New Zealand: New Solutions In Insolvency

Last Updated: 12 December 2007
Article by Amanda Douglas

In this article Amanda Douglas, a partner of the Christchurch Lawlink firm of Wynn Williams & Co, looks at the changes to both company and personal insolvency law expected to come into force before the end of the year.

Recently passed Insolvency Law Reform has created three new Acts:

  • Insolvency Act 2006
  • Insolvency (Cross Border) Act 2006
  • Companies Amendment Act 2006

At the time of writing, the indication is that the Acts will come into force by the end of 2007. Therefore, it is worthwhile being up to date with the changes, as the Law Reform has introduced some new processes for the administration of an insolvent estate. Changes have been made to both company and individual insolvencies, with the introduction of new types of administration in both areas of insolvency. When taking action against debtors, creditors will need to be aware of these new regimes, both of which may be implemented by debtors themselves and which will have an impact on other enforcement action that may have been commenced by a creditor against a debtor. In this article, we introduce the new processes, including the new voluntary administration regime, and some of the new procedures for personal insolvency.

Voluntary Administration

The new concept of "voluntary administration" has been introduced for company insolvency. Its object is to maximise the chances of a financially distressed company continuing in existence by providing an administrator for the company for a short period of time. If the company cannot continue in existence, then the object is to try and bring better returns to the creditors via the voluntary administration regime than the creditors would receive if the company was placed into immediate liquidation.

A company may be placed into voluntary administration by its own directors or by a creditor, liquidator, or the court. Once in voluntary administration, a one-month stay operates on enforcement of creditors’ remedies, and an administrator with wide-ranging powers is appointed.

There is a tight time frame set out for the administration of a company in voluntary administration, culminating in what the Act calls a "watershed meeting" within a prescribed 25 working days from the date that the company is placed into voluntary administration. At that watershed meeting, the administrator proposes a deed of company administration ("DOCA"). It is intended that this DOCA will set out a rehabilitation plan and a repayment proposal to creditors. In some circumstances, the company will be placed into liquidation following administration; however, the intention is that the voluntary administration will enable matters to be better addressed prior to that occurring. The creditors will vote on acceptance of the DOCA and a resolution that is passed in favour of a DOCA will bind all creditors, including those not represented at the meeting, provided that the requisite threshold (75% of creditors by value and 50% of creditors by number) for approval of the DOCA is achieved. Any creditor bound by a DOCA may not commence or continue a liquidation application, nor begin or continue any enforcement procedure, while the DOCA is in force. Essentially, it removes liquidation as an option, either temporarily during the administration period, or permanently if the creditors vote on a DOCA that contains an alternative proposal.

It is intended that the voluntary administration process may encourage shareholders and others to inject cash into a failing company and to enable a better return to creditors than would be the case if the company was placed into immediate liquidation. In addition, it is intended that DOCAs will be able to provide an exit mechanism for those creditors who do not wish to support the voluntary administration, other than simply voting against the DOCA. An example may be an exit at the value obtainable via a liquidation.

Personal Insolvency

The insolvency law reforms will see a shift in the way that a personal insolvency is dealt with. The Official Assignee’s Office will now deal with all personal insolvency matters from the outset. There has also been the creation of a further regime, enabling the Official Assignee to deal with the debtor under a new "No Asset Procedure".

Prior to lodging a debtor’s petition to be made bankrupt, or at any stage when approaching the Official Assignee in relation to insolvency matters, a debtor will now be required to complete a statement of affairs. The debtor may now apply to the Official Assignee to enter the No Asset Procedure. On the basis of the information provided in the statement of affairs, the Official Assignee will then determine whether the debtor should go down the bankruptcy, the new No Asset Procedure, or summary instalment order procedure.

No Asset Procedure

Due to the increase in consumer bankruptcies, with debtors holding very few assets, a new No Asset Procedure ("NAP") will be introduced. This will allow the debtors to get relief from creditors and then rejoin, and make a positive contribution to, the economy after 12 months.

The entry criteria for a NAP is that the debtor:

  • has no realisable assets;
  • has not previously been involved in a NAP;
  • has not previously been bankrupt;
  • owes less than $40,000 debt (excluding student loan and fines);
  • has no means of repaying the debt.

A debtor will enter into NAP upon the assessment of the Official Assignee, and will be required to cooperate and keep the Official Assignee informed of any change in circumstances. It will be a 12-month state which does not see assets sold or distributed for the benefit of creditors. The debtor will be given a fresh start after the 12-month period without the stigma of "bankruptcy".

As the person qualifying for NAP will not hold assets that are able to be used to repay their debts, no assets will be vested in the Official Assignee, as is the case with bankruptcy. Debtors under NAP are not permitted to obtain credit of more than $1,000 without disclosing their NAP status to the lender.

If the person’s financial circumstances improve, NAP may no longer be an appropriate means of dealing with the debtor's financial situation as they may then be in a position to repay some or all of their debt.

This procedure is not available if the debtor has concealed assets with the intention of defrauding creditors, or has engaged in conduct that would (if the debtor were a bankrupt) constitute an offence under the Act, or has incurred debts knowing those debts cannot be paid. Further, if it is clear to the Official Assignee that the debtor is in a position to pay money towards their debt, they will be channelled through the summary instalment order or bankruptcy route.

If it appears that the debtor should not have been admitted to NAP, the NAP status can be terminated, at which time all of the debtor’s debts become enforceable. If this happens, and the Official Assignee discovers that the debtor has assets that the creditors may wish to try to access, the Official Assignee can make an application to the court for a preservation order to prevent the debtor disposing of or concealing assets pending any bankruptcy proceedings that may be taken by the creditors.

The NAP status will be disclosed on the insolvency website for the duration of the 12-month period. However, once a debtor exits the NAP, this information will no longer be available on that website.

Summary Instalment Orders

Summary Instalment Orders are currently available and are administered through the District Court with independent supervisors dealing with the debts of the debtor and liaising with creditors to arrange payment on instalments to those creditors. Under the law reform, the summary instalment order process has been improved in an attempt to make it more accessible to debtors. The Official Assignee will now manage and govern the process, and payments will be made via the Official Assignee's trust account.

The debt level for entry into a summary instalment process has been increased to $40,000 (excluding any student loan), and the time frame for repayment can be extended up to five years. The debtor need not be able to settle the debts, and payment need only be to the extent that the Official Assignee considers is practicable in the circumstances. The Official Assignee will be able to make orders such as those regarding disposal of the debtor’s goods, those regarding the debtor’s future earnings or income, or give such orders to empower the supervisor in certain respects.


All debtors’ petitions for bankruptcy will now be made to the Official Assignee, rather than the High Court.

Changes will also be made to the Insolvency website in relation to bankruptcy. The information relating to a bankrupt will remain on the public register now for only four years following discharge instead of indefinitely, as now is the case.


New processes have been introduced to try to make insolvencies more efficient. Some aspects of those new procedures will impact on other insolvency proceedings brought against debtors. They will also give creditors a bigger "toolbox".

Before you embark down a traditional path against debtors, check with your Lawlink firm to determine whether there may now be a better option.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Amanda Douglas
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