This blog post was written by James McMillan, a partner at Kensington Swan specialising in insolvency and restructuring.
Each year the construction industry is affected by a large number of insolvencies, ranging from the failure of small ‘one man band’ operations to large contractors and principals. The effects of insolvency can be devastating on parties who miss out on payment or lose equipment or materials. The industry relies on honest and competent insolvency practitioners to ensure that creditors are able to maximise their recovery in a liquidation, receivership or administration. Unfortunately, not all insolvency practitioners meet the standards expected of them. Yesterday, the Government-appointed Insolvency Working Group released its first report which (among other things) recommends the licensing of insolvency practitioners and places restrictions on who shareholders can appoint as liquidators once a company has been served with a liquidation application. As the IWG points out:
Unfortunately too many providers of insolvency services fall well short of the standards of integrity and skill that the New Zealand public is entitled to expect. There are self-interested practitioners who overcharge for their services or carry out unnecessary work in order to obtain larger fees. There are ‘debtor-friendly’ liquidators who fail to comply with their statutory duty to protect the interests of creditors (e.g. by turning a blind eye when directors have taken assets out of a company prior to liquidation at undervalue or even at no value at all). This problem is particularly evident in relation to small and medium-sized companies.
To learn more about the IWG’s report, please click here. For a copy of the report, please click here. The Government has called for feedback on the report and submissions close on 7 October. Kensington Swan will be making a submission on the report. If you would like help to make a submission, or would like more information about the report, please get in touch with James or Nicole Xanthopol, a partner in Kensington Swan’s banking and finance team.