The new insolvency practitioners licensing regime comes into force on 1 September 2020. So do various law changes affecting the day to day activities of receivers, administrators and liquidators.
We run through the main changes. A more detailed paper on the changes will be available on the RITANZ website in due course.
From 1 September 2020, a licence will be required to accept a new appointment as an “insolvency practitioner”, being:
- an administrator
- a deed administrator
- a liquidator of an insolvent company
- a receiver, or
- a trustee or provisional trustee under subpart 2 of Part 5 of the Insolvency Act 2006.
Persons administering a creditor’s compromise or conducting a solvent liquidation will not require a licence.
The licensing regime will not apply to appointments that are already underway. But if a liquidation begun under the existing rules is still underway at 1 September 2021 (i.e. a year after the new regime’s commencement), a liquidator must have become a licensed practitioner or resign from the position.
An unlicensed administrator in office at 1 September 2020 cannot become a liquidator or deed administrator for that same entity. This will be considered a new appointment, not merely a continuation of the existing voluntary administration.
The Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) and New Zealand Institute of Chartered Accountants (NZICA) have now been approved as the first licensing bodies under the regime. NZICA is an accredited body, while RITANZ is a recognised body. That allows RITANZ members to apply to NZICA for a licence without being members of NZICA. For the first year of the licensing regime, the around 100 Accredited Insolvency Practitioners under the current Chartered Accountants Australia & New Zealand (CA ANZ)/RITANZ self-regulation regime will be deemed to be licensed.
Liquidations and administrations
All practitioners will be required to consent in writing and provide written certification that they are licensed and not disqualified from appointment.
Key changes to the disqualification rules in s 280 of the Companies Act 1993 are:
- only licensed insolvency practitioners can be appointed to insolvent liquidations and voluntary administrations
- in addition to the restrictions already in place, disqualification from appointment will apply to:
- directors of, or persons with a more than a 5 per cent interest in, a creditor of the company (within two years of the liquidation)
- relatives of certain disqualified persons, and
- any persons under a prohibition order
- persons or firms who, in the two years before the appointment, have had a “continuing business relationship” with a secured creditor of the company are no longer disqualified
- practitioners who have provided professional services to the company remain unable to act as liquidators, but a carve-out has been created for investigating accountants, and
- the category of persons to whom the “continuing business relationship” rule applies has otherwise been expanded to include shareholders with a power to appoint or remove a director of the company (as opposed to just a majority shareholder).
Expanded interests statements
Liquidators and administrators will have to prepare an interests statement disclosing any relationships that could reasonably be perceived as creating a conflict of interest, the nature of the conflict, and how the conflict will be managed.
Administrators have to table this at the first creditors’ meeting, and send an updated statement to creditors every six months.
Liquidators will need to send their statement to all known creditors within 25 working days (for Court appointed liquidations) or five working days (in any other case). They must then provide updates at the same time as they file their six monthly reports. The updated statements need only refer to new material, not re-state information which remains current.
Liquidators – notification of appointment
The liquidator must specify who appointed them as part of the public notice. If the appointment was by the Court, the name of the applicant will need to be specified.
The Registrar must be informed of the appointment by the end of the next working day, (rather than within 10 working days as at present).
Liquidators – reporting to creditors
The basic structure of – prompt notice to the Registrar, an initial report to creditors, six-monthly reports, and a final report – will not change. But a further “summary” report at the end of the liquidation will now also be required.
The Regulations 1 set out detailed requirements for each report. In broad terms, the reports need to address, at the various stages of the liquidation:
- the actions the liquidators have taken and propose to take, with estimated timeframes, and
- details about the company’s affairs, including creditors, assets, debts and liabilities, payments to creditors and payments to the liquidator.
The full requirements for each report are set out in the Regulations in the embedded links:
We expect that the summary reports will become a useful source of record keeping for the Companies Office. They provide much of the same information as the final report but require more detail about the history of the liquidation beyond just the reporting of matters such as recoveries and payments to creditors.
Administrators – reporting to creditors
An administrator or deed administrator must file a summary report at the end of, respectively, the administration or termination of a Deed of Company Arrangement (DOCA). This must provide details about the company, the number of creditors and their claims, payments to creditors and payments to the administrator. The full requirements are set out in the Regulations at r 5.
Duties in relation to company money
A liquidator must deposit the money of the company under their administration in a bank account to the credit of the company, or in a general or separate trust account.
Dispositions of company property made between service of a liquidation application and the High Court ordering the appointment are now voidable unless made in the ordinary course of the company’s business, by an administrator or receiver on the company’s behalf, or under an order of the court.
The procedure for setting aside voidable dispositions requires the liquidator to file a notice with the court and serve it on the recipient of the disposition. If there is no response within 20 working days, the transactions are automatically set aside. If the recipient serves a notice in response within that time, the liquidator may apply to the court for orders.
Liquidators – duty to retain records
The requirement to retain liquidation and company accounts and records will be extended to six years following completion of the liquidation (up from one year currently).
Liquidators – streamlined enforcement process
Courts will be able to remove a liquidator from office, make a prohibition order, relieve the liquidator from compliance or order the liquidation to comply upon a single application and regardless of whether or not the failure to comply has been remedied.
Previously, the process required an ongoing failure to comply after a notice requiring remedy had been served. This meant the Court had no ability to remove a liquidator where the relevant non-compliance had been remedied. And, even if it had not been remedied, this was a cumbersome procedure.
The definition of “failure to comply” has changed slightly to include any enactment, rule of law or court order (insofar as each is relevant to the office of the liquidator).
There is now an alternative course of action for a complaint to be made with RITANZ, CA ANZ or any other professional body in which the insolvency practitioner is a member.
Further restrictions on related creditor voting
An administrator or liquidator will be able to disregard a related creditor’s vote without first applying to the Court, and the related creditor will have to apply to the Court to have its vote counted.
The related creditor must give notice to the liquidator or administrator prior to the vote taking place and will have 10 working days after the vote is cast to apply to the Court for the vote to be counted.
Liquidators or administrators may disregard a vote if they consider that the voter is a related creditor and that creditor has failed to give notice. The creditor must then apply to the Court to prove that it is not a related creditor and to have its vote counted.
If a liquidator or administrator becomes aware that a creditor is a related creditor only after a vote has taken place, the outcome of the resolution will hold unless the liquidator or administrator obtains orders from the Court to reverse it.
The existing definition of “related creditor” continues to apply.
Obligation to assist replacement administrators and liquidators
Liquidators and administrators will be required to actively assist replacement liquidators and administrators (to the extent practicable).
That includes providing company records, information necessary to obtain control of the assets, information about claims by creditors and “the accounting records and other documents” of the administration/liquidation.
Changes affecting receivers
Only licensed insolvency practitioners will be able to accept appointments as receivers. Criteria that disqualify someone from acting as a receiver have also been expanded.2 Additional parties disqualified include:
- auditors, related parties, and directors of related parties, of the grantor
- relatives of certain disqualified persons, and
- the liquidator, administrator or deed administrator of the company within the previous two years.
The proposed receiver must give the appointor their written consent to appointment, and certification that they are licensed and not disqualified.
Notice of appointment of receiver
Receivers must give written notice to the grantor and the Registrar of Companies before the end of the next working day after appointment. In addition to the current requirements – the receiver’s full name, date of appointment and business address, plus a brief description of the property in receivership – this notice will also need to include:
- the name of the person who appointed the receiver
- a description of the instrument under which the receiver was appointed, and
- a copy of the notice given to the grantor.
Public notice of the appointment must be given within five working days after the appointment. It must include the same details as the notice to the Registrar.
All notices of appointment must include a statement that receivers are required to be licensed insolvency practitioners, and that more information about the regulation of insolvency practitioners is available from the Registrar.
Six-monthly receiver reports
The Regulations prescribe more extensive requirements for the six-monthly receiver reports. Currently they must detail:
- property disposed of since the previous report, and any further proposals for disposal of property
- amounts owing to the appointor and to any creditors with preferential claims, and
- amounts likely to be available as at the date of the report for payments to other creditors.
In addition to this information, summaries must be provided of all:
- fees, allowances, reimbursements and other benefits paid to the receiver since the start of receivership, and
- amounts received and paid in respect of the receivership since the last report and since the commencement of the receivership. This must be categorised in a manner that assists creditors to understand the company’s cash flow situation, and categorised by payments made to each class of creditors.
A full set of requirements for the six-monthly receivers’ report can be found at r 10.
A receiver must also prepare a summary report for the Registrar at the end of the receivership. The requirements can be found in full at r 11.
All reports must be provided to the Registrar, whether or not the grantor is a body corporate.
Duty in relation to money
Failure to keep money relating to the property separate from other money received in the course of, but not relating to, the receivership may now result in a conviction and a fine of up to $75,000.
Failure to keep accounting records an offence
Failure to keep accounting records relating to the property in receivership may now result in a conviction and a fine of up to $10,000.
Expanded orders for enforcing receivers’ duties
The court has the power to remove the receiver immediately without making an intervening order if the receiver fails to comply with:
- the deed, agreement, or order of the court by which the receiver was appointed, or
- an enactment, a rule of law, or court order.
Notice requirements for vacancy in office of receiver
A person vacating office must, as soon as practicable, give public notice of the vacancy and written notice to the person who appointed the receiver.
If the receiver held office in relation to the property of a company, written notice of the vacancy must be given to the Registrar before the end of the next working day.
The procedure for a court appointed receiver to resign from office remains the same.
Assisting replacement receiver
A receiver who has been replaced must:
- provide to the replacement receiver accounting records and other documents required to carry out the functions of a receiver, and
- provide any assistance to the replacement receiver that is reasonably required for the performance of the receiver’s functions and duties.
Notice of end of receivership
A receiver must send to the Registrar written notice of the end of receivership within seven days of the receivership ending.
Changes affecting all practitioners
A number of other changes affect all “insolvency practitioners” as defined in the Insolvency Practitioner Regulations Act 2019.
Restrictions on purchasing powers
Insolvency practitioners, and people connected to them, are restricted from entering into transactions with the company or entering the company into transactions that are not at arm’s length. Leave of the court is required to purchase company assets, unless the purchase is at arm’s length.
Generally, insolvency practitioners must not purchase goods or services for the company where that practitioner knows, or ought to know, that doing so would deliver a personal benefit, either direct or indirect. Some exceptions apply.
Reporting serious problems
Insolvency practitioners are now required to report “serious problems” they discover in carrying out their role. A “serious problem” will have occurred where:
- the company, or a past or present director, officer, or shareholder of the company has committed an offence
- a person who has taken part in the formation, administration, management, liquidation, or receivership of the company:
- has misapplied, or retained, or become liable or accountable for the company’s money or property (whether in New Zealand or elsewhere), or
- is guilty of negligence, default, or breach of duty or trust in relation to the company, or
- a past or present director of the company has breached a director’s duty in a material respect, or
- the company has been managed in a way that has materially contributed to the company’s being subject to an insolvency process.
“Serious problems” must be disclosed as soon as practicable to:
- the Registrar
- if the company is a licenced insurer, the Reserve Bank of New Zealand, and
- where the serious problem concerns the possible commission of an offence, the police and/or other body responsible for investigating the offence, such as the Financial Markets Authority or the Serious Fraud Office.
All such reports will be protected by privilege. The new reporting requirements will not impose a positive duty on insolvency practitioners to investigate whether a serious problem has occurred, but a failure to report may result in a fine of up to $10,000.
Actions that do not constitute offences but could give rise to civil claims (e.g. acts of negligence or breaches of duty by directors and management) will now also need to be reported to, at least, the Registrar.
Our thanks to Nathan Whittle and Stacey Thomson for preparing this Brief Counsel.
1 The Companies (Reporting by Insolvency Practitioners) Regulations 2020.
2 Receiverships Act 1993, s 5 as amended.