NZ lags behind on insolvency regulation
THERE’S A gap in New Zealand’s regulatory environment that the Government’s drive to boost confidence in capital markets has so far failed to address – the regulation of liquidators and insolvency practitioners.
And, although there is a bill before Parliament that could tighten insolvency regulation in some areas, New Zealand remains a long way behind Australia in ensuring practitioners are adequately trained and meeting professional standards, says one senior practitioner who has worked on both sides of the Ditch.
David Webb, managing director of PPB Advisory, said the lack of regulation means dissatisfied creditors might have to take legal action themselves to protect their interests against shonky or incompetent practitioners, but the cost of that was prohibitive.
‘‘What you have is people with no qualification dealing with stakeholders’ money,’’ Webb said.
‘‘Also there is no regulator who can hold those parties accountable unless stakeholders complain or take court action.’’
Worse, creditors have often lost money as a result of the business failure and so can’t afford to take action.
Right now anyone who was not bankrupt, was over 18 and not mentally ill could set themselves up as an insolvency practitioner, he said.
Webb said the approach in New Zealand was to let almost anyone hang out their shingle and deal with any issues that arose later rather than restricting entry to the profession to qualified and experienced people.
Contrast that with the structures in place in Australia, where the Insolvency Practitioners’ Association ensures people are qualified and reviews member conduct while the Australian Securities and Investments Commission (ASIC) regulates the sector.
The result is a lot of unsophisticated creditors are not aware of their rights. They have to assume an appropriate level of work and inquiry has been undertaken during an insolvency and that the people doing this are both educated about lines of inquiry and minimum requirements and acting in creditors’ best interests.
‘‘The interests of stakeholders aren’t always best represented by liquidators who are not qualified,’’ Webb said. ‘‘There are liquidators with a reputation for doing the minimum amount of work and not fully understanding the role.’’
Law firm Simpson Grierson has published an assessment of the Insolvency Practitioners Bill, which will not require practitioners to be licensed but will require registration. This concludes the bill is a ‘‘more convincing overhaul’’ of the insolvency industry than contained in the original draft.
‘‘Many still consider that the proposed changes do not go far
‘The criteria for becoming registered are not set at a high level.’
the new regime and the problem of ‘‘friendly liquidators’’, appointed by shareholders to wind up a company without asking too many probing questions that could result in a return to creditors, will also continue.
Licensing would reduce the number of practitioners but also ensure they are appropriately qualified and that appropriate fees are charged, Webb said.
Although some oppose regulation on the grounds of costs, many of the costs of having no regulation aren’t recognised, Webb said. For example, other firms sometimes have to ‘‘clean up’’ after friendly and backyard operators, doubling up on costs.
Webb said it was not necessary to require practitioners to hold a full chartered accounting qualifications, but experience practising with a qualified liquidator combined with workshops and a couple of exams could deliver better returns to creditors.
‘‘I don’t believe those are onerous requirements,’’ he said.
However, Webb added, practitioners who do have an accounting qualification will be better placed to turn a failing company around rather than sending it to the wall.