Act allows regulations to prescribe the information that applications must contain. In addition to the information in paragraph 48 above, it is proposed that this include a statement of affairs.

50. It is proposed that a single statement of affairs be specified for all these processes. The details to be included on a statement of affairs will be the applicant's full name (and any aliases and/or other names used in the last 7 years), date of birth, gender, contact details, IRD number, passport number, employment details, income and expenditure details, details of assets, liabilities and contingent liabilities.

Public Registers

51. The Assignee is required to maintain a public register for all bankruptcies under section 62, summary instalment orders under section 354 and the NAP under section 368.

52. Section 449 of the Insolvency Act sets out the information that must be kept on the public registers. Section 449(1)(o) provides for any other prescribed information or documents to be kept on the public registers.

53. Given that there could be persons with similar first names and surnames, it is proposed that the regulations provide for the year of birth of persons to be included on the registers, in addition to the information specified in section 449. This will provide a unique identifier of that individual for search purposes. This will be especially important to distinguish between persons with the same or similar names. There are currently a number of examples of this on the existing register, including persons in the same family and living at the same address. Although disclosure of year of birth has some minor privacy implications, I consider that this is outweighed by the prejudice of someone being mistaken as a bankrupt, and by the cost savings in searching the register.

54. Section 447 states that a public register must be available for access and searching by members of the public during business hours. The Assignee has the discretion to refuse access to a public register, in whole or in part, if the Assignee considers that it is not practical to provide access to the register, or for any other reason that is prescribed by regulations. It is proposed that more particular grounds be set out in the regulations to permit the Assignee to refuse access to the register, namely:

• for maintenance of the register;
• in response to technical difficulties; and
• to ensure security or integrity of the Register.

Accounts and Records

55. It is proposed that the content of the following regulations set out in the Insolvency Regulations 1970 relating to the keeping of accounts and records by the Assignee on bankruptcy be included in the proposed regulations:

• regulation 6, which prescribes the accounting records to be kept by the Assignee, except for regulation 6(2)(b) (which provides for a register of claims and a register of unrealised assets);
• regulations 7, 9 and 10, which set out the details for estate ledger, and cash book;
• regulation 12, which provides for the Assignee to pay all money received by him or her into a bank account to his or her own credit as Assignee; and
• regulation 61, which permits the Registrar to order an audit of the trustee's accounts which relate to the debtor. The Court has the discretion to order the trustee to compensate for any loss through misfeasance, negligence, or wilful default of the trustee.

56. It is also proposed that equivalent regulations to regulations 6 to 10 of the Insolvency Regulations 1970 apply to trustees under proposals and supervisors under summary instalment orders. In addition, for summary instalment orders, it is proposed that the Assignee be able to appoint an external auditor. If the Assignee requests an external audit to be done because of apparent discrepancies in the financial records of the supervisor, the supervisor will be required to pay for the audit. Otherwise, the Assignee will bear the cost of an internal audit. As for trustees under proposals, the audit requirements are covered under the existing regulations which will be replicated in the new regulations.

57. Creditors who have proven their debts also need a right to inspect the summary of affairs, creditors' claims and application forms in respect of a summary instalment order. It is proposed that this be provided for, to allow monitoring by creditors.

58. Section 228 of the Act requires the Assignee to prepare and publish a final statement of receipts and payments in the prescribed manner, and advertise it in the prescribed manner. The statement of receipts and payments will be specified in regulations referred to in paragraph 55 above. It is proposed that the regulations provide for notification of the final statement of receipts and payments on the ITS website and in the Gazette, and that a notification that the final statement is published be placed on the ITS website.

Fees and Remuneration of Assignee and Others

59. The Insolvency Act confers a number of new functions on the Assignee, for which fees need to be set. These are the receiving and processing of debtors' applications and annulments in bankruptcy; the receiving and processing of applications for summary instalment orders; and the administration of the summary instalment regime generally. The Assignee will also administer the new NAP regime, but as debtors eligible for the NAP will have no significant assets or income, no fees will be set.

60. Fees for existing procedures also need to be set under the new Act. In addition, the remuneration rates of the Assignee in carrying out company liquidations have not been reviewed since 1994, and are now out of date. I believe that it is timely to adjust these, concurrently with setting fees for the new functions to be carried out by the Assignee.

61. In December 2006, I directed my officials to release for targeted consultation a discussion paper on various fee proposals for the carrying out of insolvency administration under the Insolvency Act, and also for updating the rates of remuneration of the Assignee in bankruptcies and in company liquidations, when the Assignee is appointed as the liquidator, and for liquidators.

62. Feedback on the fees proposals was sought from a number of insolvency practitioners, a budget advisory agency, and a credit control agency. This feedback is discussed below.

Fees

63. It is proposed that the fee for filing an application to be adjudicated bankrupt, which is currently $40, be increased to $200 (GST inclusive) and that the fee be recovered as a first charge on assets received, if there are sufficient assets to meet the cost of the fee. The increase in the fee takes into account that under the Insolvency Act the Assignee will be required to receive and consider a complete statement of the debtor's affairs as a precondition to acceptance of the debtor's application for bankruptcy. This process goes considerably further than the requirements on the High Court to simply receive a debtor's petition, allocate a Court number and notify the Assignee.

64. It is proposed that a portion of the costs of the Assignee in dealing with summary instalment orders be recovered by way of an upfront fee of $100 (GST inclusive) for an application for a summary instalment order. This would be recoverable as a first charge on assets received pursuant to the order.

Remuneration

65. Under the Insolvency Act, a summary instalment order supervisor may charge a debtor remuneration for carrying out his or her duties at an amount or rate fixed by regulation. The Act also allows regulations to prescribe the rates of remuneration that an Assignee may charge for carrying out his or her functions. It is proposed to charge a commission rate of 10% of assets recovered, with 7.5% going to the supervisor and the balance of 2.5% to be paid to the Assignee. Under current legislation, supervisors are entitled to receive commission at the rate of 7.5%. The Assignee's remuneration of 2.5% of assets recovered will be applied towards covering the shortfall of costs recovered by the application fee, and towards the Assignee's ongoing functions in relation to orders, such as maintaining the central trust account, the oversight of supervisors, audits of supervisors' financial statements and dealing with maintenance of the register of summary instalment order debtors, complaints, terminations of applications and management of enquiries.

66. Under the Insolvency Regulations 1970, in bankruptcy administrations the Assignee is entitled to recover remuneration calculated on a commission basis. It is proposed that the Assignee move from a commission-based remuneration basis to a time cost basis (with exception of summary instalment orders). This will bring the Assignee's practices into line with Treasury's Guidelines for Setting Charges in the Public Sector.

67. The rates of the Assignee's remuneration in bankruptcies have not been reviewed since 1988. The rates for the Assignee when appointed as the liquidator under the Companies Act and for private liquidators appointed by the Court under the Companies Act 1993 Liquidation Regulations 1994 have not been reviewed since 1994. These rates now fall well below the actual cost of carrying out the work involved in insolvency administrations and in liquidations.

68. Further, in a large number of liquidations, private, court-appointed liquidators will seek applications to Court to fix their remuneration at a rate higher than that prescribed in the regulations. Substantial time and effort is spent by liquidators, their counsel and the Court to determine the appropriate level of remuneration. To reduce these costs, it is also proposed that the rates of remuneration for private, court-appointed liquidators be updated. At the present time, the default rate under the Companies Act 1993 Liquidation Regulations 1994 for private, court-appointed liquidators is the same as for the Assignee. It is proposed that this continue.

69. A remuneration review has been carried out by the Assignee to assess the appropriate level of remuneration for the functions carried out. The review was based on a time cost analysis of estates administered by the Assignee, and also took into account staff salaries and the cost of overheads, thus allowing for the calculation of the appropriate hourly rates. As with the existing regulations, the same hourly rates would apply to private, court-appointed liquidators. Based on the review, new hourly rates have been calculated as follows:

Feedback from Consultation on Fees

70. All respondents supported the first proposal to introduce an application fee of $200 (GST inclusive) for a debtor's application to be adjudicated bankrupt, to be recovered as a first charge.

71. Most respondents supported the proposal to introduce a fee of $100 (GST inclusive) for an application for a summary instalment order. One submitter expressed concern that the increase in the fee may act as a disincentive to applicants. The submitter accepted, however, the need for the Assignee to recover costs associated with the process, but suggested that a higher rate of commission would be preferable. In my view, the disincentive effect of an increased fee will be addressed by it not being imposed as an upfront fee, but recoverable as a first charge.

72. All except one respondent agreed with the principles underlying the proposal to charge an all-up commission of 10% under summary instalment order, with 7.5% to be paid to the supervisor, and 2.5% to be paid to the Assignee. One submitter suggested that a minimum fee of $500 was needed. I believe that, although this might go further towards meeting the true costs of the application, a minimum fee in the order of $500 would act as a barrier. A second submitter suggested that the 2.5% commission for the Assignee may need to be modified for orders where the Assignee's services are not used. This submission does not recognise that, even where the Assignee's facilities are not used, the Assignee is obliged to carry out ongoing functions during the life of the order, such as audit functions.

73. On the proposal to change the method of charging in bankruptcies from a commission to a time/cost method, all except one respondent was supportive. It expressed doubts about the method, although it supported the proposed rates. Moving to a time/cost method of charging would bring the method of remuneration in bankruptcies into line with the method of charging remuneration where the Assignee acts as a liquidator. Further, the time/cost remuneration method would mean that the Assignee would only be charging for work actually done in recovering returns for creditors. It would not result in any reduction in the underlying incentive for the Assignee to carry out his functions, as the Assignee's office is a non-profit department which employs internal quality assurance guidelines to ensure that an appropriate level of work is undertaken to obtain the best return for creditors in a cost-effective manner.

74. Finally, all respondents agreed with the proposal to increase the rates of remuneration as proposed, although there was some comment as to the level of the increase. One submitter commented that the proposed rates are a little low, and another that they are a little high in the case of insolvency officers. One submitter suggested a minimum flat fee of $5000 for liquidations. There are regional variations in the charging of remuneration by private liquidators, with liquidators in larger centres generally charging at higher rates than those in provincial centres. I believe that the proposed rates strike a balance between those rates, and represent the true cost of carrying out the work at appropriate levels by the Assignee and his or her staff.