Insolvency laws may change

Proposed changes to insolvency laws are now in review.
Image courtesy of Rob Brewer


How will this impact businesses and consumers?


Insolvency laws in New Zealand have remained largely unchanged since the 1950s; however, we’re on the brink of seeing amendments to these laws.


As you know, insolvency law reform has been a topic in the news since the failure of big retailers like Dick Smith electronics, who finally closed the doors to all its New Zealand retail locations in May.


In response, the Ministry of Business Innovation and Employment put together an insolvency working group that has proposed changes to the rules relating to voidable transactions, preferential creditors, and other areas of law. These changes will effectively amend the Companies Act of 1993 in an effort to refine existing laws.


Key changes impacting businesses and its creditors are as follows:


Changes for voidable transactions:


A voidable transaction is a payment by the insolvent company within a period which enables one creditor to receive more than it would have received through the liquidation.


The working group has proposed three significant changes to the current law:


    1. To decrease the period in which transactions are potentially voidable from two years to six months from the liquidation date.

    3. To make it more difficult for creditors to defend a claim on the basis they didn’t know a company was insolvent.

    5. To limit the time frame in which a liquidator can bring any claim to 3 years from the commencement of the liquidation.

Changes to the preferential creditor regime:


    1. With several recent high-profile retail insolvency cases, the working group has proposed creating a preference for gift cards and voucher holders. For consumers, this could be a huge win as businesses will have to hold funds in trust to refund gift card and voucher holders in the event of liquidation.

    3. Next on the list is to reduce the Inland Revenue preference to taxes unpaid in the six months leading up to liquidation.For example, if a company was placed into liquidation on 1 July 2017, any tax due and payable to the commissioner after 1 January 2017 would be preferential, any tax due and payable before this date would be unsecured.

    5. The working group has recommended that parliament confirm whether employee Long Service Leave is intended to be a preferential claim. At present, there are differing views amongst practitioners and lawyers alike. This change should create more clarity in this matter.

A public consultation period, which ended on June 23, was requested to ensure the proposed changes to voidable transactions better balance the interests of individual creditors and all creditors.


If you have further questions about the proposed changes to insolvency law, please contact Simon Dalton at