Different countries have different legislative systems set in place to deal with people who are suffering from financial hardship and are unable to pay back their debt. This week’s blog is examining the difference between the New Zealand bankruptcy system and the Australian bankruptcy system.
The New Zealand Situation:
At the most basic look of things, it would appear the New Zealand’s Bankruptcy law would closely mirror our own here in Australia. New Zealand has strong protections in place to ensure the rights of the individual are protected in the case of financial hardship. However, when you look closely you notice there are some really key differences in the New Zealand bankruptcy legislation.
Under New Zealand law they have something called a Personal Compromise, or Deed of Composition, governed by Part 5 of the NZ Insolvency Act 2006, which is pretty much the same as what we would call Informal Arrangement here in Australia. However under New Zealand law, a Deed of Composition allows you to negotiate an arrangement with your creditors, which may allow you to reduce the amount of money you owe, alter your payments, and allow you to possibly keep any businesses. The Court must be notified & should approve of the Composition. This is somewhat similar to an Informal Arrangement here in Australia.
Formal Debt Agreements:
Another option available for New Zealanders if they are unable to pay off their debts is something call a Proposal. A proposal is a formal agreement that needs to be approved by a Court, something very different to the Australian system.
As part of a Proposal, you will need to prove your financial situation to your creditors. This involves a statement and/or affidavit showing your debts, assets, and obligations, as well as how you became insolvent, and also how the proposal will turn your situation around and benefit your creditors. You’ll need to gain the approval of 50% of your creditors in number and 75% in monetary value. The proposal is put before the Court, where the creditors have a chance to speak and it is decided whether the proposal is legal and of benefit to the creditors.
The next option available in New Zealand is something called a Summary Instalment Order (SIO), and this option is the closest option New Zealand has to a Part 9 Debt Agreement. You can enter into a SIO if you have less than $40,000 in debt. An SIO order protects your belongings from repossession and saves you from having to go bankrupt or go through a No Asset Procedure (NAP). SIO’s provide debtors in financial hardship with the option to repay all, or some, of their debts in instalments over a three, or five year period. Taking out an SIO means your credit rating could be affected for up to seven years.
Other bankruptcy alternatives:
Unlike the Australian bankruptcy system, New Zealand has a raft of extra options available for people who find themselves in financial difficulty for the first time in their lives. A No Asset Procedure (NAP) is an alternative to bankruptcy for those who have more than $1,000, but less than $40,000 in debt. In addition to this you must not have been bankrupt or have had a NAP previously, you cannot have any assets. It lasts one year, and is an official declaration to those you owe money to that you have no means to repay them and no assets to sell to pay off these debts. Again, this is very similar to an Australian Part 9 Debt Agreement, however with much more stringent guidelines.
Perhaps one of the most interesting section of the New Zealand Bankruptcy laws is that you are able to either declare, or be declared bankrupt, if you owe at least $1,000 to your creditors. In the Australian case you must owe at least $5,000 to your creditors. Does this mean New Zealand would have a higher bankruptcy rate then Australia?
It’s evident despite being neighbours, Australia and New Zealand have some key differences when it comes to personal insolvency, and bankruptcy. I don’t believe it is a case of one system being better than the other, although on face value it seems that although New Zealand have more insolvency options, it makes their system more confusing for the average person on the street.
What do you think, is the New Zealand insolvency system better then Australia’s?
This blog is part two of a series comparing different bankruptcy systems around the world. To read part one, Debt is a crime – the UAE situation click here.
Rasad Merchant CPA
Strategy and Business Development Manager & Secretary of the Personal Insolvency Professionals Association (PIPA)
Rasad brings over 8 years’ experience working in the insolvency sector to Debt Cutter, where he is dedicated to achieving peak business performance. With a background as both a trusted business advisor, and as a business owner, Rasad uses his foresight to strategically manage business growth and opportunities.