Dishonest insolvency players must be outed
The collapse of businesses creates a ripple effect from unpaid bills. The damage caused by those unpaid bills is huge on the creditor businesses and the employees and families dependent on them.
It is further distressing to learn that these firms may be wound up by insolvency practitioners who do not have the ability or honesty to put creditors’ interests at heart.
The Government has belatedly recognised this problem and has released a report proposing sweeping changes. While welcome, it is distressing to realise any changes will come too late to protect the hundreds, probably thousands, of victims of weak insolvency regulation.
Last Thursday, Commerce and Consumer Affairs Minister Paul Goldsmith released the first part of two reviews into NZ’S insolvency law by the insolvency working group formed in November 2015.
The group’s report is damning.
It finds that NZ’S lack of regulation and redress has allowed incompetent and dishonest insolvency practitioners to make unfair profits, while doing little to protect genuine creditors.
It is galling for a creditor to discover that what assets once remained in the liquidated firm had already been transferred by its directors, or would be swallowed up by the bills of an insolvency practitioner who was overcharging, or who was carrying out unnecessary work.
The insolvency working group condemned such ’’self-interested practitioners’’ but said it was ‘‘not unusual for the fees charged to absorb most or all of the available assets, leaving little if any money for distribution to creditors’’.
The working group said the bar to becoming a practitioner was so low one need have little more by way of qualification than being at least 18 years old, not an undischarged bankrupt, nor certified under mental health legislation.
It said NZ was woefully out of step with other comparable countries, including Australia, where insolvency practitioners were required by regulation to have at least a base level of qualifications.
The group also reported on ’’debtorfriendly’’ liquidators who turned a blind eye when directors took assets out of a company prior to liquidation at undervalue or even at no value at all.
It added that dishonest or grossly incompetent practitioners were ‘‘largely unaccountable’’ because it was very unlikely creditors could afford to challenge their actions in the High Court.
While the minister is seeking public feedback on what would be a significant policy shift, it is clear change is needed and it is needed urgently. How it has taken so long, allowing so much injustice and incompetence, is hard to fathom.