Insolvency Amendment Bill

Sometimes the listeners who tune into the Parliament Channel, must wonder at the value of terminology such as the Official Assignee; the No Asset Procedure; Preferential Creditor, Crown Preference and the like. The clutter of jargon can often blur perfect meaning.

And so it is no wonder that a previous attempt at legislation on this matter – the Insolvency Law Reform Bill in 2006 – it only attracted one public submission – the submission from the Joint Insolvency Committee – a joint committee established by the New Zealand law society and the New Zealand Institute of Chartered Accountants.


Mr Speaker, in doing some investigation on the issue of fraudulent debts, of corruption, of moral bankruptcy I found information on a famous March on Washington in August 1963.

In that March, the late Martin Luther King described the Constitution and the Declaration of Independence, as a promissory note to which every American would fall heir – the guarantee of the unalienable rights of life, liberty and the pursuit of happiness.

At that time Dr King said:

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked "insufficient funds."
But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation.
 

I wanted to share these words in coming to this Bill because the issues of integrity; of accountability; of honesty; of truth; of justice are right at the core of any move to prevent the write-off of fraudulent debt.
And I say there is no better way to understand fraud, than to draw on the links that we know are still so relevant in the situation of equal treatment under the law for all peoples.
Mr Speaker, this Bill on the floor today is to close up a potential legal loophole.
It amends the Insolvency Act 2006 to prevent people from discharging debts that were acquired fraudulently.
In doing do, the legislation boasts that it will ensure the integrity of the No Asset Procedure.
The No Asset procedure is basically an alternative to bankruptcy.
It was created to help people who find themselves in financial difficulty.
What it does, in practice, is to write off debts of up to $40,000 for people who find themselves in difficulty, and do not have any realisable assets to pay off those debts.
To qualify for the No Asset Procedure, an individual had to meet a number of stringent criteria, including of course the fact that they had no assets. It was all about a fresh start, a new beginning, to assist people to restore themselves on to a pathway forwards.
It was an intervention which would mean they could once again be contributing and productive members of society, without having to face the stigma of being declared bankrupt.
But the trouble is that the No Asset Procedure was never meant to be a way out for those who have obtained debts fraudulently and yet that is what has transpired.
And that is one of the anomalies of this legislation. That legislation which came into effect to deal with the discharge of fraudulent debts was in itself rewarding dishonesty.
We welcome, therefore, Mr Speaker, the move to grant financially distressed individuals relief from debts that they may have incurred – but not debts or liabilities which have emerged themselves as a result of fraud.
The Bill goes further and advances the issue of reporting and registration of those who have had debts discharged under the No Assets Procedure.
The Bill stipulates that the public register should be amended to record the names of those who have had debts discharged under the No Asset Procedure. The information will be retained for four years on the public register after a person is discharged from the No Asset Procedure which all seems fairly sound to us.
It also proposes that a permanent public record will be kept for those who have been involved in multiple insolvency activity. Information pertaining to an individual applies if a person has had two or more insolvency events – and also applies retrospectively.
Mr Speaker, we would be very interested to hear at the select committee stage from individuals who have been through bankruptcy and their perception on the extent of the harm this may cause to their future prospects.
A key focus for the Maori Party throughout all public policy, is on the restoration and maintenance of whanau ora.
We supported the original Insolvency Law Reform Bill because we believed it had a focus on the rehabilitation of companies and the restoration of individuals. We would not want to see those values compromised in the interest of business relationships per se.
While we totally support any investment in business growth and encourage whanau to enter into commercial enterprises, we also want to ensure that whanau wellbeing – the greater good of the collective – is taken into account when considering individual situations of fraudulent activity.
Mr Speaker, the key is to try to prevent financial strife from occurring in the first place.
And so it makes for interesting synergy today, that this Bill follows fast on the heels of the taxation (business tax measures) bill.
We know that tax laws have often contributed substantially to financial distress. The taxation requirements are too costly and cumbersome, producing an environment in which small businesses can’t keep up.
In addition, there is frequently no flexibility from the Crown – via the Inland Revenue Department – who assume first place in the queue of creditors to the detriment of other creditors.
While this Bill does nothing of course to change tax laws, we are obviously in support of the measures included in the Business Tax Measures legislation – which will have a direct link to preventing financial failure.
Mr Speaker, we hope that this Insolvency Bill will make it a whole lot easier for creditors, for debtors, and for whanau.
It will enable creditors the opportunity to make better informed lending decisions – an opportunity which can not be understated in these difficult economic times.
It will enhance the integrity of the No Assets Procedure – which in itself will have a positive impact on the returns to creditors.
We hope that the processes introduced by this Bill will achieve the difference we need to keep companies afloat, to impose the minimum costs on users, and yet at the same time to support innovation and entrepreneurialism.
We do not believe that business failure should be excessively penalised by an overly corrective insolvency regime.
And our greatest hope is that individuals who suffer the slur of bankruptcy are once again able to participate fully in economic life.
It is because of these reasons, that we will support this Bill at its first reading.