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Licensing system to be introduced for insolvency practitioners

30 November 2016

The Government is to introduce a licensing system for insolvency practitioners.

Commerce and Consumer Affairs Minister Paul Goldsmith says the proposed licensing regime was recommended by the Insolvency Working Group, established in 2015 to review a variety of insolvency law matters.

The report of the working group found that too many providers of insolvency services fell well short of the standards of integrity and skill that New Zealanders were entitled to expect.

"There are self-interested practitioners who overcharge for their services or carry out unnecessary work in order to obtain larger fees. There are ‘debtor-friendly’ liquidators who fail to comply with their statutory duty to protect the interests of creditors (eg, by turning a blind eye when directors have taken assets out of a company prior to liquidation at undervalue or even at no value at all). This problem is particularly evident in relation to small and medium-sized companies," the group said.

The working group identified two main causes of the problems.

"First, it is too easy for individuals who do not have the required integrity, knowledge, skills and experience to become an insolvency practitioner. Anyone is qualified as long as they are at least 18 years old, are not an undischarged bankrupt, have not been certified under mental health legislation and do not fall within other, narrowly defined, disqualifications.

"Second, self-interested and debtor-friendly practitioners are largely unaccountable. They know that they can get away with unprofessional conduct because it is very unlikely that creditors will be able to challenge their actions in the High Court in a cost-effective manner. In addition, it is very difficult to meet the statutory requirements for obtaining a practitioner banning order from the Court. This situation also means that all insolvency practitioners, not just dishonest and grossly incompetent ones, are not sufficiently accountable for negligence under current legal settings."

Mr Goldsmith says licensing will provide for supervision of conduct in accordance with the public expectation.

"This will include monitoring compliance with legislative obligations and the code of ethics, professional standards and rules issued by the Chartered Accountants of Australia and New Zealand."

Mr Goldsmith says there are not enough effective sanctions against "self-interested" insolvency practitioners who overcharge for their services or carry out unnecessary work in order to obtain larger fees, "or against 'debtor-friendly' liquidators who fail to comply with their statutory duty to protect the interests of creditors".

“It is my view that the current regime is too loose. For example, a person can be convicted of tax evasion or other serious forms of knowledge-based criminal offending, yet still operate as insolvency practitioner: a position that relies on trust," he says.

The changes will be advanced through a supplementary order paper to the Insolvency Practitioner’s Bill, which is currently before Parliament.

Last updated on the 16th September 2019