10. Legislative Options
The Ministry's assessment of the phoenix company problem, and its conclusions regarding the most appropriate options for addressing that problem, are preliminary only and should not be seen as implying the Ministry is closed to alternative views. To this end, the following briefly identifies possible legislative options to protect creditors' rights including:
- Strengthening voidable transactions provisions, for example, to counter efforts to transfer assets from an ailing company to a related company;
- Restricting owners'/directors' involvement in companies following insolvency; and
- Restricting the use of company names following insolvency.
Although comment is welcome on these options, or any other legislative solutions, the Ministry favours in the first instance addressing barriers to more effective enforcement before addressing the legislative issues. Legislative solutions, without first addressing enforcement, run the risk of imposing unnecessary economic costs on the market. For example, restricting the use of phoenix companies could reduce the value of assets in liquidation to the detriment of creditors as a whole, thereby degrading creditors' securities and increasing the cost, and reducing the availability, of credit.
Once measures to enhance enforcement have been introduced and allowed to operate for a reasonable period, the changes could be reassessed and legislative options considered.
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