4. Role of the State: Consultation Points
4.1 Summary of the Paper on the Role of the State
In Part 2 of the report, the Law Commission considers the role of the state in insolvency.
The Commission has identified roles of the State as a legislator, enforcer, regulator, office holder, and educator. When considering these roles, the Commission focused on the integrity of the overall system, including the need for cases to proceed with due dispatch, the need for due compliance with legal processes; the need for all professionals involved to comply with standards; clarity; transparency and fairness; and, predictability and accountability.
The Commission has identified problems (paragraph 121 - 127) within the following roles:
- Enforcer (the State as an enforcer of insolvency regulation);
- Regulator (the State as regulator of the insolvency regime and it's participants);
- Office Holder (the State as an insolvency practitioner, i.e. as administrator of bankruptcies).
It is important to note the connections between the roles of regulator and office-holder in the Commission's commentary and recommendations.
4.2 State Role in Enforcement
The Commission has identified a series of issues concerning the State's current enforcement framework (paragraphs 123 and-126). The Commission also raises the issue of what level of involvement in enforcement should be undertaken by the State. The following organisations, for example, have a role to play in State enforcement: the Serious Fraud Office, the Securities Commission, the Commerce Commission, the Registrar of Companies, and the Official Assignee.
1. Is the State performing its performance function adequately? If not, what enforcement tasks are not being performed adequately?
2. What have been the consequences of any inadequate enforcement?
3. Do you consider that the State's current enforcement of insolvency law should remain the same or be altered? Should any particular agency or agencies have their role(s) changed?
4. What are your views on the three options for state enforcement identified in paragraph 157 of the Law Commission's report?
5. Are there any better options?
The Law Commission has prospectively discussed whether there will be a need for greater insolvency law specialisation within the Court system (paragraphs 164-169).
6. What are your views on the role of the Court in insolvency?
7. What are your views on the two options identified in paragraph 169 of the Law Commission's report? Are there any better options?
4.3 State as Regulator
The Law Commission has identified several problems with the current regulatory regime. These include: a concern regarding the adequacy of quality controls over the administration of insolvency; the difference between the standards for private practitioners and those for the Official Assignee, when carrying out duties as a liquidator; and the inability of small debtors and creditors to identify qualified and impartial practitioners.
8. Do any problems exist with the current appointment procedures for insolvency practitioners in New Zealand?
9. If problems exist, are these issues, at their root cause, to do with appointment procedures or the regulation of practitioners? Is there a non-regulatory solution to any issues that exist?
10. Should the current regulatory regime be amended, as recommended by the Commission in paragraph 177?
11. Do you agree with the Commission's recommendations concerning directors in paragraphs 173-175?
4.4 State as Office Holder
The Commission expresses concern over the lack of regulatory safeguards for the appointment of suitably qualified practitioners, and the monopoly the State has in bankruptcies, under the Insolvency Act 1967 (paragraph 186).
12. Should the State have an exclusive domain over bankruptcies? Does the State have a role to play in providing administration for cases where there is no economic incentive for private practitioners?
13. What are your views on the recommendation, identified in paragraph 179 of the Commission's report, that the State should undertake the role of administrator in an assetless insolvency regime but leave the administration of other liquidations and bankruptcies, to the private sector? Are there any better options?
4.5 A New Regulatory Authority
The Commission has identified problems within the following roles:
- Enforcer
- Regulator
- Office Holder
The Commission proposes the creation of a new business unit to address enforcement, regulation and office holding issues (paragraph 193). The new organisation would work with the two existing business units that comprise the current enforcement authority, the Companies Office and the New Zealand Insolvency and Trustee Service ("NZITS").
The Law Commission has identified certain potential tasks that the Inspector-General could undertake to meet the needs of the commercial community. These include:
- All public enforcement functions currently undertaken by the Official Assignee ("OA") and the Registrar of Companies, as well as investigative functions currently undertaken by the Registrar of Companies, including all investigations and prosecutions (including civil disqualification proceedings);
- Other public functions including reports to the High Court for discharge from bankruptcy, as are currently undertaken by NZITS / OA;
- Oversight of other office holders, including the Official Assignee;
- Determining whether the office holder is complying with the obligations conferred by statute and take appropriate action to seek disqualification of the person if necessary;
- Set standards for performance by office holders, issues as enforceable directives;
- Public education functions;
- Sanctioning of remuneration payable to a liquidator appointed by a court in excess of regulatory limits; and
- Collection of statistical information nation-wide, currently undertaken by NZITS.
The following questions are based on paragraphs 192 - 203 of the report, regarding the Commissions provisional recommendation of a new regulatory authority.
14. What are your views on the proposal to create an Inspector-General of Insolvency office identified in paragraph 193 of the Commission's report? What other options may exist?
15. Are there better options for addressing any of the problems identified by the Commission? Should the State address each of these problems?
16. What are your views on the addition of a new business unit to deal with the tasks listed above?
17. What are your views on the funding options listed in paragraph 195? Are there any better options?
4.6 State as Educator
18. What are your views on the suggestions made by the Commission in paragraphs 208-210?
19. Should the State provide financial counselling services to consumer debtors (paragraph 211)? Should the State fund providers of financial counselling services to consumer debtors? What other options may exist?
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