Trans-Tasman regularisation of insolvency laws

Good evening. Thank you for the welcome and introduction, and for the opportunity to address this forum.

There are three inter-related issues I would like to talk to you about.

First, I will talk briefly about the current financial crisis.  Secondly, I will talk about what the Government is doing in response to the crisis.  And then I'll focus on the Government's initiative to enhance our cross-border insolvency regime with Australia.

This forum is very timely, given the current uncertain economic times.

The volatility of the global economy presents an unprecedented challenge for governments and their agencies all around the world.  Over the past few months we have watched many global businesses fail.  New Zealand and Australian businesses are no exceptions.

Business failure is not new and it occurs for a number of reasons.  However, the scale of business failures we are currently seeing is remarkable. The period from July 2008 to March 2009 shows a staggering 42 per cent increase in liquidations alone, when compared to the same period in 2007/08.

In these uncertain times, one thing is sure - there's no time to waste. Be assured that the Government is tackling this crisis head-on by endeavouring to find workable solutions for our businesses and rebuilding confidence in our financial markets.  That's our key focus.

As a result, I am looking very closely at corporate trustees and their role, as part of Securities Act review.

The collapse of finance companies has raised issues around several aspects of the regulatory framework, one of which is the role and effectiveness of trustees in supervising issuers. I will also be looking at the role of trustees more broadly to improve the quality of trust deeds, reviewing the duties and powers of trustees, and looking at means to improve the accountability of trustees to investors. 

Be assured that these changes will not be minor or cosmetic in nature.

All efforts are being made to have the Financial Advisers Act implemented by 2010. This Act will help increase the transparency and accountability of those who are operating on the front line by creating minimum standards for financial advisers and placing their supervision with a central regulatory body - the Securities Commission.  This will help to encourage confidence in the professionalism and integrity of advisers.

The Government has also picked up on a number of the recommendations made by the Capital Market Development Taskforce last November. These relate to improving capital-raising initiatives and reduction in compliance costs when raising capital.  The Securities Disclosure and Financial Advisers Amendment Bill, which I introduced into the House in February, address several of those recommendations.

Fortunately, the global crisis has not pointed to any major problems in the insolvency area, so the Government doesn't need to legislate in a hurry in relation to insolvency law.

The one major part of insolvency that the Australian Minister of Superannuation and Corporate Law, Nick Sherry, and I have given priority to is cross-border insolvency between our two countries.

New Zealand insolvency laws provide multiple options to deal with domestic, corporate and personal financial failures.  However, we are seeing more and more company insolvencies that have a trans-Tasman aspect to them.

Australia is our single biggest - and closest - trading partner, and an important source of capital.  Our close economic relations, which span 25 or so years, are critical to both countries' drive towards increasing productivity and growth.

With the drive toward a single economic market, it's becoming increasingly important to give confidence to investors and creditors on both sides of the Tasman on many fronts.

One of the ways to enhance this confidence is to develop a better process to deal with business failure.  Mr Sherry and I want to make it easier for insolvencies involving creditors on both sides of the Tasman to work efficiently and effectively.  The focus will be to provide as much return as possible for creditors.

Both countries have adopted the UNCITRAL Model Law on cross-border Insolvency.  That has been a useful step, because the adoption of that law has improved Australia-New Zealand insolvency proceedings.  The UNCITRAL Model Law goes only so far because it has to take account of the diverse legal systems worldwide, but the similarity of the New Zealand and Australia legal systems allow us to take this work a step further. 

Preliminary discussions have led us to identify several areas that could be looked at to improve the law where there are creditors and assets of the insolvent entity or person in both countries.  Any reform would augment the operation of the Model Law.  We do not intend to alter the underlying operations of our respective insolvency regimes.

One area we have identified is that any enhancement to the Model Law would need to ensure trans-Tasman insolvency proceedings are recognised under the Model Law in a timely and efficient manner. It would also need to address the risk of forum shopping by debtors or creditors to suit their needs.

Access to information in an insolvency proceeding is also crucial. It's important that we facilitate arrangements to ensure that trans-Tasman administrators are able to obtain suitable access to information, secure property and to realise the property for the benefit of the creditors

It's equally important that only appropriately knowledgeable, experienced, and fit and proper people are conducting trans-Tasman insolvency administrations.

This enhanced regime would need to ensure that disciplinary and remedial processes operate effectively and efficiently in respect of trans-Tasman administrator misconduct.

We also need to ensure that any misconduct by a debtor, corporate officer, or director is identified in the course of a trans-Tasman insolvency proceeding, and referred to appropriate law enforcement authorities.

For any trans-Tasman proceeding to be successful, exchange of information at all levels is crucial.

Any enhancement to the existing cross-border regime would require mechanisms to ensure trans-Tasman insolvency information is exchanged and made available in a similar manner to domestic information.

Lastly, any enhanced cross-border law would need to provide greater clarity as to how the Model Law will operate between our countries in respect of a range of issues.

What I've just described to you is not an exhaustive list of issues that will be examined as part of this work.  I'm sure consideration will be given to other matters that come up as a result of further discussions.

This work is still in its infancy and the details of any terms of reference, project timeframes, and processes are still to be finalised with our Australian counterparts.

There are some differences between our respective insolvency regimes.  For example, Australia has a licensing regime for its practitioners which is overseen by ASIC, while New Zealand is in the process of regulating its insolvency profession. 

As you may be aware, there was a Cabinet decision last year to introduce negative licensing as a means of dealing with incompetent and unskilled insolvency practitioners.  The main reason for adopting the negative licensing approach was because New Zealand does not have enough insolvency practitioners to justify the expense of a positive licensing system.  That's why full harmonisation of laws is not possible.  However, we do need to make changes that will help trans-Tasman trade and investment.

How we work around these differences in a trans-Tasman insolvency context is something that will be explored further as part of this work programme.

I'm confident these differences will not be insurmountable, and that a working solution that benefits creditors on both sides of the Tasman can be achieved.

I've outlined for you briefly what some of my plans are to help New Zealand businesses weather the financial crisis, and the policy setting being proposed to ensure there is confidence in our financial and capital markets. 

I have also outlined my plans to minimise any financial loss to creditors on both sides of the Tasman resulting from this crisis and, hopefully, beyond.

Remember that a successful enhancement of the cross-border insolvency arrangements with Australia is not purely the Government's responsibility.

The success of our plans and the shape they take ultimately depends on the will and drive of our respective business communities and insolvency practitioners.