Business Compliance Cost Statement
Source of Any Compliance Costs
There will be a reduction in compliance costs for New Zealand businesses involved in cross-border insolvencies if a recognition agreement negotiated under the proposed framework is implemented. The reduction will occur because the agreement would:
- Eliminate the need for New Zealand creditors to apply to the foreign court for recognition; and
- Eliminate the need for New Zealand creditors to initiate a separate action in New Zealand in respect of insolvent entity.
Some additional compliance costs may arise for New Zealanders needing to ascertain the law of another country in order to determine the extent of their interest or claim.
The Parties Likely to Be Affected, by Sector and Size of Firm
Both the reduction and additional compliance costs will affect New Zealand debtors, creditors and insolvency practitioners. It will have more of an effect on those debtors that transact across borders and those businesses that provide credit to businesses or individuals that transact across borders.
Quantitative/Qualitative Estimates of Compliance Costs
It is difficult to estimate the level of reduction in compliance costs for New Zealanders as the incidence of cross-border insolvencies is currently low and the nature of any mutual recognition agreement has not been concluded.
However, if agreements are negotiated, it could eliminate the need for New Zealand creditors to initiate separate action, either in New Zealand or another country, in relation to the New Zealand assets of a company from a country that is party to the agreement.
The extent of the reduction in costs could be significant, given that access to foreign courts would require access to counsel in that country and payment of court filing fees.
It is expected that any increase in compliance costs associated with learning the requirements of another country will be minimal. There are two factors that minimise these costs:
- The costs of learning another law may in any event be less than the costs of ascertaining the current law applicable to cross-border insolvencies, given the level of uncertainty that currently exists in the law; and
- A recognition agreement can only be implemented where the government is satisfied that the rules in another country adequately protect the interests of New Zealand debtors and creditors. If the laws of another country are significantly different, this test is unlikely to be met.
The Longer Term Implications of the Compliance Cost for Business
In the longer term, it is expected that mutual recognition agreements could be negotiated with a number of different countries. This would further reduce costs for New Zealanders involved in cross-border insolvencies.
Assessment of the Risks Associated with Any Estimates and the Level of Confidence That Can Be Placed on the Compliance Cost Assessment
The compliance cost impacts will only occur if mutual recognition agreements are negotiated between countries. To date no such negotiations have taken place, however, Australian officials have indicated a willingness to consider such a proposal.
The Key Issues Relating to Compliance Costs Identified in Consultation
The public consultation undertaken on the UNCITRAL Model Law and possible protocols did not raise any specific compliance cost issues.
Any Overlapping Compliance Requirements with Other Agencies
There are no overlapping compliance requirements with other agencies.
The Steps Taken to Ensure That Compliance Costs Were Minimised
Publicity about the insolvency law review measures will be undertaken prior to the implementation of new insolvency legislation. This will help to minimise any compliance costs that arise out of implementation of the measures.
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