Insolvency Amendment Bill

Hon SIMON POWER (Minister of Justice) Link to this

I move, That the Insolvency Amendment Bill be now read a second time. The Insolvency Amendment Bill amends the Insolvency Act 2006—not unsurprisingly—in order to preserve the integrity of the personal insolvency processes, namely bankruptcy—

Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this

I rise to speak to the second reading of the Insolvency Amendment Bill. As chair of the Commerce Committee, I think that we received very good support from the officials, and I acknowledge that. Also, the members of the committee were very keen to meet the deadline for report back—as requested by the Minister of Commerce, the Hon Simon Power—in order that a timely amendment would be made to allow for retrospectivity, which would not normally be applied in legislation. However, with the Minister stating very clearly in the public release of the bill before it was introduced that it would apply from the date of the announcement, he met the requirements of retrospective application in relation to the fraudulent debt provisions.

The Labour members of the committee, along with all members of the committee, were very supportive of this change being made to the law. We were also very supportive of the gifting provisions that were clarified in respect of insolvent gifts. But the one issue we had great concern about was what seemed to be the addition of a provision that related to the length of time people are on public insolvency registers. That provision did not come from the same area of concern. The issues had clearly been raised with the Minister in respect of the matters that needed clarifying with regard to a discharge from the no-asset procedure in relation to fraudulent debt provisions, but it certainly seemed to me, and I think to others as well, that this other amendment relating to the length of time people are on public insolvency registers had really not come from the same place.

Sure enough, when we sought to find out where that particular amendment had come from, we found that it had come from a newspaper article that had been published some months before. It was as if we were just tacking the issue on to a bill that we were introducing to address a more pressing issue. I can understand why the Minister did that. Obviously, a Minister likes to use the opportunity of the legislative time he or she gets in the House to get as much done as he or she possibly can. But I do not think it is a very good process when it goes towards changing a law that has only been in place for just over 12 months. Our concern was about changing the length of time that people were on the public insolvency register in respect of the no-asset procedure. It really does mean that there is not the same strong distinction between the no-asset procedure and bankruptcy as there was before.

When the select committee received submissions, a practitioner in Christchurch gave quite an extensive submission about the sorts of changes he would like to see in the insolvency law arena. In fact, it tied in with one of the submissions we received from the budget advisory services. The submitter suggested that rather than just letting people off the hook, as it were, with bankruptcy or the no-asset procedure, in both cases there should be a requirement to do some sort of budgeting course so that people would not fall back into this position. The Government is moving amendments in order to allow for people who are multiple insolvents and have gone through the insolvency process on several occasions. Would it not be better to try to get to the root cause of the problem, which is the inability of people to deal with credit that they have obtained through a variety of means? By developing a very specific budgeting programme that would go alongside the no-asset procedure—or, indeed, the bankruptcy—we could end up with a situation where a person could earn his or her ability to come off the no-asset procedure. I think that would be an excellent addition, because it would then be seen as a learning experience rather than just a forgiveness of the significant amount of debt that had accumulated.

One of the things that came up at the select committee was that a number of members really questioned whether honest people—good, decent people—could end up using one of these positions. It really seemed to reek of people who were being irresponsible and gaining credit when they were not in a position to repay. We then had a submission from the citizens advice bureau, and they had some very compelling stories of the types of cases where the no-asset procedure, although it really is the fence at the bottom of the cliff, had been the saviour in terms of allowing somebody to get back on his or her feet. The particular example, as I recall—and I wish I had brought my notes down to the House—involved a woman whose marriage had broken up. The couple had income protection insurance for a particular thing that had happened; I cannot remember whether she had to have an operation. The income protection insurance that she had did not kick in. There was a dispute, and she could not afford to fight the insurance company. She actually ended up on a benefit, and her life was completely turned upside down. We felt that we were hearing the story of somebody who had taken considerable steps to protect herself against the unforeseen and the unexpected, but at the end of the day she had ended up with all of this debt. She would have been in a position to repay it before, but because of the turn of events she was not able to repay it. So in that particular case the no-asset procedure was very much appropriate for her to use. The idea that she will be on the register for a significant period of time will say more about her lack of creditworthiness than the circumstances would disclose.

The other example I had was a case in my electorate office where an individual had believed firmly that he had paid all of his debts to a legal firm that had been acting for him. His belief that he had paid for it all was absolutely sincere and genuine, and I understand why he thought he had. What he did not realise was that the legal firm had conducted two additional pieces of work for him after he had paid what he thought was his final bill, and therefore there was money owing. When the firm demanded the money from him, he said he did not owe it any money, and he ended up going to court. A $950 bill became $3,500 by the time the court had finished adding on all of the bits and pieces. I literally had to get from the law firm all of the information it had, and then I had to sit down and explain things to him and draw up a time line so he could understand why he owed this money. Why did the law firm not do this? Well, it had a huge row with him because he said he had definitely paid the money. The reason he did not understand any of it was that he could not read. I was the first person who picked up that he could not read, and that is why he does not get stuff like this. We have got him with a budget advisory service now, and we are helping him work through all of these issues.

Anyone who thinks that people who end up using the no-asset procedure or bankruptcy provisions are all somehow culpable and totally responsible for the circumstance that they find themselves in, should think on it. There are people out there who get through life in a difficult way. They need additional support, and sometimes this is the way that they can get themselves back on their feet. So I am disappointed that we are having the debate on the public insolvency registers along with the other material; we support the other parts of the bill. We still have some concerns about aspects of the legislation, and we will deal with those in the Committee stage.

KATRINA SHANKS (National) Link to this

It is my pleasure to stand here tonight and talk to the Insolvency Amendment Bill. I would like to acknowledge the Ōtari Probus Club, whose members are in the gallery and had dinner at Bellamy’s tonight. They are sitting there listening to this great debate that we are having tonight.

The no-asset procedure is quite an interesting procedure. It is something that not many people know a lot about, because it is relatively new. It sits in a different place from most bits of insolvency legislation. I will give members a couple of facts about the no-asset procedure so that they can understand who is eligible for it. The official assignee may admit a person to the no-asset procedure if satisfied on reasonable grounds that the debtor has no realisable assets, has not been previously admitted to the no-asset procedure, has not been previously adjudicated bankrupt, has total debts of not less than $1,000 and not more than $40,000, and has absolutely no means of repaying any amount towards those debts under a prescribed means test. That is basically people who have run up debt and do not have any assets at all to pay it back. Between 2007 and March 2009, 3,194 people applied for this procedure, but only 2,094 were granted entry to it. So 983 thought that they fitted the prescription, but they actually did not. They would have had assets, or most probably their debts would have been outside the range we are talking about today.

It is interesting to talk about the no-asset procedure, because it is actually designed for a one-off situation, for people who are down on their luck. They have been made redundant, they have got sick, or they have had a marriage separation, and all of a sudden they are carrying a lot of debt, which they cannot pay back on a single income. It is for just that one-off situation that people get into.

Some statistics were given to the Commerce Committee when we asked about the types of people who face these procedures. New Zealand holds statistics, but they are based on self-assessment. When we look at New Zealand’s statistics and the United Kingdom’s statistics—the UK has exactly the same type of no-asset procedure, but it is based on insolvency services filling out the forms—we see quite a variance in the two categories. The statistics indicate that the way the UK classifies and records the insolvencies or the no-asset procedures is more realistic.

I will tell members how people get into this situation. Forty-eight percent were cases of individuals living beyond their financial means. These were people who ran up credit and got things on hire purchase, but had no way of paying the money back. They ran up credit card debt and knew they could not pay it back. They were living beyond their financial means. There were also one-off situations where people got sick, had to take leave without pay, and could not pay back their debts. Fourteen percent of cases involved loss of individual or household income, 8 percent involved accidents, 6 percent involved business failure, 5 percent involved failure to deal with tax affairs, 4 percent involved relationship breakdowns, and 3 percent involved guaranteeing liabilities. The statistics are quite important; we can get an idea and a picture of the sort of person whom this procedure applies to.

The committee has adjusted this legislation to make it more relevant, and to fill in some of the loopholes. This legislation changes four key areas. The first one is that a person cannot gift away any money before he or she goes into the procedure. People were gifting money, then going into the no-asset procedure and saying that they had no means and no assets with which to pay the money back. This was a loophole that people were getting through, so we have closed it up.

Also, there was a loophole in regard to fraud. People who committed an offence when bankrupt would still stay in the no-asset procedure. They could do illegal activities and still stay in the no-asset procedure. But that has changed under this new legislation. People cannot conceal any fraud, and if they are found to have fraudulent means, then they are taken out of the no-asset procedure. It is quite important to have these loopholes fixed.

The other loophole is the discharge of joint debtors. This is where a spouse has a joint debt on a credit card, or a business partner has a joint debt on a cheque account, or there are co-trustees or joint debtors on something. When someone goes into the no-asset procedure, the whole debt does not go in with that person. Only that person’s portion of the debt can go in with him or her. That was another loophole that we found, and we have now changed it, as well.

One of the most contentious areas that the committee discussed was the public register, in terms of how long someone should be on it and what is fair. We had a great debate on this in the select committee with our officials. We asked for information on what is happening internationally. It is different everywhere we looked, so it is hard to tell. We had to draw a line and say that we believed that this was how long someone should be on the register. That was really important. The term was 1 year for the no-asset procedure, and we have changed it to 5 years. We picked 5 years because we think it is important to have a balance. The debtors have to be able to come off the register. They are in a no-asset procedure. It is meant to be a one-off. It is meant to be for someone who is down on his or her luck and has hit hard times. It is not meant to be a big, big stick. At the same time, the people to whom they owe the money—the people whom they borrowed from—such as the finance companies and the credit card companies, need to get a good picture of the credit rating and the credit history of people who have been in the no-asset procedure. Taking people off the register after 1 year is most probably a bit too quick; after 1 year they are able to get another credit card or run up some more debt with GE Finance. It is important that people are on the register long enough for the moneylenders to get a feel for their credit history.

The other concern was multiple insolvencies. A person can be in the no-asset procedure only once. If there are repeat problems with credit in that someone cannot pay it back, that person then becomes bankrupt. We changed the term for those people from 7 years to indefinitely. That makes sure that if someone has multiple insolvencies and has gone into bankruptcy a number of times, a red flag will go up to indicate that that person is a bad credit risk. That person will be on the public register for a very long time. It was important that we were fair and balanced the debtors and the creditors.

I spoke to one of my constituents the other day. She most probably needed budgeting advice, rather than anything else. It would be interesting to see her case come through the no-asset procedure, and I am sure it will. She went to Harvey Norman and basically refitted her house on finance. She has a beautiful plasma television on the wall, an LCD television in her bedroom, a nicer sofa than I have, and a beautiful coffee table. The kitchen is just amazing. It has all the new appliances, courtesy of Harvey Norman. She went on a scheme that offered no repayments for 3 years, interest-free. The first payment is now due, and she has no money. She has absolutely no way of paying it back. She said to me that she could go in the no-asset procedure. I said that actually she most probably could not. She will most probably have to sell some of her assets before she can go on to that procedure.

The no-asset procedure is not about giving people an out for bad spending; that is not what it is about. When we started looking at it I was really concerned that it would be abused by people who have run up credit deliberately. They knew what they were doing, and knew that they would not have the money to pay it back. That is something we will be watching very closely moving forward.

Thank you, Mr Deputy Speaker. It has been my pleasure to support this bill tonight.

CHARLES CHAUVEL (Labour) Link to this

Can I join the previous speaker, my friend Katrina Shanks, in welcoming members of the Ōtari Probus Club to the House tonight. I am sure they will be delighted to listen intently to the debate on this legislation, the Insolvency Amendment Bill, as members read it a second time.

Katrina Shanks spoke in her second reading speech about the length of time a debtor should spend on public insolvency registers. My friend and colleague Lianne Dalziel did the same thing. I will spend a little bit of time addressing that issue, because I think it is one of the more significant ones that the House needs to pay attention to. The bill lengthens the time that information about a debtor remains on the public insolvency register from 1 year to 5 years in the case of a NAP, or no-asset procedure as it will be called, and from 7 years to indefinitely in the case of multiple insolvencies. That is two or more bankruptcies, or a no-asset procedure and a bankruptcy.

The Commerce Committee, as I understand it, heard evidence that lengthening the time that a no-asset procedure debtor remains on the public register would dilute the important distinction between bankruptcy provisions and the no-asset procedure. That procedure was introduced to provide a one-off opportunity for financially distressed individuals to avoid the stigma of bankruptcy, and to rebuild their lives. The Privacy Commissioner’s view, and I think it is incumbent on the House to pay close attention to the views of the commissioner on matters of information storage and privacy, was that a total of 3 years on the public register for a no-asset procedure debtor would be more consistent with the purposes of the procedure, and more proportionate to the period for which individuals should be publicly listed following bankruptcy. But the majority of the select committee members accepted the advice that it is a matter of balancing the interests of debtors, who seek, understandably, to move on with their lives, with the interests of creditors, who require reliable information about a debtor’s history on which to make informed business decisions. The majority of the members concluded that the approach proposed in the bill does strike a reasonable balance between those interests. The majority said that the diversity of reasons for financial distress means the length of time that information remains on the public registers will inevitably be more appropriate for some debtors than for others, no matter what period is plumped for. As Katrina Shanks said, there is no international consensus on this issue in overseas jurisdictions. Members on this side of the House believe that there should be further consultation on this part of the bill, before we proceed to make what are quite significant changes to the public register provisions.

It is interesting to note that these provisions were not an essential component of the bill, which was designed to deal with fraudulent debts. And there has been a shorter report-back requirement than would normally be expected. On this issue, as Lianne Dalziel said, Labour members think that there has not been sufficient consultation with key stakeholders, and this is reinforced by the fact that the Privacy Commissioner’s concerns have not been adopted by the select committee. We would therefore much prefer that the provisions relating to the public register be separated from the rest of the bill.

On the rest of the bill, members on this side of the House think it is generally a good one. We do support it, but we do think that it would be better to prevent more insolvency in New Zealand, rather than just tidy up the small number of issues that have arisen since the enactment of the Insolvency Act 2006, which, after all, is really all this bill does. Members on this side of the House ask where the Government’s plan is to prevent insolvency from becoming more and more of a problem for ordinary New Zealanders. Where is the economic plan? This is a question that is fairly asked, in my view, of a Government that scrapped the research and development tax credit, gutted KiwiSaver, trashed the Fast Forward fund, and cut contributions to the Superannuation Fund, thereby endangering future superannuation entitlements. These are the fundamental questions facing the nation when it comes to how we deal with insolvency, how we prevent insolvency from becoming more and more of a problem for ordinary New Zealanders, and how we build a wealthier society. It is those questions that Labour members want addressed, rather than the Government being too preoccupied with tinkering, which is the concern we have about the rest of the bill. We are concerned also about the public insolvency register provisions that I spoke about in some further detail. Thank you.

KEVIN HAGUE (Green) Link to this

I rise to again conditionally support the Insolvency Amendment Bill, and to make a short contribution in this second reading. In 2007 the Reserve Bank undertook a study that indicated “that New Zealanders are aware of some of the financial issues that they face, but they are ill-equipped to make financial decisions. They do not effectively understand basic financial terms or instruments or, more worryingly, the concept of risk and return. Furthermore, they do not use existing financial disclosures or credit ratings in a manner that would enhance their understanding of financial exposures.” For example, the results of the survey showed that more than 50 percent of New Zealanders did not understand compound interest, and that 80 percent either were not aware of mandatory disclosures or did not use them for financial decision-making. The point I make is that the level of financial literacy amongst New Zealanders is appallingly low. The concept of financial education in our schools is quite a new one, and the no-asset procedure is one that meets the needs of a very large number of people.

The Green Party is very pleased that the Government is closing some of the loopholes in the Insolvency Act 2006—the existing law—but the provision to extend the term for which someone sits on the insolvency register does not fit the description of closing a loophole; it is a new kind of provision, as Lianne Dalziel has drawn the House’s attention to. The Green Party remains opposed to it, partly because one of the principal effects of that extension will be to make this group of vulnerable New Zealanders more prey to the predatory tactics of some finance companies.

The point of the no-asset procedure is to provide a clean slate-type of approach to people who, as Katrina Shanks pointed out, due to unfortunate circumstances such as broken relationships or ill health find themselves in debt that they cannot pay. It is not a provision that exists for serious or business fraudsters. Often the people to whom these provisions apply are young people whose maturity in decision-making around financial matters is still developing. Nearly half the people who were admitted to the no-asset procedure were beneficiaries, and I compare that proportion with the 48 percent that Katrina Shanks has drawn the House’s attention to who were living beyond their means. Perhaps that says something about the level of benefits. The mean indebtedness of people who were admitted to the register and qualified for the no-asset procedure was $10,600, which is not a lot of money.

The evidence is that the law as it stands is working well, and I am pleased that both Lianne Dalziel and Charles Chauvel have drawn the House’s attention to the view of the Privacy Commissioner that the 3-year term on the register is more in accordance with the intent of the law than the 5-year term that is proposed in this bill. The extension to 5 years would have a number of effects. Firstly, it would have a disproportionate effect on a young person. As I said, many of those who are admitted to the no-asset procedure are, indeed, young people. The consequence of the extended term on the register will be disproportionate for that group of people. Secondly, and this is a point I made in the first reading debate on this bill, the extension to 5 years will remove the incentive for debtors to deal with their debts before they reach $40,000. In other words, the extension of the term on the register may exacerbate the problem faced by those who are extending credit, rather than relieving that problem. Perhaps most important from the Green Party’s point of view, the extended time on the register will serve to reduce the access of people who have been admitted via the no-asset procedure to reliable and genuine sources of credit. That will mean that if they require credit or capital of any sort, they will be desperate and may well be forced into the hands of loan sharks and finance companies, which this House this evening has been debating the tactics of. I do not think that anyone is well served by that consequence of the bill.

The Green Party supports the majority of the provisions of the bill. It seems to me that there is pretty much consensus in the House on the measures in the bill that are genuinely intended to close off loopholes, but we oppose the extension to 5 years of the term on the insolvency register. We will vote for the second reading of this bill, but if that problem with the bill is not addressed in the Committee stage, then we will not support it at the third reading.

MELISSA LEE (National) Link to this

It is a pleasure to rise this evening to speak to the Insolvency Amendment Bill 2009 in its second reading. Before I do that I echo the Hon Lianne Dalziel’s comments by thanking the officials who assisted the select committee process.

In the current economic downturn the rate of insolvency is expected to rise. The introduction of this bill was very timely and a matter of urgency to prevent fraudulent debts from being discharged. It was introduced by the Minister of Commerce, the Hon Simon Power, to amend the Insolvency Act 2006 to preserve the integrity of the personal insolvency processes, particularly the no-asset procedure and bankruptcy, in order to provide more protection for creditors and potential creditors. It was very interesting to hear Mr Kevin Hague from the Green Party talk about people who are vulnerable. It is not just the people with lower income levels who are vulnerable, but also people who lend money to potential fraudsters. I do not think any members in this House will disagree with the objective I mentioned earlier, which is to uphold the integrity of the personal insolvency processes. Having sat through the Commerce Committee meetings, I know that all members from all sides in this House pretty much agree with most of the provisions in this bill.

I start by talking about the no-asset procedure. The no-asset procedure is like getting a free pass in a Monopoly game, I guess, where we get to pass “Go” and collect $200. When a person has no means of paying off a debt of between $1,000 and $40,000—which is a lot of money, I say to Mr Hague—they can apply to go on to the no-asset procedure. It was introduced as an alternative to bankruptcy in December 2007. It is, indeed, a great opportunity for someone who is in a financially distressed situation and can see no way out. They effectively get a clean slate after 1 year. This procedure was for people who had no realisable assets that they could possibly sell to pay creditors, so that they can avoid the stigma of bankruptcy, as Mr Chauvel said, and rebuild their financial lives.

Although this procedure is a great opportunity for people who are genuinely in difficulty, the Insolvency Act 2006 created a loophole, as we have already heard in this House, allowing fraudulent debts incurred by individuals going into the no-asset procedure to be wiped. This was obviously an anomaly that needed to be corrected, and the Insolvency Amendment Bill 2009 does that. The select committee has recommended that a minor amendment be made to the bill to clarify that fraudulent debts become enforceable again after a debtor is discharged from the no-asset procedure, and the debtor be liable to pay interest and penalties accrued during the no-asset procedure. I think that is fantastic. If people who are in this no-asset procedure for a year—and, as we are proposing, on the register for 5 years—incur interest while they are on the no-asset procedure, they will need to pay that debt after they are discharged.

Another thing this bill does is give more power to the official assignee to investigate a debtor who applies to go on to the procedure, by extending the period of discharge by a maximum of 25 days. That will allow any new information on debts or information relating to concealed assets to be brought to the attention of the official assignee right up to the day the debtor is discharged. With the new information, the procedure can be terminated.

The other aspect of the bill is to allow the official assignee the ability to recover gifts made by a bankrupt to a third party prior to his or her bankruptcy. It has long been an accepted presumption that if one is declared bankrupt, one has been insolvent for a period of time before that declaration of bankruptcy is made. If one is able to make a gift to a third party, one’s insolvency should be questioned, and the gift should be seen, in light of one’s bankruptcy, as a way to hide assets, often by way of setting up trusts, etc., to avoid paying creditors. This bill puts the onus of proving the solvency of the person who has made the gift not on the official assignee, but on the recipient of the gift. I think that is brilliant. If I have received a gift from an insolvent person who declares himself bankrupt, I have to prove that he was solvent when he gave me that amazing gift. If I cannot prove that, I have to give it back, and I think that is brilliant.

This bill reverts to the Insolvency Act 1967 around insolvent gifts, extending the 2-year time frame prior to becoming bankrupt to 5 years. If I declare myself bankrupt tomorrow, the time frame will go back 5 years, and any gift I have given in that 5 years can be taken back to pay creditors. The select committee has also recommended a minor amendment to this aspect of the bill to include a clause to clarify that gifts would be “realisable assets” and therefore disqualify the debtor from entry to the no-asset procedure. This would ensure that debtors cannot conceal assets from creditors by gifting to another person.

During the first reading of this bill there was a lot of opposition to the length of time the bill proposed a debtor’s name remain on the no-asset procedure’s public register, and once again tonight we have heard from the Hon Lianne Dalziel, Mr Chauvel, and the Green Party that they are concerned about it. The time period we are proposing is not intended to harm people who are, as Mr Hague said, poor and vulnerable. The bill proposes to protect the people who lend money to fraudulent people. It proposes that those people stay on the list for 5 years. For multiple insolvencies—for example, for two or more bankruptcies, or a no-asset procedure and a bankruptcy; not just a oncer where a no-asset procedure was introduced to protect innocent people who had difficulties paying off their debts—the time period that their names will stay on the register goes from 7 years to indefinitely. This is done to protect creditors and potential creditors. It could be you, Mr Assistant Speaker Roy. You could be lending to someone whose name may only stay on the register for 1 year and then fall off, and you may not know that that person has have been on the no-asset procedure, or that he or she owes lots of people lots of money.

The select committee recommends that a minor amendment be also made to the clause of the bill about the public register including a record of each insolvency of a person who has had two or more bankruptcies. That means it will include how much they may have had the procedure against, how many times they have been through bankruptcy, or whether they have been through the no-asset procedure. Because of the unreliable records before the 1967 Insolvency Act, the committee recommended that they not be used for the public register.

These amendments are required in order to maintain the integrity of the personal insolvency processes. These changes will prevent fraudulent debtors from avoiding the legal obligation to repay debts. These changes remove the potential to reward dishonest persons; we should not be rewarding dishonest people. I commend this bill to the House.

CLARE CURRAN (Labour—Dunedin South) Link to this

I rise to talk to the second reading of the Insolvency Amendment Bill. This bill, as we have heard tonight, amends the Insolvency Act 2006, to address a small number of issues that have arisen since its enactment. The bill preserves the integrity of the new no-asset procedure by preventing the discharge of fraudulent debts, and the integrity of bankruptcy by restoring the official assignee’s ability to recover gifts made by a person prior to bankruptcy. The bill also amends the public register provisions to better enable creditors to make informed lending decisions, by ensuring that a public record of people who have been discharged from the no-asset procedure is available for an appropriate period, and by providing for permanent public records where a person has had multiple insolvency events.

We have heard a number of speakers talk about the provisions of the Act. Essentially, they are about preventing the discharge of fraudulent debts under the no-asset procedure, allowing the official assignee to extend the amount of time that a person is under the no-asset procedure, allowing a no-asset procedure debtor’s information to be kept on the public register for 5 years from the date of entry to the no-asset procedure, and reinstating permanently a debtor’s details on the public register when the debtor subsequently enters a bankruptcy process.

Members have heard from this side of the House that we consider this to be a good bill. Generally, we support it, but, ultimately, we have some concerns, which have been noted in the select committee report that I will refer to in a minute. We also believe that it would be better to prevent more insolvency in New Zealand, not just to tidy up the small number of issues that have arisen since the Insolvency Act 2006 was introduced.

As has been noted by a couple of the previous speakers, there was very good support from the Commerce Committee for this bill, as it needed to go through the committee quite quickly. The committee members worked hard and quickly to get the bill through the committee. There were also a number of very good submissions, and I will read to the House from one of those submissions in a minute.

Labour has been very supportive of most of these issues, but we are concerned that the length of time the debtor remains on the public insolvency register is being extended. That amendment extends the time the debtor remains on the register from 1 year to 5 years in the case of a no-asset procedure, and from 7 years to indefinitely in the case of people with multiple insolvencies.

The committee heard that lengthening the time a no-asset procedure debtor remains on the public register would dilute the important distinction between bankruptcy provisions and the no-asset procedure. The procedure was introduced to provide a one-off opportunity for financially distressed individuals to avoid the stigma of bankruptcy and to rebuild their lives. It is the view of the Privacy Commissioner—as we have also heard tonight—that a total of 3 years on the public register for a no-asset procedure debtor would be more consistent with the purposes of the procedure and more proportionate to the period for which individuals are publicly listed following bankruptcy. The majority of the select committee members, however, accepted the advice that it is a matter of balancing the interests of debtors, who seek—understandably—to move on with their lives, and the interests of creditors, who require reliable information about a debtor’s history on which to make informed business decisions.

Labour members consider that the approach proposed in the bill strikes a reasonable balance between these interests. The diversity of reasons for financial distress means that the length of time the information remains on the public registers will inevitably be more appropriate for some debtors than for others, no matter what time period is chosen. But there is no international consensus on this in overseas jurisdictions, and the Labour members believe that there should be further consultation on this part of the bill before we proceed to make significant changes to the public register provisions. We note that these provisions were not an essential component of this bill. They were described by the Hon Lianne Dalziel as being tacked on the end of the bill. We note that they were not an essential component, and were designed to deal with fraudulent debts, and, as a result, had a shorter report-back requirement than would normally be expected. It is the view of Labour members that there has not been sufficient consultation with key stakeholders, and that view is reinforced by the concerns raised by the Office of the Privacy Commissioner. We would prefer that the public register provisions be separated from the rest of the bill.

Just to highlight our position I will read to the House two case studies from one of the submissions that my colleague the Hon Lianne Dalziel referred to. The submission came from Citizens Advice Bureaux. The first case study was of a single, professional woman with an income of $50,000 who had to go on an invalids benefit because her illness, which had been controlled for 10 years, flared up. She was in debt to the bank and to a finance company, but had insurance cover on both loans that specified the illness. The bank paid out on the insurance; the finance company did not. Within 3 months of the change in circumstances she was “tormented by them”. Her only solution was to apply for the no-asset procedure with $29,000 of debt; the only creditor was the finance company. This woman had been very responsible in getting insurance to ensure that she could pay off her debts should her illness flare up again. Through no fault of her own, but through the finance company’s refusal to pay out the insurance—putting her under pressure to pay—she was faced with insolvency, so she entered the no-asset procedure, which enabled her to get out of that situation.

The second case study was of a young couple with three children aged under 8 years. They had credit contracts on cars, a TV, etc., and they rented their home. The man’s income was $36,000 gross and they were receiving Working for Families payments. They were encouraged by the bank to consolidate their finances, which they did with a personal loan. The woman got a part-time job to help with high rent costs, high power costs, and high medical costs for two of the children. They got into further debt, and the bank refinanced them by putting all of their debt, including that which was included in the personal loan, on to a credit card. The couple subsequently separated. The woman went on to the domestic purposes benefit, and received an accommodation supplement and family support. The credit card was in the male’s name only, as he was the income earner. Because of the increased expenses caused by their separation, such as rent, living expenses, and child support, this man was unable to cope with the credit card payments, and he was accepted into the no-asset procedure. I think the point here is that this couple’s situation was made significantly worse by the bank putting all their debt on to a credit card with a much higher interest rate than they had been charged for the personal loan. The no-asset procedure allowed him to regain his place in society.

Labour does support this bill in its second reading, but it has noted its concerns, which are highlighted by these two case studies. The point is that in those cases, and in many others like them that Citizens Advice Bureaux and a number of other submitters put before the Commerce Committee, the people were in those circumstances really through no fault of their own, and they were able to use the no-asset procedure to regain their place in society. Should they be penalised for using the no-asset procedure by being put on a register for a lot longer period of time as a result? That is why the Labour members of the committee believe that there should be more time taken and there should be more consultation before this part of the bill goes through.

PAUL QUINN (National) Link to this

I rise to support the second reading of the Insolvency Amendment Bill. I think it is useful to reflect on the reason why this bill is before us. The bill amends the Insolvency Act 2006 in response to a number of minor issues and anomalies that have arisen. I guess to sum up this bill it could be described as strengthening the authenticity of the no-asset procedure. On that basis I fully support it.

The two main areas of particular interest, as a number of speakers have already referred to, are the issues of fraudulent debt and gift avoidance. Those are two of the issues I want to talk about. In terms of fraudulent debt, an example of that might well be where a social welfare benefit has been obtained on false grounds, by declaring false details or suchlike. It is important that if that sort of behaviour is undertaken, people do not get away with it at the expense of the taxpayer. Under this bill it is clearly set out that those debts will not be able to be covered by a discharge from the no-asset procedure.

Another specific and particular aspect of the bill that is very important is the issue of gift avoidance. A good example of that currently, which is of high interest to a number of people, although on a much larger scale, is Rod Petricevic’s convertible car. That sort of gifting behaviour, where people know they are going down the track towards insolvency and are trying to get rid of property by making gifts to family members so that the property is out of the reach of the creditors, is the sort of behaviour that this particular aspect of the bill endeavours to prevent.

I will touch very briefly on an issue that Lianne Dalziel covered very well, which is that we are moving into a time when this legislation will be very useful because a number of people may well come under pressure. She mentioned a couple of examples that she is currently involved in. I can sympathise with her, because a similar situation is currently occurring for a client of mine who lives in the Hutt Valley. For whatever reason, the constituent MP for Rimutaka is unavailable, so she has had to come to me for support and help. Maybe that is because Chris Hipkins is incompetent or is unable to help, but for whatever reason a woman has come to me for assistance. She has had a marriage breakdown and is facing issues around her finances. I am working very hard on that case, because the member for Rimutaka does not seem to be around when he is needed. These are very real issues, particularly in a time of recession.

It is indeed a pleasure to be able to support the bill. Thank you.