Date posted: 19/06/2019 5 min read

The importance of choosing the right insolvency practitioner

A creditor’s right to replace a liquidator is hugely significant, but it can be a complicated and challenging process.

In Brief

  • After the first liquidation meeting, a liquidator in NZ can only be replaced by getting them to resign or by applying to the court to replace them.
  • Creditors may want a liquidator who is more experienced in a sector or with a particular recovery action.
  • Currently in NZ, there are more than 100 accredited insolvency practitioners and 20 to 30 non-accredited parties appointed as liquidators.

Insolvency and restructuring requires a specialised skillset, but not all liquidators are created equal. Until June this year, there were few barriers to almost anyone acting as a liquidator in New Zealand. And even among qualified insolvency professionals, there are different strengths and areas of expertise.

The outcome is that, in some instances, the right practitioner is not chosen for the job. But changing the liquidator is not always easy.

Choosing an accredited insolvency practitioner is an important first step, but it’s not the only criterion. Some practitioners may have more experience in a particular industry sector or in executing a specific recovery action that makes them a better fit as a company’s administrator.

More often than not, the decision to change liquidators is not a reflection on a practitioner’s skill but due to wanting someone best suited to the specific nature of the case.

However, sometimes there are other reasons. In one recent high-profile liquidation in New Zealand, Ebert Construction Limited and H Construction North Island Limited (formerly Hawkins Construction North Island Limited), a liquidator appointed by shareholders was replaced by a liquidator proposed by creditors.

It’s not that easy to shift a liquidator

Replacing a liquidator can be a complicated and challenging process. Once liquidation has commenced, creditors have a limited window to replace a liquidator. "In addition, a majority of creditors (in number and value voting) need to vote in favour of the replacement liquidator for the replacement to go ahead." 

“Once liquidation has commenced, creditors have a limited window to replace a liquidator.”
Rees Logan CA

After the first liquidation meeting is held or a formal decision is made not to hold a meeting (and no creditor calls for one), a liquidator can only be replaced by either getting them to resign, or by applying to the court to replace the liquidator.

Some common reasons creditors may wish to replace a liquidator include:

  • The perception that the liquidator may be ‘friendly’ to those who appointed him or her and not look at pursuing claims against those parties.
  • When creditors believe another liquidator has more relevant experience in taking a particular recovery action or more exposure to the sector the company being liquidated operated in.
  • When a creditor is willing to fund recovery actions, but may only want to do so with a liquidator they’ve worked with previously.

It’s important for creditors when considering replacing a liquidator to assess the qualifications and experience of the liquidator they are wishing to propose and compare that with the current liquidator.

Much-needed reforms to license liquidators

On 12 June 2019, the New Zealand government passed legislation that means from June 2020 all liquidators must be licensed as accredited insolvency practitioners (AIPs) and meet basic standards of honesty and competence.

The Registrar of Companies will grant accreditation to individuals or organisations (such as CA ANZ) to issue and administer licences and conduct disciplinary proceedings.

Before the passage of this Insolvency Practitioners Regulation Bill, there were minimal barriers to acting as a liquidator. If you were 18, not an undischarged bankrupt and not subject to a mental health order, then in most situations you would be eligible to be appointed as a liquidator.

These previous exclusions were obviously inadequate, so in 2016 the Restructuring, Insolvency and Turnaround Association of New Zealand (RITANZ) and CA ANZ established a self-accreditation regime.

To become an accredited insolvency practitioner under this criteria, a practitioner had to have the necessary qualifications, skills and experience and also pass the CA ANZ “fit and proper person” test.

With the new legislation, professionals previously accredited under the CA ANZ/RITANZ regime will be deemed to be licensed insolvency practitioners for the first year of the new scheme (June 2020–June 2021). The new licensing system will come into full force from June 2021.

How non-accredited liquidators cost creditors money

Currently in New Zealand, there are more than 100 accredited insolvency practitioners and another estimated 20 to 30 non-accredited parties who are appointed as liquidators of insolvent companies. So why is this important to know?

If you believe a non-accredited liquidator is not complying with the relevant standards, and you cannot get a satisfactory response from them, your only option is to apply to the court to enforce the liquidator to comply. This is invariably a costly process and is only an option if a creditor is willing to fund an action against the liquidator.

In contrast, accredited insolvency practitioners are subject to a code of ethics, rules and standards, ongoing competency requirements, reviews and a disciplinary process. Adversely affected parties can lodge a complaint with CA ANZ that will go through a robust grievance management process and, if required, a disciplinary process that will avoid the cost, time and necessity of taking court action.

All of this just goes to show the ability for a creditor to exercise their right to replace a liquidator is hugely significant. It’s equally important who the liquidator is, what experience they’ve had and what standards they will be held accountable to. Now, perhaps more than ever, our industry – and the wider business community which it impacts – deserves this.

Read more:

Turning ideas of insolvency around

How insolvency professionals add value

Access CA ANZ member resources about insolvency and restructuring

Find out more