Government improving protections for consumers and workers when businesses fail

5 November 2019

On Monday 4 of November 2019, Minister Kris Faafoi released a statement announcing changes that will favourably affect consumers and workers of failed businesses.

Changes to insolvency law announced by the Government on 4 November 2019 will include requirements to honour up to 50 per cent of the value of gift cards or vouchers held by consumers.

“When a business is insolvent, these consumers are often left out of pocket. We are changing the law to require businesses that go into receivership, administration or liquidation but continue to trade, to honour at least 50 percent of the value of the gift card or voucher.” Minister Faafoi says.

The Government is also improving protections for other creditors, including employees.

“We’re extending the scope of the entitlements for employees of failed companies, so that both payments in lieu of notice and long service leave will be protected in the same way as wages.”

Another change involves making insolvency law fairer for businesses that provide goods and services to failed companies in good faith.

“Right now, the law allows liquidators to reverse transactions made by a company up to two years before they are put into liquidation.”

Kris Faafoi says this is too long a period for any creditor to be uncertain about whether an amount they received in good faith will have to be recovered, sometimes putting their own financial situation at risk.

“We’re going to improve commercial confidence by reducing the ‘claw-back’ period to six months. However, I’ve also concluded that two years is not long enough for creditors who have a close connection with a director of the failed company. So we’ll be increasing the claw-back period from two years to four years for ‘related party’ creditors.”

Most of these changes were recommended by the Insolvency Working Group in a report published in 2017, and will be included in a future Insolvency Law Reform Bill.

“I want to express my appreciation to the Insolvency Working Group for their recommendations. This important work provided the foundation for the reforms I’m announcing” Kris Faafoi said.