3. Insolvency Law in New Zealand
The legal framework for insolvency is administered in two parts: personal and corporate insolvency. The law dealing with personal insolvency is the Insolvency Act 1967, which refers to the procedure for administering individual insolvency as "bankruptcy". Corporate insolvency is administered under the Companies Act 1993 and the related Corporations (Investigations and Management) Act 1989 and Receiverships Act 1993. These two forms of insolvency are discussed below.
3.1 Personal Insolvency
Personal insolvency, and personal solvency, are terms that describe the financial state of a person. The term "bankrupt" refers to the status of a natural person who, on filing a petition, or on one of their creditors' filing a petition, is then adjudged bankrupt by the High Court under the Insolvency Act. The Act:
- Sets out the High Court's jurisdiction and powers in bankruptcy;
- Provides procedures for creditors and debtors to seek a bankruptcy order;
- Provides for the office of the Official Assignee, the administration of bankrupt estates, and the control of the person and property of a bankrupt;
- Provides for the distribution of a bankrupt's estate amongst creditors; and
- Provides for the discharge of a bankrupt from bankruptcy.
Bankruptcy is a procedure for administering the bankrupt's estate for the distribution of the debtor's assets to creditors and discharging the bankrupt from any outstanding debt after the completion of the procedure. It is designed to be the last available option for the debtor and creditors when insolvency occurs. Issues during the procedure generally arise because there are never enough assets to meet all the liabilities.
Debtors that become bankrupt are both consumers and sole traders, although there is an increasing trend for the majority of bankrupts to be consumers.
3.2 Corporate Insolvency
Part XIV of the Companies Act 1993 aims to provide a straightforward and fair procedure for liquidating (i.e. winding up) a company. The liquidator's principal roles are to:
- Collect and realise the company's assets;
- Ascertain claims;
- After recovering the expense of the liquidation, distribute the net proceeds to creditors in the order laid down by the Act; and
- After investigations have been concluded and reports made, bring the company's legal existence to an end through dissolution.
The Corporations (Investigation and Management) Act 1989 provides for government intervention in cases of major corporate collapse where conventional procedures would be ineffective. It allows the Registrar of Companies to obtain information from, and investigate the affairs of, a corporation to ascertain whether it is in danger of failing. If necessary, a statutory manager may be appointed to run the company.
The Receiverships Act 1993 codifies the common law in relation to receivers. It sets out the qualification requirements of receivers and the circumstances in which a receiver may be appointed. It also sets out receivers' powers, duties and liabilities and provides for the High Court to supervise receivers' activities.
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