Liquidators face the character test
Liquidators face greater scrutiny under a revived bill. Madison Reidy reports.
The dust is being brushed off a bill to test the character of insolvency practitioners, particularly those with a criminal record.
Commerce and Consumer Affairs Minister Kris Faafoi has picked up the Insolvency Practitioners Bill, first introduced in 2010, to tighten entry into the industry and give more confidence to creditors often owed thousands when a business fails.
An updated version of the bill will be introduced to Parliament later this year.
It will include a fit-and-proper person test, a licensing regime and a complaints process where investigations of insolvency practitioners’ wrongdoing could lead to disciplinary action, Faafoi said.
Wrongdoings could include conflicts of interest, not reporting director misconduct or favouring a single creditor.
Faafoi said no decisions had been made on disqualification criteria yet, so it was not uncertain whether practitioners with a conviction would be barred from the industry.
However, convicted fraudsters turned liquidators were the reason fit-and-proper person tests were needed in insolvency law, he said.
Damien Grant, a liquidator with a fraud conviction, disagreed. He said he had been doing his job with integrity for 11 years, and the market was free to decide whether or not a fraudster was fit to carry out liquidations.
‘‘Because of my dodgy past, people can point at me and say … I can’t be trusted. I’m not proud of it, but I don’t hide it.’’
Grant takes on between 50 and 80 insolvency cases each year.
He entered the industry with no experience, but now the High Court regularly appointed him as a liquidator, he said.
One of his current liquidation cases is winding up the trading company of a twice-failed former Nosh store, TGM Trading.
As Nosh Group’s receiver, Grant sold the Mt Eden Nosh store in Auckland last year.
After the new buyer failed to make contractual payments and 30 suppliers had not been paid, Grant called in a new receiver, John Gilbert, to sell it in February. Gilbert also has a past conviction for fraud.
In a submission to the Insolvency Law Working Group last year, Grant said he and his firm Waterstone Insolvency were in its firing line.
He said last week that he was not too concerned by the bill’s reincarnation. He said he would only lobby against it if the updated version included a statutory bar to disqualify anyone with a conviction from the industry. ‘‘That would be quite onerous.’’ The Review of Corporate Insolvency Law’s first report said it was too easy to become an insolvency practitioner.
"[Regulation is] a very extensive regime to deal with a very small issue." Damien Grant
To do the job a person must be over 18 years old, have no mental health issues and not be an undischarged bankrupt.
Their duties are outlined in the Companies Act, the Insolvency Act and the Receiverships Act, but there is no regulatory body acting as watchdog.
The report recommended the Government introduce a coregulation model where a government entity would oversee professional bodies that licensed insolvency practitioners and monitored their work.
However, the licensing cost could push up practitioners’ charges. That could mean less money for creditors.
For that reason, Grant said, regulation was not in the best interests of creditors. But receiving an official licence would prove he could be trusted, despite his conviction.
‘‘It would be great for my business. But, philosophically, I’m against it.’’
Faafoi said his main concern was that creditors had little power to stand up against inept liquidators, especially creditors owed smaller amounts of money.
He said there had been some feedback to officials that some liquidators were either not carrying out their duty of care to all creditors evenly, or that there might be bias in the way they worked for their own benefit, or for a particular creditor.
‘‘There is certainly a group of practitioners out there that are falling well short of the mark … who are not necessarily working in the best interests of creditors and shareholders.’’
Grant said creditors needed more power to fire a liquidator.
He said there were fewer than six dishonest insolvency practitioners around and the main problem with them was that they refused to call creditors’ meetings when creditors wanted to confront the liquidator. He would not name them.
He would rather have a government agency have power to ‘‘red-card’’ dishonest practitioners than ‘‘building a massive wall’’ at its entrance.
‘‘[Regulation is] a very extensive regime to deal with a very small issue.’’