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Financial Professional Services Trading Advice Transparency Bill

Home Insights Financial Professional Services Trading Advice Transparency Bill

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Contributed by: Matt Kersey, Polly Pope and Alex MacDuff

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Published on: December 13, 2021


The Financial Professional Services Trading Advice Transparency Bill (the Bill) was drawn from the ballot on 21 October 2021. The Bill would prohibit a professional adviser who recommends the commencement of a liquidation, administration or receivership of a company from subsequently being appointed as the liquidator, administrator or receiver of that company. This prohibition would extend to the adviser's firm. 
The Bill is a private member's bill introduced by Barbara Kuriger, Member of Parliament for Taranaki-King Country, member of the Primary Production Select Committee and National Party spokesperson for Agriculture, Energy and Resources and Food Safety. 

The Bill

The prohibition would be implemented by amending relevant provisions of the Companies Act 1993 (CA) and Receiverships Act 1993 (RA) that set out the respective qualifications for appointment as a liquidator, administrator or receiver, namely:

  • section 239F of the CA (who may be appointed administrator);

  • section 280 of the CA (qualifications of liquidators); and

  • section 5 of the RA (qualifications of receivers).

The Bill disqualifies a "professional adviser"[1] or person "employed or otherwise engaged by" a professional adviser from appointment in circumstances where the professional adviser "recommended" the administration, liquidation or receivership of the company. 
The explanatory note to the Bill states that "[a]n inherent conflict of interest exists in a case whereby provision of the initial advice for which the professional services firm is appointed could result in subsequent fee-earning business in respect of the entity in question, depending on the particular advice given. This bill removes that conflict."

Implications of the Bill

If passed, the Bill would have significant implications for the restructuring and insolvency industry, professional services firms and their clients. The Bill follows very significant regulatory change in this area in the form of the Insolvency Practitioners Regulation Act 2019, which introduced licensing to the restructuring and insolvency industry and other associated amendments intended to (among other things) enhance professional standards 
The potential impact of the Bill would be most evident in the case of investigating accountant appointments, secured creditors seeking advice on the appointment of a receiver to a debtor and in the case of voluntary solvent liquidations. The Restructuring, Insolvency and Turnaround Institute of New Zealand (RITANZ) has already identified the potential impact on investigating accountant appointments as an area of particular concern to the industry, noting that the right to appoint a receiver is largely contractual, with the secured creditor having the right to decide when and who to appoint. 
The Bill appears concerned with the perceived lack of impartiality of advice recommending the commencement of an insolvency process, rather than addressing any risks with the remuneration claimed in the insolvency process (hence the concern about an "inherent" conflict of interest). It is not clear at this stage whether the Bill has been prompted by any particular instances where advice might have been considered inappropriate or unethical, or whether this is primarily an issue of perception.  Insolvency practitioners are already subject to codes of ethical standards that address professional behaviour and conflicts of interest: they might point to many other professions where advice is provided that leads to the prospect of remuneration for further work which is the subject of the advice. There are also protections in relation to quantum of remuneration claimed.
Creditors and other stakeholders might be concerned about the impact of the Bill on outcomes, efficiencies and duplicated costs if the insolvency practitioners who are potentially to be appointed cannot be involved in the assessment of options for the companies concerned, and the impact on urgent assessments and appointments.
The Bill is awaiting its first reading after which it will presumably proceed to the select committee phase. It will be interesting to track the reception from the Government and whether it will support an opposition bill.

[1] Defined in clauses 4(4), 5(5) and 7(4) as a person whose employment or business activities includes providing advice on the financial management of companies (in the case of liquidation and administration) or incorporated or unincorporated bodies (in the case of receivership). 

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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