Chapman Tripp senior associate Janko Marcetic said typically insolvency processes do not distinguish between the size and complexity of the debtor. Photo: 123RF
An insolvency lawyer says Australia's simplified insolvency model for small- and medium-sized businesses should be considered for New Zealand.
Australia's new small business insolvency model came into force in early 2021, and has a specific small and medium enterprise (SME) restructuring process to help firms which run into temporary issues.
The debt restructuring process has been changed to allow directors to keep control of a firm during a restructure, rather than having an insolvency professional in charge.
The liquidation process has also been simplified and made to be lower in cost.
Chapman Tripp senior associate Janko Marcetic said typically insolvency processes do not distinguish between the size and complexity of the debtor.
He said the low cost was not the only advantage of the new Australian model.
"What we find quite often happens is that directors are wary of letting someone else take control of the company," he said.
"They're wary of the cost that might involve and they tend to think that they'd rather try and trade out themselves and what that can sometimes lead to, is you end up worsening the situation overall for all stakeholders."
Marcetic said there was no reason to think why Australia's new model would not work in New Zealand, as both countries already had many similarities around insolvency.
"Where the rubber is going to meet the road I think is on the question of cost. What we've seen from Australia so far is that uptake in the SME debt restructuring process has been reasonably low."
Part of the reason was insolvencies were lower than expected in both Australia and New Zealand, he said.
Marcetic said some reports have also suggested that even with the "debtor in possession approach" - where directors continued to control the company, the costs were too high.