10. Additional Priorities and Other Issues
10.1 Incentives to Finance Proceedings
The Commission's paper extensively reviews the relevant provisions of Australian corporations law and bankruptcy legislation. These provisions effectively invest the Court with power to confer an advantage on certain creditors who have helped the liquidator to recover or preserve the company's assets by providing an indemnity to the liquidator against the costs of litigation. As a consequence, creditors are encouraged to support a liquidator in taking legal proceedings for the recovery of property or to prevent further dissipation of the estate.
The Ministry believes such a priority could help further the broad objectives of the insolvency review with its emphasis on collective rather than individual processes for maximising the assets of the insolvent estate. The Ministry also notes that this proposal received support from insolvency professionals.
| Recommendation: The Ministry supports the introduction of a priority that will provide incentives to creditors to help liquidators in preserving the assets of an insolvent estate. |
10.2 Reorganisation Costs
The Commission also considered whether there was any merit in including as a preferential debt the costs incurred in trying to put together a compromise for creditors when the compromise is ultimately unsuccessful. The Ministry shares the Commission's reluctance to make a definitive recommendation regarding this proposal until its full economic impact is assessed. This task is still ongoing.
| Recommendation: The Ministry should continue to assess the fiscal impact of the proposal to introduce a new priority for costs associated with unsuccessful compromise. |
10.3 Construction Subcontractors
The Commission's paper made a number of observations regarding the repeal of the Wages Protection Contractors Liens Act 1939 and the impact this has had on the position of subcontractors in the event of a head contractor's insolvency. The Ministry asked the Commission to provide further advice on this issue, and this resulted in the publication of Study Paper 3 Protecting Construction Contractors in November 1999.
The paper recommended that, rather than introducing a new priority debt, the introduction of legislation similar to the New South Wales Building and Construction Industry Security of Payment Act 1999 was the most effective mechanism for resolving some of the problems afflicting the construction industry. The New South Wales Act outlawed "pay if paid" clauses and introduced a fast-track adjudication system for payment disputes.
This issue has continued to gain in significance with the high-profile collapse of a number of construction companies. Earlier this year the Hon Laila Harré (Associate Minister of Commerce) established a Ministerial Working Group comprising representatives of key stakeholders within the construction industry to assist the Ministry in its policy development. The Working Group supported the Commission's recommendation that New Zealand should adopt legislation similar to the New South Wales Act. Legislation is due to be introduced in 2001.
10.4 Subrogation Rights
There is currently no statutory provision that clarifies which debts can be subrogated. The Commission recommends that subrogation rights should be expressed clearly in both the Insolvency Act 1967 and the Companies Act 1993. The Ministry supports this recommendation.
10.5 Environmental Damage
The Commission's paper noted that the cost of remedying environmental damage has been given preferential status in some jurisdictions and questioned whether a similar priority should be introduce in New Zealand. The Commission did not receive any submissions on this issue and subsequently recommended that there was no compelling need for such a priority.
| Recommendation: A new priority should not be established for the costs of remedying environmental damage unless further submissions reveal a case for such a priority. |
10.6 Gift Vouchers
The potential problems that can arise from the use of gift vouchers came to public attention following the receiverships of Levene & Co Limited and Palmers Garden Centres Limited. The Ministry asked the Commission to review this issue to determine whether a new priority was necessary to protect the gift voucher holders. The Commission concluded that, as there are no ascertained goods at the time a gift voucher is purchased, no proprietary remedy can exist in favour of a person who has received the voucher as a gift. Only one submission was received on this issue, and it supported the introduction of such a priority. The submission comprehensively outlined the impact that corporate insolvency had on consumers, but it did not advance any public policy arguments supporting the introduction of such a priority.
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