In  late May the NZ Commerce Committee published its  report back to Parliament on the Insolvency Practitioners Bill  It was at first a pleasant surprise, as they seemed to have moved away from a system of negative licensing  which the Government Bill had promoted,  and instead, the Committee is now suggesting amendments which introduce a register of Insolvency practitioners for the first time in NZ.

However, despite the reference in the  report to the need for insolvency practitioners to conduct ‘skilled tasks’ and  be ‘fit and proper’, the recommended register is effectively a ‘negative registration’ model, because
there are no criteria for registration other than (a) being over 18 and (b) not
having been prohibited or restricted due to some misconduct, insolvency, or family connection.

Since the Bill states that the Registrar ‘must’ register anyone who has applied and is not ineligible under s316F, it
is still the case that in New Zealand a plumber, or any other adult who applies,
will have to be accepted by the Registrar, unless they are prohibited etc. The
Registrar has no room for discretion, and there are no tests of fitness, qualifications or experience, let alone membership of any relevant professional body. This may result in the public wrongly relying on the Register as if it was a certificate ofquality or fitness.

Many people including some practitioners (see New Zealand Herald- Insolvency-Kill or Cure? 21/3/11) would prefer positive licensing as in Australia- here  the Senate Inquiry recently recommended an even more ongoing
monitoring regime than we already have through the ASIC licensing regime . The latest word from the new ASIC head, Greg Medcraft, suggest that licensing and monitoring is going to be a focus of ASIC over the next few years. This contrasts strongly with the meek approach in New Zealand. It is hard to see how the ‘changed environment’ resulting from the GFC , which the New Zealand committee refers to as a reason for now suggesting a register, should be addressed  by this weak registration requirement.

Moreover, under the proposal there is a  disincentive for practitioners to join a professional body which might improve standards in the insolvency profession, such as the Institute of Chartered Accountants, because although membership is not a criteria for registration,  one could be rendered ineligible  under these proposals, by having been expelled from the NZ Law Society  or NZICA, or other ‘prescribed professional bodies’ which may be stipulated in future Regulations.
New Zealand does have a small insolvency profession, and the government has been therefore concerned about using a sledgehammer to crack a few ‘bad apples’, but also reluctant to impose barriers to entry. Having said all that, one has to look at Australia in particular, and the trend towards professionalism in insolvency worldwide. In a recent paper we benchmarked Australia and New Zealand against emerging standards for insolvency practitioner regulation from the European Bank for Reconstruction and Development. When you look at the comments of the New Zealand judges in recent cases on practitioner remuneration such as re  Roslea v Path   the courts feel the need to step in and provide some sort of quality assurance that the government and self-regulation are not providing in New Zealand. Other cases, such as the recent case of Rai v Chapman, where the judge criticised the insolvency practitioner for obfuscation and overcharging, show that it is difficult for creditors and others to challenge the conduct of practitioners through the courts, notwithstanding the outcome in that case.

The Commerce Committee’s solution does nothing but provide a register, which may assist with Trans-Tasman mutual recognition (since now there will be a register of sorts in both countries), but in practical terms, is not  even a halfway house between the previously proposed negative licensing regime, and the current Australian regime.

Whilst Australia currently could be awarded a B grade in any benchmarking of insolvency regulation, New Zealand’s latest effort is still not worthy of a pass.