With just three months until the Insolvency Practitioners Regulation Act 2019 (IPRA) changes come in, what should you be doing to prepare?

With the IPRA fast approaching, we set out what insolvency practitioners should be doing to prepare for the changes.

Ensure that you are CA ANZ / RITANZ accredited: Accredited insolvency practitioners will be treated as licensed practitioners when the licensing regime comes into force. Practitioners who are not currently CA ANZ / RITANZ accredited practitioners should urgently seek accreditation. Practitioners who are not accredited will be treated as un-licensed practitioners and will be unable to accept new appointments from 17 June 2020. Unlicensed practitioners will have one year from commencement of the licensing regime (i.e. until 16 June 2021) to either complete any existing assignments or retire from assignments in favour of a licensed practitioner. Anyone who accepts an appointment as an insolvency practitioner without a licence will commit an offence punishable by a fine of up to NZD$75,000.

Diarise the 17 October 2020 deadline to apply for a licence: Accredited practitioners will have a temporary licence during the transitional licensing period. Practitioners will need to apply to an accredited body (such as CA ANZ) for a licence by 17 October 2020. Practitioners who fail to apply for a licence by this deadline will no longer be treated as licensed practitioners under the transitional licensing regime. Practitioners who submit their licence application by this deadline will continue to be treated as licensed practitioners under the transitional licensing regime while their application is considered. Accredited bodies will have until June 2021 to determine licence applications.

Update your precedents: Practitioners should update their appointment and insolvency precedents to ensure that they comply with the legislative changes. From 17 June 2020, practitioners accepting liquidation appointments will need to certify, in writing, that they are:

• a licensed insolvency practitioner (or if the liquidation is a solvent liquidation, the person is qualified to accept the appointment – i.e. they are a solicitor or a qualified statutory accountant);
• permitted to act as liquidator under the IPRA; and
• not disqualified from accepting the appointment under s280(2) of the Companies Act 1993 (CA).

Practitioners accepting appointment as administrators or receivers will need to provide similar certifications prior to accepting an appointment. Liquidators will also need to provide an interests statement to creditors for both solvent and insolvent liquidations under ss 255 and 255A of the CA. 

Become familiar with the key legislative changes: Many legislative changes accompany the IPRA, including:

• The duty to report ‘serious problems’: Practitioners will have a new duty to report ‘serious problems’ to the Registrar of Companies or appropriate authorities under s60 of the IPRA. The definition of a serious problem under the legislation is wide. Practitioners will need to be vigilant in reporting any serious problems they discover when undertaking insolvency assignments. The failure to report a serious problem is an offence punishable by a fine of up to NZD$10,000.

• Further restrictions on the appointment of liquidators following service of liquidation proceedings: From 17 June 2020, where a creditor has applied to the High Court to liquidate a company, the company will no longer be able to appoint its own liquidator within 10 working days of service of proceedings, unless the creditor consents to the appointment. Practitioners will need to ensure that this restriction does not apply prior to accepting an appointment or otherwise obtain the creditor’s consent to their appointment.
  
  
• Restrictions on related party voting at creditor meetings: Related party creditor voting must soon be disregarded at creditor meetings, unless the High Court orders otherwise. Practitioners will need to take extra care vetting creditor claim forms ahead of creditors’ meetings to ensure that any related party voting is excluded.
  
  
• Restrictions on the purchase of company assets by insolvency practitioners and their firms: Liquidators, administrators, receivers, their firms, employees, and members of a creditors committee, will be prohibited from purchasing company assets unless the purchase is at ‘arm’s length’ or permission is obtained from the High Court. Anyone who fails to comply with this restriction is liable for a fine of up to NZD$75,000. All partners and employees of firms who undertake insolvency assignments should be advised of this restriction.
  
  
• Enhanced obligations to hold company records: Liquidators will need to keep company records for at least six years following conclusion of a liquidation. The current obligation to keep company records at the end of a liquidation is only for one year. Failure to comply with this obligation is an offence punishable by a fine of up to NZD$10,000.
  
  
• New restrictions on voidable dispositions: Any disposition of company property between the commencement of a liquidation application and appointment of a liquidator will be a voidable disposition, unless the disposition is made:

• in the ordinary course of the company’s business;
• by an administrator or a receiver on the company’s behalf; or
• by a court order.

A creditor will have a defence to recovery of the disposition if it is made in ‘good faith’

• If necessary, change your banking arrangements for holding company money: Liquidators will be required to keep company money in: 

• a general or separate trust account; or
• a bank account to the credit of the company,
  at a New Zealand registered bank.

Insolvency practitioners will no longer be able to use ‘client fund accounts’ or ‘sub-accounts’ held under a firm’s general bank account that is not a trust account to hold company money. The small number of practitioners who hold company funds this way must either set-up a trust account or move the funds to a bank account in the name of the company before the legislation commences.

Please contact us if you would like more information about the upcoming changes.