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• 3.1 Purpose of Priority Debts

Under New Zealand's insolvency laws, after the expenses of the liquidator/receiver/official assignee, secured (fixed charge) creditors are the first to be paid in a bankruptcy, followed by preferential creditors, then secured (floating charge) and finally unsecured creditors. If a surplus remains, it is used to pay deferred creditors and interest to creditors. If a surplus remains after all creditors have been satisfied, it is returned to the debtor.

In accordance with, principally, the Insolvency Act 1967, the following debts have priority over unsecured creditors in a personal bankruptcy:

• The fees and expenses incurred by the Official Assignee (section 104(1)(a));
• Costs and expenses incurred by the creditor in obtaining the bankruptcy adjudication (section 104(1)(b));
• Arrears of wages or salary of any employee of the bankrupt, to a maximum of $6000 per employee (section 104(1)(d)(i));
• Any money which a court orders to be paid to an apprentice of the bankrupt under section 23 of the Apprenticeship Act 1983, to a maximum of $6,000 per apprentice (section 104(1)(d)(ii));
• Holders of liens over books of the bankrupt as against the Official Assignee, to a maximum of $100 (section 104(1)(d)(iii);
• The Commissioner of Inland Revenue in respect of debts money under section 163(1) of the Child Support Act 1991 to a maximum of $6,000 (section 104(1)(d)(iv));
• Claims under section 6 of the Volunteers Employment Protection Act 1973, by operation of section 15(1) of that Act;
• The Commissioner of Inland Revenue in respect of tax deductions held by the bankrupt (section 104(1)(e)(i));
• The Commissioner of Inland Revenue in respect of student loan repayment deductions held by the bankrupt (section 104(1)(e)(iii));
• The Accident Rehabilitation and Compensation Insurance Corporation in respect of earner premiums deducted from employees by the bankrupt (section 104(1)(e)(iv);
• Duty as defined by section 2(1) of the Customs and Excise Act 1996 (section 104(1)(e)(iv));
• The Commissioner of Inland Revenue in respect of unpaid GST (section 42(2)(a))Goods and Services Tax Act 1985,;
• Debts owing under the Radiocommunications Act 1989, by operation of section 183(4) of that Act;
• Levies payable to the Ministry of Agriculture and Fisheries under the Fisheries Act 1983, by operation of section 107K(3) of that Act; and
• Debts owed by the bankrupt to a layby purchaser (section 11 of the Layby Sales Act 1971).

In accordance with the Seventh Schedule to the Companies Act 1993, the following creditors have priority over unsecured creditors of an insolvent company in liquidation or receivership:

• The fees, expenses and remuneration of the liquidator;
• The reasonable costs of the creditor in obtaining the liquidation order;
• Actual expenses necessarily incurred by the liquidation committee;
• Wages or salary owed to employees for work done in the four months before liquidation, to a maximum of $6,000 per employee;
• Holiday pay payable to employees, to a maximum of $6,000 per employee;
• Any deductions from an employee's wages or salary made to satisfy an obligation of the employee, to a maximum of $6,000 per employee;
• The Commissioner of Inland Revenue in respect of debts money under section 163(1) of the Child Support Act, to a maximum of $6,000;
• Holders of liens over books of the company as against the liquidator, to a maximum of $500, by operation of section 263 of the Companies Act 1993;
• Any money which the Employment Tribunal orders to be paid to an apprentice of the company under section 23 of the Apprenticeship Act 1983;
• Where the liquidated company is a licensee company under the Motor Vehicle Dealers Act 1975, any sum which the Motor Vehicle Dealers Institute Incorporated is entitled to recover from the company under section 42 of that Act;
• Claims under section 6 of the Volunteers Employment Protection Act 1973, by operation of section 15(1)(a) of that Act, to a maximum of $200 per claimant;
• Debts owed by the company to a layby purchaser or seller under section 9 or 11 of the Layby Sales Act 1971;
• The costs incurred in organising and conducting a meeting of creditors under section 234 of the Companies Act 1993;
• GST owed by the company under Part III of the Goods and Services Tax Act 1985;
• The Commissioner of Inland Revenue in respect of tax deductions made by the company under the PAYE rules of the Income Tax Act 1994, non-resident withholding tax ("NRWT") under the NRWT rules of that Act, and resident withholding tax ("RWT") under the RWT rules of that Act;
• Levies payable to the Ministry of Agriculture and Fisheries under the Fisheries Act 1983, by operation of section 107K(3) of that Act; and
• Duty as defined by section 2(1) of the Customs and Excise Act 1996.

3.1 Purpose of Priority Debts

The purposes of the current priorities are, principally, to:

• Ensure funds are available to undertake the necessary insolvency proceedings;
• Protect the public interest in relation to the government's income; and
• Promote specific public interests, including those of employees and layby purchasers.