Amendments to the Insolvency Act 2006 and how they will affect you

11 December 2019

In December last year, a commission from the Economic Development, Science and Innovation Committee of the Ministry of Business, Innovation and Employment, led by Hon Phil Twyford, submitted the Regulatory Systems (Economic Development) Amendment Bill (No 2) to parliament.

This bill included substantial act amendments from Companies, Continental Shelf, Fair Trading, Credit Contracts and Consumer Finance among others.

On Wednesday 13th of November 2019, the bill was given Royal Assent, and for the Insolvency and Trustee Service (ITS), these amendments represent the formal ratification of processes already established by the Official Assignee.

The amendments come into effect on Monday 13th of January 2020 and, even though many changes to the Insolvency Act 2006 have to do with general wording and section numbers; there are other amendments that will affect debtors, creditors, budgeting professionals, insolvency lawyers, accountants and the general public. These are:

Bankruptcy

Section 54 adds a new subsection (2) into section 67 of the Act as follows:

(2) The Assignee may reject a statement of affairs that in the Assignee’s opinion is incorrect or incomplete.

Previously section 45 of the Act, which deals with Statements of Affairs (SOA) filed with a debtor’s application, already had provision for the assignee to reject SOA’s in these circumstances. However, that same provision was not present in section 67 which deals with Bankruptcies where the debtor was adjudicated on the application of a creditor. The provision is now included for both.

Section 55 amends Section 149 of the Act to clarify that a bankrupt who works for a relative or in a relative’s business must still obtain the Assignee’s consent even if they are working without reward.

This clarifies an anomaly that was raised in court a couple of years ago and removes any associated doubt.

Sections 56 rewrites sections 158, 159 and 161 – These 3 sections will be replaced by a single section detailing the assets which may be retained “as the bankrupt’s own property”. The important changes are:

There is no maximum value to the necessary tools of trade, furniture, personal effects and clothing which may be retained.
The maximum value for a motor vehicle will increase to $6,500.

Section 60 amends Section 164 – The maximum amount of money that a bankrupt is allowed to retain will increase to $1,300.

Section 61 amends Section 165 – In addition to the existing powers under this section, the Official Assignee will also be able to require that the bankrupt and other relevant parties:

Provide the Assignee with any information that the Assignee requests about the bankrupt’s property, conduct, or dealings.
Assist the Assignee, to the best of their ability, to carry out the Assignee’s functions and duties under the Act in respect of the bankrupt.

Section 63 removes the requirement in Section 178 of the Act to read over the record of examination to the bankrupt as a mandatory requirement and adds a subsection that enables the court to direct the reading of the record if the bankrupt requests it. Note, the record of the examination must continue to be signed by the bankrupt.

Section 64 adds the extended period between a creditor notifying a debtor of the bankruptcy proceedings and the adjudication date to the 5 year period that is applicable to ‘Insolvent Gifts’. Previously this provision only related to ‘Insolvent Transactions’, ‘Insolvent Charges’ and ‘Insolvent Gifts’ within 2 years.

Section 67 inserts a new section (s 290A) into the Insolvency Act 2006 that enables bankrupts who die before filling a Statement of Affairs to be discharged 3 years after their death. Previously there was no provision in the act to discharge a person who had died and so theoretically they would remain bankrupt for eternity.

Debt Repayment Orders

Section 50 amends Section 3 - A major change is that the alternative to bankruptcy that was known as a “Summary Instalment Order” will be called “Debt Repayment Order”. This better describes the object of the procedure, which is for a debtor to repay his or her debts “in full or to the extent that the Assignee considers practicable in the circumstances of the case”. The procedure’s name will be changed wherever it occurs.

Section 50 also adds a new definition for “Excluded Debt” as follows;

Any amounts payable under a maintenance order under the Family Proceedings Act 1980.
Any amounts payable under the Child Support Act 1991.
Any student loan balance.

Section 65 adds a further clause to Section 282 of the Act bringing in undistributed money from DRO distributions under s 358 of the Act. Previously the Assignee has been including money not able to be distributed under a DRO into the ‘Undistributed Funds’ account, but it transpired that the legislative authority for that was missing. In fact, it transpired that previously there have been no provisions within the Act for dealing with such monies from a DRO. This has now been corrected.

Section 66 is consequential to section 65 above by incorporating the use of DRO funds

Section 73 replaces section 343 of the Insolvency Act 2006 by picking up the Debt Repayment Order name change and increasing the total unsecured debt level, apart from “excluded debt” to $50,000.

Section 86 not only changes the references to Debt Repayment Order; it also brings in the process for dealing with money that is not able to be distributed and adds new sections ( 358A, 358B and 358C) which separates out the discharge provisions.

The new sections 358, 358A, 358B and 358C read as follows:

358 Distribution of money paid by debtor

(1) The supervisor must distribute the money paid by the debtor under the debt repayment order in the following order:

(a) first, payment of the costs of administration (including the supervisor’s remuneration) in accordance with the prescribed scale:

(b) secondly, the Assignee’s costs and fees:

(d) fourthly, payment of any surplus to the debtor.

(2) For the treatment of money that is not able to be distributed, see sections 282 to 289.

358A Discharge of debtor after distribution made

The debtor is discharged from the unsecured debts to which the debt repayment order relates if the supervisor pays in full, from the money received under the order, the amounts in section 358(1)(a) to (d).

358B Effect of discharge

(1) On discharge under section 358A, the unsecured debts to which the debtor’s debt repayment order relates are cancelled, and the debtor is not liable to pay any part of the debts, including any penalties and interest that may have accrued.

(2) However, subsection (1) does not apply to—

(a) any debt or liability incurred by fraud or fraudulent breach of trust to which the debtor was a party:

(b) any debt or liability for which the debtor has obtained forbearance through fraud to which the debtor was a party.

(3) The debts and liabilities referred to in subsection (2) become again enforceable on discharge under section 358A, and the debtor is liable to pay any penalties and interest that may have accrued.

358C Discharge does not release partners and others

A discharge under section 358A does not release any person who, at the date of discharge, was—

(a) a business partner of the discharged debtor; or

(b) a co-trustee with the discharged debtor; or

(d) a guarantor or in the nature of a guarantor of the discharged debtor.

These discharge provisions clarify that debts incurred by fraud are not cancelled and can become enforceable again, as well as clarifying that other parties to a debt are not released from those debts. Both of these provisions were previously missing from the Insolvency Act 2006 despite the Assignee acting as though they were present.

Section 94 amends section 449 of the Insolvency Act by renaming the debt repayment order as well as adding two new sub-clauses and replacing the postal address of the supervisor with their electronic address. The new sub-clauses add other names (alias or trading) and the date of a debt repayment order to the information displayed on the public register. Both of these details have been displayed in the registers for some time, but it was identified that the Act did not previously specify the inclusion of the information.

No Asset Procedure

Section 89 amends Section 363 – The maximum total debt for admission to the procedure will increase from $47,000 to $50,000 and, the following debts will be excluded from the procedure:

Any amounts payable under a maintenance order under the Family Proceedings Act 1980.
Any amounts payable under the Child Support Act 1991.
Any student loan balance.

Section 89 also adds a further sub-clause (f) that precludes the Assignee from admitting a person to the No Asset Procedure if any creditor would have a better outcome if the debtor were adjudicated bankrupt. Previously a debtor was disqualified from entry to a No Asset Procedure only where a creditor intended to apply for their adjudication and would achieve a better outcome. The new sub-clause (f) removes the need to have a creditor’s involvement.

Section 90 amends Section 377E - On the application of the Official Assignee or a creditor; the court may reverse the cancellation of a debtor’s debts under the NAP at any time before 2 years following the cancellation

Section 91 adds three new sections – When dealing with situations where is it identified through new information, that a debtor, who was discharged from the NAP within the past 2 years, would have had their No Asset Procedure terminated if it had been current. The Assignee or a creditor can apply to the court to have the previously cancelled debts reversed and become enforceable again. This is a completely new provision in the Act that has not been previously present in any form.

The Court may reverse cancellation of a debtor’s assets if;

The debtor has been given notice of the application for cancellation.
The court is satisfied that the facts were not known to the OA before the debtor was discharged from the NAP.
Had the Assignee known the facts, they would have terminated the debtor’s participation in the No Asset Procedure.

The effect of reversal of cancellation is that the debts become again enforceable, and the debtor is liable to pay any penalties and interest that may have accrued.