- Debate resumed from 14 October.
RAYMOND HUO (Labour)
: Case study 2 involves a young couple with three kids under 8 years old. They had credit contracts on their cars and television, and rented their home. They were encouraged by the bank to consolidate their finances, which they did with a personal loan. They got into further debt, and the bank refinanced them by putting all their debt on to a credit card. The couple subsequently separated. The credit card was in the male’s name only as he was the income earner. He was unable to cope and was accepted into the no-asset procedure.
From those two cases we can tell that there are good, solid reasons why the no-asset procedure had been designed in the first place—to help financially distressed individuals to reboot their lives. As I said earlier, any form of legislation will inevitably have a catch-all effect. Therefore, it is important for us to strike the right balance and take into consideration all possible factors. On this point, it is a balance between the purpose of the no-asset procedure and the legitimate interests of credit providers. It is the view of the Privacy Commissioner 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.
Further, there is no international consensus on this in overseas jurisdictions. Therefore, I say that the issue would be better dealt with separately and not necessarily in this bill, and that, given that the Commerce Committee was unable to reach consensus, further consideration and consultation are necessary. To conclude, this is generally a good bill and I commend it to the House.
KATRINA SHANKS (National)
: It is my pleasure to take a call on the third reading of the Insolvency Amendment Bill tonight. This bill came before the Commerce Committee, and I acknowledge the hard work of all the committee members, and the officials who helped us with this bill. I also acknowledge the submitters who came forward, especially those from the citizens advice bureaux and the not-for-profit groups, who took time out of their busy days to present submissions to us. They were very powerful.
The no-asset procedure, or NAP, is described as a soft form of bankruptcy procedure. It was introduced as an alternative to bankruptcy in December 2009, and it was mainly brought in for people who are down on their luck as opposed to people who are corrupt or who have tried to take the banks for a ride. The no-asset procedure was for people who have got sick and lost their jobs, or who have gone into unemployment for other reasons, and have debts owing that, due to the change in their circumstances, they can no longer meet. It was brought in for people like that who are down on their luck. Those who are eligible have no realisable assets that can be sold to pay the money owed to creditors, have not entered into a no-asset procedure or a bankruptcy procedure previously, and have debts between the value of $10,000 and $40,000 with no other means of paying them back. After 12 months the debtor is discharged from the debt that is owed and he or she starts all over again—it is like a fresh start. This legislation is also aimed at people in Pacific Island and Māori communities, so that they do not have to go to loan sharks when they are down on their luck to pay off debts. This bill is focused on a certain type of person in a certain type of situation.
This bill fixes up a few little loopholes in the December 2007 legislation. One loophole related to fraudulent debt. Previously, if people had fraudulent debt and went through the no-asset procedure, that fraudulent debt was discharged as well. This legislation closes up that loophole so that people who have fraudulent debt can no longer have it discharged; once they come out of the no-asset procedure they will still have to pay back that fraudulent debt and any interest owed on it.
The other loophole related to gifting. If people who owed money to creditors gifted their money away, they were able to get away with that. Now there is, basically, a claw-back: if people in trouble gifted money away up to 5 years previously, that money can be clawed back. It was really important to fix that loophole.
This bill makes an amendment relating to the official assignee. It extends the period of time that a debtor is participating in the no-asset procedure by a maximum of 25 working days. This measure gives the official assignee a little bit more time to do more work to investigate further areas of concern without affecting the no-asset procedure.
The bill also makes an amendment to extend the period of time that a debtor’s name remains on the bankruptcy public register. This was probably the most contentious issue for the select committee and for the submitters. Previously, people who were participating in the no-asset procedure were on the public register for only 1 year, those who were bankrupt were on the public register for 7 years, and those who were subject to a summary instalment order were on the register for 5 years. It is really important to get the right balance between creditors and debtors. We have to ensure that creditors understand what they are getting into if they are lending money to people with a bad credit-rating. We had an in-depth and heated discussion on that over many sessions and we came up with a compromise. We thought that 5 years would be an adequate period of time to be on the register. It is a significant increase from 1 year, but it is still less than 7 years. People with multiple insolvencies are basically on the register indefinitely. This measure gets the balance right so that creditors who are lending people money can understand what is going on.
The no-asset procedure is relatively new, so we have only quite recent data. From December 2007 to February 2009, 4,000 people were discharged from the no-asset procedure process. That is quite significant. Previously those 4,000 people would most probably have gone through some form of bankruptcy, so the no-asset procedure has been good for them.
Overall, though, unfortunately, insolvency has increased in New Zealand, whereas bankruptcy has decreased. New Zealanders have still not got it quite right in being able to pay back money they have borrowed and in how they manage their finances. The select committee discussed the issue of financial literacy. We talked about having a component of this legislation provide for people who went through the no-asset procedure to be educated on financial literacy. We thought that that maybe took things a little too far. At the moment, we will see how it goes and we can always tweak it later on if we have to.
It has been my pleasure to stand in the third reading and present this speech to the House today. Thank you.
CHARLES CHAUVEL (Labour)
: It is a pleasure to follow my friend Katrina Shanks to take a call on the third reading of the Insolvency Amendment Bill. As we have heard, the bill will address a small number of concerns that have arisen since the enactment of the principal Act. It will also amend the public register provisions so that creditors can make informed lending decisions, by ensuring that a public record of people who have been discharged from the no-asset procedure is available for a period, and by providing permanent public records when a person has had multiple insolvency events.
The House has already heard that Labour has a couple of issues with this bill. The first issue is the proposed length of time that people will be on the public insolvency register. Labour members feel it would be better to deal with this matter separately, not in this bill. There has not been proper consultation on it and we view the proposed change as a knee-jerk reaction. The Commerce Committee, ably chaired by Lianne Dalziel, heard submissions that lengthening the time a no-asset procedure debtor remains on the public register would delete the important distinction between bankruptcy and the no-asset procedure. That procedure was introduced to provide a one-off opportunity for financially distressed people to avoid the stigma of bankruptcy and to rebuild their lives. The Privacy Commissioner’s view, with which we agree, was that a total of 3 years on the public register in the case of the no-asset procedure would be much more consistent with the overall purposes of the procedure. Lengthening the time really does mean that there will not be the same distinction between the no-asset procedure and bankruptcy as there was before.
It is the view of members on this side of the House that there has not been sufficient consultation with key stakeholders, and this was reinforced by the concerns that were expressed by the Office of the Privacy Commissioner. Veda Advantage recently stated: “The numbers of New Zealanders unable to meet their financial obligations continue to run at high levels as the country weathers the recession. In the month of July 2009, 461 New Zealanders applied for either bankruptcy or the no-asset procedure.” I think that shows that there is a need for this type of legislation, but the greater need is to do more to provide assistance for people so that they do not get into this sort of position in the first place. It is incredibly sad that 461 people have needed to apply for either procedure.
The Government’s claims that it is blunting the sharp edges of the recession are not helping. Veda Advantage’s statement shows how tough it is for many New Zealanders right now who are heading towards insolvency because of situations that they have no control over. The problem with the Government’s approach is that there is not any
overall plan to prevent these sorts of insolvencies. That would have been a much more useful focus than rushing this sort of legislation through the House and claiming to be doing something.
Members on this side of the House believe that much more has to be done to prevent insolvency and people applying for bankruptcy and non-asset procedures in the first place. The Government has to concentrate on putting people into jobs, and move on from its line by line reviews of Government departments, which continue to make more people unemployed in the first place, as so ably pointed out, time and time again, by my colleague Grant Robertson. We have seen hundreds of Telecom service technicians and engineers laid off recently, because Telecom has been foolish or craven enough to try to bring in a new contracting arrangement aimed purely at driving down labour costs and skill levels, in an environment where those skills will be vital—very shortly—to roll out broadband across the country. Let us hope those skilled people do not simply decamp to Australia in the interim, and we do not lose that skill set.
Redundancies are rife in this country right now. It is estimated that more than a thousand people are being laid off every week with little or no redundancy pay, leaving them to struggle to pay mortgages and rents, and support their families. This is horrendous when we consider the impact on the lives affected. So in this third reading speech I am very proud to be able to refer to Labour’s associate spokesperson on labour issues, Darien Fenton, and her campaign to boost support for her redundancy protection bill to give workers a fair and decent level of protection in redundancy circumstances. Her campaign is called A Fair Deal in Hard Times. It has the backing of Labour, the Māori Party, the Green Party, unions, and community groups. It aims to drum up additional support in Parliament to get the redundancy protection bill to the select committee. A fair and decent system of redundancy protection is becoming increasingly urgent in this country as more people’s jobs are at risk. The redundancy protection bill is just common decency; it allows these Kiwis a reasonable financial buffer to help them keep their families together while they look for new work opportunities.
In a similar vein, I have a bill in the ballot entitled the Credit Reforms (Responsible Lending) Bill. That bill is designed to provide some real protection to people in distressed situations, not the sort of window dressing and cosmetics that we see in the Insolvency Amendment Bill. My bill would do two things. First, it would allow for the prescription of a maximum interest rate by the Governor of the Reserve Bank. There is no such power in the country at the moment. I know that you, Mr Assistant Speaker Roy, are as astounded as I am by that, but we would be able to see that power put in place, if that legislation was adopted. Second, we would see the requirement that there be responsible lending practices put in place by fringe or pay-day lenders, who, at the moment, charge 8 percent per week, which, when it compounds—for those who do not understand these things—has the effect that people pay between 2,000 and 3,000 percent per annum to, effectively, loan sharks. We must regulate that sector. I have written to the ACT Party and National and asked them to give their support to this measure, which is the expression of a bit of basic, common human decency in a time of economic distress. I do hope there will be positive responses to that plea.
In closing, Labour believes that this bill is generally a good bill. We will support it, but we think it would have been better to review the processes that were put in place around the no-asset procedure to ensure that there are no unintended consequences, rather than the piecemeal amendment to the time on the register that we see in the legislation. That approach is not supported by the Privacy Commissioner. She is reviewing the time that credit agencies can retain this information, and she should be allowed to complete that process.
Labour would like to see this Government focus on the bigger issues that really matter right now: keeping New Zealanders in jobs, preventing redundancies, ensuring good redundancy provisions are in place, ensuring that there is an environment where people are less likely to become insolvent, and ensuring that people are protected from loan sharks when they are financially vulnerable.
MELISSA LEE (National)
: It is a pleasure to rise to speak in the third reading debate of the Insolvency Amendment Bill, and to follow the member who has just resumed his seat, Charles Chauvel. I do not remember seeing him at the Commerce Committee, but it was lovely to hear him talk about the no-asset procedure and how he hoped that it would not create problems in dealing with the loopholes in the Insolvency Act 2006. This bill does exactly that: it closes a loophole that was created in that legislation of 2006.
This bill was introduced earlier in the year by the wonderful 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 procedure, and to provide more protection for creditors and potential creditors. This bill will protect not only people in low-income levels who are vulnerable, but also the people who lend money to potential fraudsters. Earlier speakers have said that we need to protect people on lower incomes, and that is definitely so. We do not want fraudsters to rip off people who are very poor. I am sure all members of the House agree with the objective of upholding the integrity of the personal insolvency processes, and pretty much agree with most of the provisions in the bill. I do not see any of the members from the Opposition who participated in the select committee process here in the House, but in the majority of cases we agreed on most things.
At this juncture I would like to thank the officials, who were wonderful in assisting the committee, and to thank my committee colleagues, who were very, very cordial, indeed—both National and Labour, and other minority parties, as well.
Let me start by going over the no-asset procedure. The procedure was introduced in 2007 as an alternative to bankruptcy, to assist people with no means of paying off debt between $1,000 and $40,000, and with no way of getting themselves out of this conundrum. To enable them to have a fresh start, they could apply to go under the no-asset procedure. It was a great opportunity for someone who was in financial distress and could see no way to get out. The no-asset procedure was to help those people to effectively get a clean slate after 1 year and to rebuild their financial lives. It was a great opportunity for people who were genuinely in difficulty. However, it also created a loophole, as we have already heard in this House, by allowing fraudulent debts incurred by individuals going into the no-asset procedure to be wiped. That was one anomaly that needed to be corrected, and the Insolvency Amendment Bill will fix just that.
The recommendations from the Commerce Committee will contribute to and strengthen this bill. The fact that fraudulent debts become enforceable again after a debtor is discharged from a no-asset procedure 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, they will need to pay back debt after their discharge. Some of the amendments are to prevent fraudulent debts under the no-asset procedure from being cancelled after a person is discharged from it. The current Act does not explicitly exclude fraudulent debts under the no-asset procedure, as it does for bankruptcy. An example of fraudulent debt would be where a social welfare benefit had been obtained on false grounds, such as by providing false details, alternative identity, etc. A reversion to the provisions in the Insolvency Act 1967 about gifts made in the 5 years prior to being declared bankrupt is another amendment. Those provisions put the onus of proving that the
debtor was solvent at the time of the gift on to the recipient rather than the official assignee.
This bill also gives more power to the official assignee to investigate a debtor who applies to go on the procedure, by extending the period of discharge by a maximum of 25 days. Any new information on debts, or information relating to concealed assets, can be brought to the attention of the official assignee right up to the day that the debtor is discharged. That means that, with this new information, the procedure can be terminated. I think that is absolutely fantastic.
Another aspect of the bill is to allow the official assignee the ability to recover gifts made by a bankrupt person to a third party prior to his or her bankruptcy. It is an accepted presumption that a person who is declared bankrupt would have been insolvent for some time before bankruptcy was declared. If one is able to make a gift to a third party, then surely insolvency should be questioned. The gift should be seen in the light of a person’s bankruptcy as a way to hide assets; often he or she will set up trusts, etc., to avoid paying his or her creditors. This bill puts the onus not on the official assignee to prove the solvency of the person who has made the gift, but on the recipient of the gift. How can one make a gift to another when one is insolvent? This bill fixes that problem.
The bill also amends the Insolvency Act in relation to insolvent gifts, by extending the 2-year time frame to 5 years prior to the person becoming bankrupt. So if one becomes bankrupt tomorrow, any gift one has given in the past 5 years can be taken back to pay creditors. That ensures that debtors cannot conceal assets from creditors by gifting them to another person.
In earlier stages of this bill as it went through the House, we heard a lot of opposition to the length of time the bill proposed a debtor’s name should remain on the no-asset procedure’s public register. The time period is not to harm poor or vulnerable people. This bill proposes to protect the people who lend money to fraudulent people. It proposes that fraudulent people stay on the list for 5 years. The names of people with multiple insolvencies—for instance, two or more bankruptcies, or a no-asset procedure and a bankruptcy—will stay on the register from 7 years to indefinitely. This measure is just for people with multiple insolvencies.
The no-asset procedure was introduced to protect innocent people who had difficulty paying off their debts. The increased length of time that people with multiple insolvencies will remain on it is to make sure that people who do fraudulent activities are recognised as being fraudulent. Changes brought about by the Insolvency Amendment Bill will prevent fraudulent debtors from avoiding their legal obligation to repay debts, and remove the potential to reward dishonest people, which should not be happening. I commend this bill to the House.
STUART NASH (Labour)
: I stand to support the Insolvency Amendment Bill. It 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 bankruptcy by restoring the official assignee’s ability to recover gifts made by a person prior to bankruptcy. The bill amends the public register provisions to increase the period for which a person discharged from the no-asset procedure is on the record, and to provide for permanent public records where a person has had multiple insolvency events. This is generally a good bill and Labour supports it, but we think it would be better to review the processes that were put in place around the no-asset procedure to ensure there are no unintended consequences, rather than have piecemeal amendment to the time spent on the register. It was not supported by the Privacy Commissioner who is reviewing the time that credit agencies can retain this information.
The Insolvency Act 2006, which was enacted as a result of a major reform of New Zealand’s personal and corporate insolvency laws, came into effect in December 2007. The Ministry of Economic Development proposed that the Act be amended to maintain the integrity of personal insolvency processes and bankruptcy, and, further, to enable better access to respective public registers regarding a debtor’s previous insolvency. The no-asset procedure provisions of the Act are proposed to be amended to, firstly, prevent the discharge of fraudulent debts under the no-asset procedure; secondly, allow the official assignee to extend the time a person is under the no-asset procedure when late information in relation to a debtor’s entry, including valid objections, is received just prior to a debtor’s expected date of discharge; thirdly, allow a no-asset procedure debtor’s information to be kept on the no-asset procedure public register for 5 years from the date of entry to the no-asset procedure; fourthly, reinstate the no-asset procedure debtor’s details on the no-asset procedure public register permanently, when a debtor subsequently enters a bankruptcy process; and, fifthly, amend the bankruptcy provisions to better protect the interests of creditors by strengthening the ability of the Auditor-General to cancel gifts, and to enable public registers to permanently retain details of individuals who have entered into insolvency processes on two or more occasions.
As mentioned, the bill proposes to lengthen the time that information about a debtor remains on the public insolvency register from 1 year to 5 years in the case of a no-asset procedure—
David Garrett: Really?
STUART NASH: —yes, really; it is true and it is the case—and from 7 years to indefinitely in the case of multiple insolvencies. That is defined as two or more bankruptcies—“three strikes and you’re out”; it is probably why the ACT Party is supporting this bill—or a no-asset procedure and a bankruptcy. The Commerce 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 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 that individuals are publicly listed following a bankruptcy.
Labour feels it would be better to deal with that matter separately, and not in this bill. There has not been proper consultation and it was a knee-jerk reaction to an article in the paper. There is no international consensus on this in overseas jurisdictions. The Labour Party believes that there should have been further consultation on this part of the bill, before proceeding to make what are significant changes to the public register provisions and significant changes to the lives of people who find themselves in financial distress. It was noted that the provisions are not an essential component of this bill, which was essentially designed to deal with fraudulent debts, and, as a result, had a shorter report-back requirement than would normally be expected. It is the Labour members’ view that there has not been sufficient consultation with key stakeholders, which is reinforced by concerns raised by the Office of the Privacy Commissioner. Therefore, Labour would have preferred that the public register provisions be separated from the rest of the bill.
I would like to mention this slightly unusual part of this bill: the retrospective application of fraudulent debt provisions. There is a general principle that statutes and regulations operate prospectively—that is, they do not affect existing situations. That principle is set out in the Interpretation Act 1999, which provides that enactments do not
have a retrospective effect. This bill proposes to apply the proposed new law in relation to the treatment of fraudulent debts under a no-asset procedure retrospectively to all no-asset procedures that remain undischarged on the date the bill was introduced into the House, and to all new no-asset procedures that were entered into after that date. The committee was of the view that very limited retrospective application is justified in this case, as it retains the integrity of the no-asset procedure process by preventing a debtor from being rewarded for a fraudulent act or behaviour and, therefore, does not affect any person’s legitimate interest.
There is something else that I would like to reiterate ever so slightly, and that is the length of time a person is on the public register. As I mentioned, the committee heard that a lengthening of the time the 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. There were some on the committee who accepted advice that it is a matter of balancing the interests of debtors, who seek to move on with their lives, which we understand, and creditors, who require reliable information about a debtor’s history to make informed business decisions. The committee considered that the approach proposed in the bill strikes a reasonable balance between those interests. The diversity of reasons for financial distress means that the length of time the information remains on the public register will inevitably be more appropriate for some debtors than others, no matter what the chosen period is.
I reiterate that Labour believes there should be further consultation on that part of the bill before proceeding to make significant changes to the public register provisions. It was noted that those provisions were not an essential component of this bill. Essentially, the bill was designed to deal with fraudulent debts, and, as a result, had a shorter report-back requirement than would normally be expected. It is Labour members’ view that there has not been sufficient consultation with key stakeholders, which is reinforced by the concerns raised by the Office of the Privacy Commissioner. Labour would thus prefer that the public register provisions be separated from the rest of the bill.
JONATHAN YOUNG (National—New Plymouth)
: Thank you, Mr Nash, for leaving me just a good couple of minutes to speak on the Insolvency Amendment Bill.
This bill is to bring some necessary small but significant amendments to the Insolvency Act 2006 that will increase the integrity of particularly the no-asset procedure in order to prevent people from discharging debts that were acquired fraudulently. The bill covers four areas: fraudulent debts, the discharge period under the no-asset procedure, insolvency gifts, and the personal insolvency public registers.
Let me touch on one aspect in the moments that I have regarding insolvent gifts. When a person or company is in financial difficulty, an unscrupulous person may attempt to remove assets that could otherwise be sold to pay a creditor. A person may gift money, land, a vehicle, or some goods that have a realisable value. A person may sell an asset to a friend or family member for a nominal amount. This bill will stop that from happening. Thank you. I commend this bill to the House.
The ASSISTANT SPEAKER (Eric Roy): The question is that the motion be agreed to. Those of that opinion will say Aye, the contrary No. The Ayes have it.
SUE KEDGLEY (Green)
: I raise a point of order, Mr Speaker. I would like to call for a division—sorry about that.
The ASSISTANT SPEAKER (Eric Roy): All right. It is the end of the week. I am not sure whether I should put leave for that, but I will accept what the member says. The member is now calling for a party vote. The Clerk will conduct a party vote.
A party vote was called for on the question,
That the Insolvency Amendment Bill be now read a third time.
||New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Māori Party 4; Progressive 1; United Future 1.
||Green Party 9.
|Bill read a third time.