A good idea and not before time

Kris Faafoi is talking out loud about the need for better regulation around liquidators. I think this is a good idea and not before time.

The dust is being brushed off a bill to test the character of insolvency practitioners, particularly those with a criminal record.

Commerce and Consumer Affairs Minister Kris Faafoi has picked up the Insolvency Practitioners Bill, first introduced in 2010, to tighten entry into the industry and give more confidence to creditors often owed thousands when a business fails.

An updated version of the Bill will be introduced to Parliament later this year.

It will include a fit-and-proper person test, a licensing regime and a complaints process where investigations of insolvency practitioners’ wrongdoing could lead to disciplinary action, Faafoi​ said.

Wrongdoings could include conflicts of interest, not reporting director misconduct or favouring a single creditor.

Faafoi said no decisions had been made on disqualification criteria yet, so it was not sure if practitioners with a conviction would be barred from the industry.

Although, convicted fraudsters turned liquidators were the reason fit-and-proper person tests were needed in insolvency law, he said.

Oh, the stories I can tell you about dodgy liquidations, phoenix liquidations and outright dodgy behaviour that never seems to benefit creditors but does benefit the liquidators themselves.

You wouldn’t believe the assets that somehow end up in the liquidator’s name with new businesses… essentially sold to themselves for a peppercorn price with barely a finger-width of distance and certainly not at arms length.

Speaking of which:

Liquidator with a fraud conviction Damien Grant disagreed. He said he had been doing his job with integrity for 11 years, and the market was free to decide whether or not a fraudster was fit to carry out liquidations.

“Because of my dodgy past, people can point at me and say … I can’t be trusted. I’m not proud of it, but I don’t hide it.”

Grant takes on between 50 and 80 insolvency cases each year.

He entered the industry with no experience, but now the High Court regularly appointed him as a liquidator, he said.

That’s because there is a roster and certainly not because of any credibility. Good on Damien Grant for owning his own shit. That is admirable at one level, however, a peak under the covers of some liquidations would be revealing, especially the example he’s raised in the Fairfax article.

One of his current liquidation cases is winding up the trading company of a twice-failed former Nosh store, TGM Trading.

As Nosh Group’s receiver, Grant sold the Mount Eden Nosh store in Auckland last year.

After the new buyer failed to make contractual payments and 30 suppliers had not been paid, Grant called in a new receiver, John Gilbert, to sell it in February. Gilbert also has a past conviction for fraud.

When that full story gets told everyone will go “Ahhh…,” and then wonder why it was even allowed to get as far as it did.

In a submission to the Insolvency Law Working Group last year, Grant said he and his firm Waterstone Insolvency were in its firing line.

He said last week that he was not too concerned by the bill’s reincarnation. He said he would only lobby against it if the updated version included a statutory bar to disqualify anyone with a conviction from the industry.

“That would be quite onerous.”

Well, boo hoo. You have to be a fit and proper person to have a firearms licence, but more people get their lives ruined by liquidators than from firearms.

The Review of Corporate Insolvency Law’s first report said it was too easy to become an insolvency practitioner.

To do the job a person must be over 18 years old, have no mental health issues and not be an undischarged bankrupt.

Their duties are outlined in the Companies Act, the Insolvency Act and the Receiverships Act, but there is no regulatory body acting as watchdog.​

The report recommended the Government introduce a co-regulation model where a government entity would oversee professional bodies that licensed insolvency practitioners and monitored their work.

However, the cost to become licensed could push up practitioners’ charges.

That could mean less money would be given back to creditors.

Most of the liquidations I have been investigating, the creditors get precisely nothing and the liquidators bank a sizeable fee. I know of one in particular, which I exposed and wrote about, that cost the liquidator his job at a major firm and eventuated in an IRD raid of the firm to obtain evidence. The liquidators knew of funds that were available and didn’t recover them. Furthermore, they wrote reports ignoring those funds and paid themselves a hefty fee and closed the liquidation. It was a shonky, dodgy liquidation. That liquidator is now in his own business and still carrying on with similar liquidations.

For that reason, Grant said, regulation was not in the best interests of creditors. But receiving an official licence would prove he could be trusted, despite his conviction.

“It would be great for my business. But, philosophically, I’m against it.”

I’m not sure Grant acts in the interest of creditors in some situations… and one is the example he brought up in this article.

Faafoi said his main concern was that creditors had little power to stand up against inept liquidators, especially creditors owed smaller amounts of money.

He said there had been some feedback to officials that some liquidators were either not carrying out their duty of care to all creditors evenly, or that there might be bias in the way they worked for their own benefit, or for a particular creditor.

“There is certainly a group of practitioners out there that are falling well short of the mark … who are not necessarily working in the best interests of creditors and shareholders.”

It isn’t inept liquidators… they aren’t acting with malice or preferring some creditors over others or setting a friendly asset trade in the background. Those liquidators are a real menace and it is bordering on corruption in many instances.

Grant said creditors needed more power to fire a liquidator.

He said there was less than six dishonest insolvency practitioners around and the main problem with them was that they refused to call creditors meetings when creditors wanted to confront the liquidator. He would not name them.

I think it is a few more than six… and I can name them.

He would rather have a government agency have power to “red card” dishonest practitioners than “building a massive wall” at its entrance, he said.

“[Regulation is] a very extensive regime to deal with a very small issue.”

It isn’t a small issue. It involves millions upon millions of dollars and very often it is the IRD that is the biggest creditor. They and, vicariously, the taxpayer end up with a substantial haircut while the failed business owner carries on with still more businesses and works closely with the very same liquidator who is supposed to be protecting creditors.

I think these proposals have some merit. Good on Kris Faafoi for pushing it.



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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story.  And when he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet.   Cam Slater doesn’t do quiet, and as a result he is a polarising, controversial but highly effective journalist that takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him.  But you can’t ignore him.