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I empathise with creditors who are concerned about cowboys operating and competing in the insolvency field of expertise. These individuals want to make a fast buck and can give the whole profession a bad name. It is time to crack down on the cowboys!
Allowing inexperienced and unskilled or less than reputable insolvency practitioners to operate is not in the interest of the economy as a whole. The current practice leads to unsatisfied and uninformed creditors, lack of confidence in the system and uncertainty.
Creditors are ultimately bearing the costs of the inexperienced cowboy who is failing to meet the standards of care that a reasonable and prudent practitioner would exercise in the circumstances.
Minimum Standards
There is currently no means to distinguish between an honest reputable insolvency practitioner and the cowboy. There are no minimum standards, qualifications, technical skills or quality of work or client care practices specified by any regulating authority. No comprehensive guidance is provided.
The New Zealand government is considering whether there should be some type of licensing system for private sector insolvency practitioners. If such a regime is introduced, a government agency is likely to be appointed as the licensing authority. This reform would align New Zealand with other countries and force out the incompetent cowboys. Such system however is far from being instigated.
The Role of the Insolvency Practitioner
Insolvency Practitioners have a lot of responsibility. The role can include:
• Trading-on a business with a view to selling it as a going concern
• Cashflow projections and designing solutions and strategies for complex problems and situations
• Managing large amounts of complex information, competing priorities and multiple assignments
• Securing and maintaining assets, marketing and achieving an optimal commercial outcome
• Investigations into insolvent trading, voidable transactions or breaches of directors' duties
• Large litigation matters and
• Public examinations
Liquidators have obligations under the Act and under general law. Some of these obligations are express while others are inherent in, or necessarily implied from, express obligations. The cowboy is often unaware of the statutory obligations and duties of the liquidator or receiver. In the last few years the number of persons dabbling in the odd insolvency has increased. Is this responsible?
The risks of appointing a Cowboy
More often than not, the cowboy has no reliable access to resources both human and technological. They have no processes to monitor and supervise staff nor operational procedures or manuals for conducting insolvency assignments.
Cowboys often lack the internal controls to unearth potential fraud. Many cowboys have no policy or reporting procedures to advise of wrongdoing. Many are unaware of the Personal Property Securities Act, priorities of creditors and creditors remedies. Many are not creditor sensitive.
Internal procedures are necessary for recording and handling complaints about the performance of duties and adequate systems are required for managing risks. A cowboy often has no governing body to monitor his/her performance or systems in place. The cowboy takes on the "one-off" assignment with less efficiency, effectiveness or accuracy.
We should also be wary of the creditor friendly liquidator. These liquidators are often appointed by the court and act in the interest of the applicant creditor and to the detriment of other creditors. Often the obvious is overlooked such as voidable transactions and transactions for inadequate consideration.
The Act has minimum specifications for a liquidator. The Companies Act 1993 permits any person aged 18 years and over of sane mind to be an authorized practitioner. It is time for the cowboy to be taken out of the equation. Many of these people have conflicts of interest, fail to meet requirements for reporting, omit statutory requirements for advertising and have no quality controls. Disclosure is generally not highly valued. Many fail to report trading names or former names (changed within the 12 month period). Regular statutory reporting is abandoned.
Creditors can be cautious, embarrassed or suspicious. Creditors deserve to be notified promptly on asset realizations, likely distributions and on the outcome of investigations.
It is time to be wary of the consequences of appointing a cowboy! Those persons appointed should be capable of performing the assignment. Dubious deals, false accounting tricks, bogus stock calculations, fictitious sales, share manipulation, dodgy practices and no reporting can all be results of appointing the cowboy. These tactics can cause nuisance, alarm and distress. Rogue liquidators can make huge sums of money and fail to account to the creditors. The courts step in at times but more often than not the rogues go unnoticed. Many are "as crooked as a snake in a cactus patch!"
Standards for Insolvency Engagements
The qualified practitioner should be more highly considered. Chartered Accountants and Lawyers are bound by principles, technical standards, quality controls, ethical guidelines and disciplinary committees. Such bodies usually require their members to be fit and proper persons with honesty, integrity and reputation.
Chartered Accountants must comply with Service Engagement Standard No 1 (SES-1) and Guideline 9 (GU-9). A member must:
• Ensure that they have adequate training, experience and technical competence to perform an insolvency engagement
• Where a conflict of interest exists or may arise must not accept an appointment
• Consider the size of the insolvency engagement and the member's ability to allocate adequate and appropriate resources to the insolvency engagement including the provision of sufficient trained and experienced staff.
The cowboy is not bound by these bodies nor by these ethical guidelines and principles. There are persons accepting appointments with no experience whatsoever.
Specialist Insolvency Practitioners belong to Insol New Zealand, a special interest group that provides continuing professional development with a specialist training in insolvency related matters. Such training is conducted by experts in the field.
A good practitioner is service oriented and client focused and belongs to a specialist Insolvency firm that has systems, procedures, templates in place and a wealth of experience.
A cowboy does not communicate. This only exacerbates the problem. Focus should be on appointing the capable and re-establishing the communication lines. Lets stop "shooting ourselves in the foot" and let the cowboys "bite the dust".
DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.