New Zealand Law Society - Lawyers registering to become licensed insolvency practitioners

Lawyers registering to become licensed insolvency practitioners

A person may hold both a licence as an insolvency practitioner under the Insolvency Practitioners Regulation Act 2019 (IPRA) and a practising certificate as a lawyer. However, the type of legal work they can undertake may be restricted and depending on the nature of the work they may be subject to regulation under both the IPRA and the Lawyers and Conveyancers Act 2006 (LCA). Their work as an insolvency practitioner would be regulated by the accredited body under the IPRA and, to the extent that they are providing “regulated services” as defined in section 6 of the LCA by the New Zealand Law Society | Te Kāhui Ture o Aotearoa.

Insolvency practitioners licensing scheme

The Insolvency Practitioners Regulation Act 2019 (IPRA) came into force on 1 September 2020 and enacts a co-regulatory scheme for of insolvency practitioners. It authorises the licensing and regulation of insolvency practitioners by accredited bodies approved by the Registrar of Companies.

Under the IPRA:

  • A licence will be required to act as an insolvency practitioner.
  • The Registrar of Companies is the supervisory regulator, responsible for setting minimum standards of conduct. Accredited bodies, appointed by the Registrar, act as the frontline regulators, and will be responsible for licensing, complaints, and discipline.
  • The Registrar will maintain a public register of licensed insolvency practitioners.

Work of a licensed Insolvency Practitioner

An insolvency practitioner generally acts as the agent of an insolvent company. The insolvency practitioner is appointed by the court, shareholders, or a creditor and, in most cases, acts as a liquidator, receiver, or administrator.

Insolvency practitioners, whether they are lawyers or not, are commonly involved in work of a legal nature. In particular, they are involved in the preparation of documents that create rights or obligations.

The work undertaken by an insolvency practitioner routinely includes:

  • considering whether to make claims against debtors, directors, shareholders, advisers, or other third parties against whom the insolvent company or insolvency practitioner may have a claim;
  • considering whether to disclaim property;
  • deciding whether to accept or reject creditor claims; or
  • entering into and document new arrangements with counterparties.

An insolvency practitioner who is also a lawyer may use their legal knowledge and skills, and exercise professional judgment which draws on it, when doing the routine work of an insolvency practitioner, but that work may not constitute “legal work” as defined in the LCA.  

However, if work of that nature does come within the definition of “legal work”, for example, the preparation of documents creating rights or obligations, and it is undertaken for ‘any other person,’ it then constitutes “legal services” under the LCA. “Legal services” carried out by a lawyer are “regulated services”.

Is legal work of a Lawyer Insolvency Practitioner “legal services” under the LCA?

Insolvency practitioners will usually be concerned with their personal legal liability or that of the company that they are administering.  Lawyers undertaking the work of an insolvency practitioner may result in providing “legal services” depending on the scenario:

  • If a lawyer insolvency practitioner advises themself, then they are not providing legal services to ‘any other person’.
  • If a lawyer insolvency practitioner provides advice to the company they have been appointed to, then they are carrying out legal work for another person, their principal, and therefore will be providing “legal services” under the LCA.
  • Where a lawyer, acting as an insolvency practitioner, provides “legal services” to an insolvent company, those services will be both regulated under the IPRA and “regulated services” under the LCAIn such cases, the accredited body and the Law Society will each have a regulatory role in respect of the lawyer insolvency practitioner. However, this is subject to the limitation for employed in-house lawyers, set out below.
  • In contrast, where a lawyer insolvency practitioner is not providing legal services to the company, but instead undertaking other aspects of the insolvency practitioner role, such as recovering and realising assets, then the Law Society does not consider that these aspects of the role will need to be regulated by the Law Society. They will be regulated only by the accredited body.

Mode of practice as a lawyer

A person may hold a lawyer practising certificate either as an employed lawyer, or if approved under section 30 of the LCA, as a lawyer practising on their own account.

If a person holds a practising certificate as an employed lawyer, and they are employed by a “non-lawyer” (e.g., an accounting firm or a company providing insolvency services) they are categorised as an “in-house lawyer” under rule 15.1 of the LCA (Lawyers: Conduct and Client Care) Rules 2008 (RCCC).

In-house lawyers are generally restricted to only providing legal services to their employer company under sections 9 and 10 of the LCA and chapter 15 of the RCCC.

Some exceptions apply. For example, sections 9 and 10 only apply to “employees” so these sections do not apply to lawyers practising on their own account, including those contracting as “in-house lawyers.” Also, amendments to chapter 15 of the RCCC that came into force on 1 July 2016 allow in-house lawyers to provide regulated services to a wider group of entities and organisations than previously. For details of how the rules changed and their application refer to the Shared services rule change for in-house lawyers.

Implications for employed in-house lawyers

There is nothing to prevent an in-house lawyer, who is employed by a company or firm that undertakes insolvency work, from applying to be a licensed insolvency practitioner under the IPRA.

In that capacity, the lawyer would be able to accept “insolvency engagements” as they are defined by section 5 of the IPRA – meaning any of the following work of an insolvency practitioner:

  1. an administrator or a deed administrator (as those terms are defined in section 239B of the Companies Act 1993):
  2. an insolvent company liquidator:
  3. a receiver (as defined in section 2(1) of the Receiverships Act 1993):
  4. a trustee or provisional trustee appointed under subpart 2 of Part 5 of the Insolvency Act 2006.

However, by operation of section 9 of the LCA, an insolvency practitioner who is also employed as an in-house lawyer would be prohibited from providing “legal services” to the company in respect of which they have been appointed as an insolvency practitioner. To do so would amount to misconduct, because the services would be provided to a person other than to the lawyer’s employer.

Pursuant to section 10 of the LCA, an in-house lawyer, who is also an insolvency practitioner, may provide regulated legal services to their employer in relation to its insolvency business, provided that the services are being provided to the business and no regulated services are being provided to ‘the public.’ The public would include an insolvent company.

An in-house lawyer needs to be aware of the limits of their practising authority in these respects. To summarise:

  • The lawyer insolvency practitioner needs to remain aware of and take professional care in ensuring compliance with the respective regulatory frameworks under which they operate.
  • As noted above, some work of an insolvency practitioner performed in that capacity for an insolvent company might not constitute legal work or involve the exercise of legal judgment, even though it may draw upon legal knowledge and skill’ It is essential to ensure that those actions are within the scope of what an insolvency practitioner commonly does and are performed expressly in that capacity.
  • It is also essential those actions do not raise any suggestion of the lawyer providing separate legal services to the company involved, under a lawyer and client relationship. An in-house lawyer cannot operate in this capacity.
  • Where the lawyer also provides in-house legal services to their employer firm that is engaged in insolvency work, care should be taken to ensure clarity between the lawyer’s role as an in-house adviser to their employer, and their work as an insolvency practitioner in their own right.
  • It is prudent to ensure that the distinction between in-house legal work and work as an insolvency practitioner is clearly recognised by the lawyer’s employment agreement. Work involving legal services (including the giving of privileged advice) should be clearly documented as such.

Lawyers practising on their own account

A lawyer practising on their own account may provide legal services directly to an insolvent company, provided it is pursuant to a lawyer-client relationship. In particular, the lawyer should note the rules relating to client care and conflicts of interest under the RCCC.