Restructuring and insolvency professionals in New Zealand anticipate some big waves - but they just aren't here yet.

While finance company failures dominated the previous two years, 2009 has not been characterised by any major collapse. Instead, the major news has been listed company rights issues (Nuplex, Fisher & Paykel Appliances, Sky City, Fletcher building) with proceeds being used to reduce bank debt.

Nevertheless, the big waves will come. They will be propelled by:

• Failure of some of the finance company moratoriums;
• Borrower's inability to refinance maturing term debt; and
• Distressed businesses increased demand for working capital as a consequence of adverse trading conditions.

The New Zealand market will also need to deal with a number of important issues:

• Expiry of the Crown retail guaranteed  in October 2010 - the guarantee has been extended to deposits with finance companies as well as banks. Many of these finance companies would have not survived without the benefit of the guarantee. Two Crown guaranteed finance companies have already failed;
• Review and reform of financial regulations and regulatory agencies - Commerce Minister Simon Power has called for a significant review of the Securities Act. A Select Committee Inquiry into the collapse of the finance companies is also likely. Following a critical report by the Registrar of Companies, any inquiry is likely to scrutinize the performance of the corporate trustees;
• Regulation of insolvency practitioners - in contrast to Australia, New Zealand's insolvency practitioners are not regulated. If you cannot get a job as a taxi driver, you can still be an insolvency practitioner. There is a real problem with "cowboy" operators who often prefer the interests of the failed companies' directors. Legislative attempts (section 280 Companies Act) to deal with the issue were poorly drafted, have failed to deal with the issue and require reform. We have seen these "cowboy" liquidators reject the proofs of debt of significant Australian creditors on flimsy grounds. The rejection of these claims has advantaged related party creditors. On investigation it has become readily apparent that the liquidators expected the Australian creditors would conclude that cost and distance outweighed the benefits of challenge. 

From a legal perspective, the economic downturn will see a sustained test of the Companies Act 1993 and the Personal Property Securities Act 1999 (PPSA). New Zealand has enjoyed relatively benign economic conditions since that legislation was introduced. However, commentators are concerned that anomalies between the Companies Act, the PPSA and the Property Law Act 2007 may result in legal uncertainty and high enforcement costs for secured creditors. Many Australian companies exporting to New Zealand are unaware of the PPSA and the need to register a retention of title claim within 10 days of supplying the relevant goods. In fact, it is quite rare that Australian suppliers properly register their security interests and obtain the priority position that they expect on receivership, liquidation or voluntary administration of a New Zealand company.

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