Executive Summary
Bankruptcy is a procedure for administering the estate of the bankrupt 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 the creditors when insolvency occurs. Issues during the procedure generally arise in relation to the lack of assets to meet all the liabilities.
The current administration procedure has not been reviewed since the 1960s, with several issues arising since then. For an effective personal insolvency regime, including alternatives to bankruptcy (formal and informal) as well as the bankruptcy procedure itself, the procedure must:
- Clarify the current confusion as to when the bankruptcy administration procedure begins. This is important as it impacts on what assets are available for distribution to creditors;
- Educate debtors and creditor's about the options available to them and the obligations of pursing those options. The current lack of knowledge and information lessens the effectiveness of the regime; and
- Tailor the regime to better match the nature of debtors, for example business related or consumer related, so that the procedure is as effective as it can be. The changing make-up of a "typical bankrupt" means that the regime is no longer providing an effective solution to majority of debtors and creditors. This is largely related to the increase in people who become bankrupt due to consumer credit related issues, as opposed to a higher number of "sole-trader bankrupts" when the law was last reviewed in the 1960s.
The Ministry of Economic Development proposes to address these issues with solutions that will provide a regime that is as simple and accessible as is possible, while also retaining certainty for the parties involved. Any changes to the regime will also be mindful of the costs of administering and complying with the bankruptcy administration procedure.
Bankruptcy administration arose as a topic in the Insolvency review for a number of reasons. The market place and the make-up of a typical debtor has changed and the New Zealand Insolvency and Trustee Service, as part of the Business and Registries Branch of the Ministry of Economic Development, was concerned that the bankruptcy administration procedure did not reflect these changes. Two areas where review is needed in relation to bankruptcy are the administration procedure and the role of the state.
This paper concerns the bankruptcy administration procedure and solving the issues that have arisen with the procedure since it was last reviewed. The Ministry has made recommendations based on the issues but these recommendations are not definitive. Comment is sought on any viable alternatives to the issues.
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