4. Policy Framework
Insolvency law provides a statutory process for winding up insolvent companies and distributing remaining assets to creditors. It also provides penalties and sanctions for inappropriate commercial behaviour (for example, directors acting in bad faith) in the run up to and following insolvency.
The government's key goal in reforming insolvency law is to promote the public interest by maximising the business community's contribution to the New Zealand economy through increasing job opportunities and incomes. An insolvency regime, with respect to phoenix companies, will promote the Government's key goal if it:
- Provides a predictable and simple regime for financial failure that can be administered quickly and efficiently, imposes the minimum necessary compliance and regulatory costs on its users, and does not stifle innovation, responsible risk taking and entrepreneurialism by excessively penalising business failure;
- Distributes the proceeds to creditors in accordance with their relative pre-insolvency entitlements, unless it can be shown that the public interest in providing greater protection to one or more creditors (statutory preferences) outweighs the economic and social costs of any such preferences;
- Maximises the returns to creditors by providing flexible and effective methods of insolvency administration and enforcement which encourage early intervention when financial distress becomes apparent; and
- Provides enforcement resources commensurate with the expected benefits from that enforcement effort.
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