2. Background
In recent years there has been an increasing trend of bankruptcies and liquidations, with continuing low returns to unsecured creditors. This suggested it was timely to undertake a major review of insolvency law. In 1999 the Ministry of Commerce began a review of both personal and corporate insolvency laws. The successor ministry, the Ministry of Economic Development, and the New Zealand Law Commission, have been releasing papers for public consultation on a range of topics in the insolvency arena.
New Zealand's personal insolvency law (bankruptcy) was last reviewed in the 1960s, resulting in the enactment of the Insolvency Act 1967. Corporate insolvency law (liquidation) was amended to some extent with the enactment of the Companies Act 1993 and related legislation. However, major insolvency policy issues at the time, and that have arisen since were deferred in anticipation of a comprehensive and co-ordinated review of both personal and corporate insolvency.
The existing insolvency law framework is generally considered to be functioning adequately. However, there are a number of problem areas that need to be assessed and, where necessary, addressed by consistent, well reasoned reform. The review is being carried out in two stages. The Tier One issues are:
- Bankruptcy procedures;
- Voidable transactions;
- Priority debts;
- Phoenix companies; and
- Cross-border insolvency.
Discussion documents on items a-d have been released at the same time as this paper. Each of those documents outlines the Ministry's preferred positions on the relevant topics. The papers on Voidable Transactions and Priority Debts are based on earlier work in the form either of Law Commission reports or targeted consultation by the Ministry with specialists in insolvency law. For those two papers we wish to obtain comments on whether improvements on the Ministry's preferred options could be made and, if so, how.
The Ministry's thinking on Phoenix Companies (paper d) and Bankruptcy Administration (paper a) is at an earlier stage of development. We are seeking views on whether alternative options should be considered. If so, what options should be considered, and why? If not, how might our preferred options be improved?
The policy development is largely complete on item e, with general agreement among interested parties that New Zealand law should be consistent with the United Nations Commission on International Trade Law (UNCITRAL) model law on cross-border insolvency1.
The Tier Two issues are:
- Corporate rescue/voluntary administration;
- The role of the state;
- Insolvent partnerships; and
- Directors' duties.
Discussion documents are currently being prepared on the public policy issues relating to items f and g with a view to public release in March 2001. Items h and i are the least progressed issues. The Ministry is currently considering problem definition aspects. Once this work is completed we will make recommendations to the Associate Minister of Commerce on whether the issues are significant enough to justify the release of additional discussion documents on one or both topics.
Finally, a legal framework is being prepared, which will also be released in March 2001. The aim of this work is to provide a coherent framework for consolidating insolvency law into a single piece of legislation.
Arguably, items a and f are the most important of the review issues. The extent to which insolvency law seeks to rehabilitate insolvent persons or rescue businesses significantly shapes most other major features of the law. The overall objective is to make a full set of recommendations on insolvency law to the Government later in 2001.
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