CONSULTATION DOCUMENT. Insolvency Practitioner Regulation

CONSULTATION DOCUMENT Insolvency Practitioner Regulation June 2013 1

Contents Purpose of this consultation document... 3 Introduction - NZICA and INSOL... 4 NZICA... 4 INSOL New Zealand... 4 Insolvency Practitioners Bill... 4 Scope of proposals... 6 Current definition of insolvency engagement... 6 Proposals would apply to a regulated insolvency engagement... 7 Application to individuals and not firms... 7 Application to non-member partners... 8 One New Institute proposal... 8 INSOL and constitutional change... 8 INSOL... 8 Constitutional change and memorandum of understanding... 9 NZICA members - licence requirements... 9 Certificate of Public Practice... 9 Competence... 10 Practical experience requirements... 10 Otherwise competent... 11 Proposed insolvency qualification... 11 Fit and proper person... 12 Practice review results... 13 Professional development and training... 13 Insurance arrangements... 14 INSOL membership and licence requirements... 14 Transitional rules... 16 Licence application process... 16 Make a submission... 16 Questions... 17 Appendix 1 Draft INSOL and NZICA Memorandum (contents outline)... 18 2

Purpose of this consultation document Government has sought to address regulatory issues in the insolvency industry through the introduction of the Insolvency Practitioners Bill. Both the New Zealand Institute of Chartered Accountants (NZICA) and INSOL New Zealand (INSOL) consider that the Bill as drafted will not significantly enhance the regulatory framework for insolvency practitioners in New Zealand. Indeed, it will provide persons who may be inexperienced and unqualified the opportunity to profile themselves to the public as a Registered Insolvency Practitioner. NZICA and INSOL have been discussing self-regulatory initiatives to distinguish the quality of services provided by their members, increase public confidence in the work of members accepting insolvency engagements and assist in aligning New Zealand s regulatory framework more closely with equivalent overseas models. This document sets out a joint proposal by NZICA and INSOL designed to achieve those aims and seeks feedback from members in relation to the proposals. Should you want to make a submission it should be made by 31 July 2013. You can send your written feedback to Craig Neil at: insolvencyregulation@nzica.com or to the following members of the INSOL committee: Brendon Gibson; David Perry; Shaun Adams; Greg Sherriff; Michael Robinson; whose details are available on the INSOL website: www.insol.org.nz 3

Introduction - NZICA and INSOL NZICA Insolvency is core business for NZICA members and is included in the definition of accounting services in NZICA s Rules. This means that NZICA members wishing to provide insolvency services to the public must hold a Certificate of Public Practice issued by NZICA, or alternatively be admitted by NZICA as a non-member partner. Around 70% of all insolvency practitioners appointed in New Zealand are NZICA members or nonmember partners. They are often involved in high value and high profile insolvency work. Although it is difficult to be precise about the average number of insolvency appointments per member NZICA estimates that at least 100 NZICA members or non-member partners would be taking insolvency appointments regularly, with around 50 of those effectively specialising in the insolvency field. Accordingly, NZICA and its members have a significant interest in ensuring that the insolvency sector has an appropriate and effective regulatory model and that the work performed by its members continues to be of a high quality. INSOL New Zealand INSOL International is a global association of professionals including accountants, lawyers, regulators, judges and academics who specialise in business turnaround and insolvency. The New Zealand member association, INSOL New Zealand (INSOL), operates as an affiliate group to NZICA s Insolvency Special Interest Group. INSOL currently has 325 members comprising those with an interest in the insolvency field including: NZICA members; Members of the New Zealand Law Society who represent clients on insolvency related matters; Academics teaching subjects relating to insolvency; Members of the New Zealand Credit and Finance Institute; Members of the banking profession; Professionals working for the Ministry of Business, Innovation and Employment (in particular the New Zealand Insolvency and Trustee Service) and the Ministry of Justice; Representatives of the Inland Revenue Department; and Agents and valuers specialising in the insolvency market. Like NZICA, INSOL is committed to ensuring that insolvency work performed in New Zealand is of a high standard and that an effective insolvency regulatory model exists. Insolvency Practitioners Bill The insolvency laws provide a simple system to deal with financial failure which ensures that creditors participate in the distribution of the assets of an insolvent entity in accordance with their security and priority entitlements under the Companies Act 1993 and/or Personal Property and Securities Act 1999, etc. Insolvency practitioners (liquidators, administrators and receivers) are integral to New Zealand s insolvency system as they carry out a skilled task, and in doing so, protect and promote the integrity of the corporate insolvency system. In carrying out their functions, an insolvency practitioner is a fiduciary, and often holds assets and monies for the benefit of the Crown, the company, its creditors and its shareholders, and accordingly there is a high burden of responsibility and level of skill required to maintain the integrity of the insolvency system, and profession. 4

As such, both NZICA and INSOL wish to ensure that insolvency practitioners who are NZICA or INSOL members have the appropriate qualifications and/or experience and continuously meet appropriate ethical and professional standards. In April 2010 the Government introduced the Insolvency Practitioners Bill which, following its passage through the Select Committee process, establishes the following regulatory regime: A public register for insolvency practitioners; A requirement that all insolvency practitioners be registered; and The ability to remove people from the register and disqualify them from taking insolvency appointments in certain circumstances. Notably, the Bill does not require an insolvency practitioner to have any particular qualifications or experience, nor is there any monitoring or inspection regime. Provided the person is over 18 and not otherwise disqualified, they can accept an insolvency appointment. Both NZICA and INSOL have lobbied strongly to have the Bill strengthened, without significant success and consider that the Bill does not adequately regulate insolvency practitioners. In particular, it does not provide any assurance that an insolvency practitioner is competent to practice or necessarily a fit and proper person. The Bill s proposals would move New Zealand no closer to the systems of insolvency regulation common overseas in the developed countries. In addition NZICA and INSOL consider that: Insolvency practice has become increasingly complex and specialised requiring insolvency practitioners to have a greater range of skills and expertise than has historically been the case; and New Zealand insolvency practitioners are, by international standards, under-regulated. More internationally compliant regulation may facilitate greater international recognition and, at the same time, may advance the prospects of members meeting the requirements for recognition to practice in other jurisdictions. NZICA and INSOL also consider that some further regulation of the sector is warranted to ensure that: Insolvency practitioners have the necessary skills and experience to carry out insolvency work; Insolvency practitioners are fit and proper to carry out insolvency work; The sector is appropriately managed and regulated providing the public, investors and creditors with confidence in the sector; New Zealand s insolvency practitioner regulation is broadly equivalent to other developed jurisdictions; and New Zealand insolvencies are predominantly carried out by New Zealand residents carrying on business and with a place of business in New Zealand. Accordingly NZICA and INSOL have issued this document setting out a proposal for industry selfregulation. 5

Summary of proposals Self-regulation would have the following features: A requirement for an NZICA member (or a non-member partner 1 ) and an INSOL member to hold an insolvency practitioner licence before they accepted a regulated insolvency engagement. NZICA would issue licences to both NZICA and INSOL members when they have met the relevant criteria (which may be different for NZICA and INSOL members); INSOL members issued with a licence who are not full NZICA members or not otherwise admitted as non-member partners, would be required to comply with NZICA s Code of Ethics, disciplinary processes, practice review requirements, and engagement standards. NZICA members and non-member partners are already required to meet these requirements by virtue of their NZICA membership and INSOL members not falling into either of these categories must agree to meet these requirements as a condition of being issued with a licence; Set criteria which an NZICA member must satisfy to become a licensed insolvency practitioner including: a requirement to hold a Certificate of Public Practice; minimum practical experience requirements or being otherwise competent to undertake insolvency engagements; fit and proper person requirements; acceptable practice review results; mandatory continuing professional development and training; and minimum levels of professional indemnity insurance; Set criteria which an INSOL member (who is not an NZICA member or non-member partner) must satisfy to become a licensed insolvency practitioner including minimum experience requirements or being otherwise competent to undertake insolvency engagements, mandatory professional development obligations and prescribed professional indemnity insurance arrangements; Transitional rules to ease entry into the licensing system; and An application process whereby licences would be issued with NZICA maintaining a database of licensed insolvency practitioners. Scope of proposals Current definition of insolvency engagement Under the existing NZICA Insolvency Engagement Standard, an insolvency engagement is defined as an engagement in which a member or firm provides professional services in relation to an individual or entity that may in the future become insolvent or is currently insolvent, and services in relation to the liquidation of solvent entities. An insolvency engagement may be either of a formal or informal nature. A formal insolvency engagement is an engagement where the member is appointed under the Companies Act 1993, the Insolvency Act 2006, the Insolvency (Cross-border) Act 2006, the Corporations (Investigations and Management) Act 1989, the Receiverships Act 1993, or other relevant statute or by a Court order. 1 Experienced professionals from other jurisdictions, or industry bodies, may be admitted as non-member partners of NZICA, but are limited to perform designated roles within NZICA registered firms or practices where they are partners 6

An informal insolvency engagement means an insolvency engagement which is not a formal insolvency engagement. 2 Proposals would apply to a regulated insolvency engagement These proposals would apply to an NZICA member, a non-member partner and/or an INSOL member undertaking a regulated insolvency engagement. Insolvency practitioners carry out a broad range of insolvency engagements as a: Receiver appointed under the Receiverships Act 1993. A receiver may be appointed by any deed, agreement or by the Court under a number of circumstances, including on application of a trustee or statutory manager under section 49(3)(f) of the Securities Act 1978; Liquidator appointed under the Companies Act 1993. A liquidator can be appointed by shareholders, or by way of an application to Court by various different parties. Companies are usually liquidated because they are insolvent. Solvent companies can also be liquidated; Administrator appointed under Part 15A of the Companies Act 1993. An administrator can be appointed by a secured creditor or the Board, or by way of an application to Court by any creditor, the liquidator or Registrar of Companies; Deed Administrator appointed by resolution of creditors pursuant to an approved Deed of Company Arrangement; Trustee of a personal creditor compromise proposal under the Insolvency Act 2006; Statutory Manager under the Corporations (Investigation and Management Act) 1989, subpart 4 of Part 4 of the Insurance (Prudential Supervision) Act 2010 or section 117 of the Reserve Bank of New Zealand Act 1989; or Administrator, Supervisor or Monitoring Accountant (or similar role) appointed under a Deed of Compromise or Agreement under Part 14 of the Companies Act 1993. An NZICA member, non-member partner and/or a full member of INSOL accepting a regulated insolvency engagement would be required to be licensed by NZICA before accepting that appointment. It is proposed that a regulated insolvency engagement would be defined as any formal insolvency engagement, whereby the practitioner was to act as a receiver, liquidator, or administrator (or any other appointment) as detailed above. It would not include a solvent liquidation under the Companies Act 1993. Application to individuals and not firms The proposals would only apply to an individual appointed to undertake a regulated insolvency engagement. If joint receivers, liquidators or administrators were appointed the proposals would apply to all those appointed. The proposals would require a licensed individual to be ordinarily resident in New Zealand and carrying on business and to have a place of business in New Zealand. The proposals would not apply to the practitioner s firm. There would be no requirement for firms to be licensed or registered. In addition, the proposals would not apply to review partners or other individuals working on a regulated insolvency engagement. 2 Refer NZICA Engagement Standard, Insolvency Engagements, issued 03/11 7

Application to non-member partners In limited circumstances, experienced professionals from other jurisdictions, or industry bodies, may be admitted as non-member partners of NZICA, but are limited to performing designated roles within NZICA registered firms or practices of which they are appointed as partners. There is no intention to change these rules. However, non-member partners would still be required to obtain an insolvency practitioner licence to undertake a regulated insolvency engagement. One New Institute proposal NZICA members will be aware of the One New Institute proposal - a member consultation process on a proposal to combine NZICA and the Institute of Chartered Accountants Australia to form one new trans-tasman Institute. As part of that proposal NZICA would retain aspects if its regulatory function in relation to New Zealand resident members. It is anticipated that the regulation of insolvency practitioners as specialists would fall within that remit. Further information concerning the One New Institute Proposal can be found at www.onenewinstitute.com INSOL and constitutional change INSOL NZICA members or non-member partners issued with an insolvency practitioner licence would be required to comply with NZICA s Code of Ethics and Rules, practice review requirements, disciplinary processes and NZICA s Insolvency Engagement Standard. These obligations arise by virtue of their NZICA membership and NZICA s Rules. Under the proposals an INSOL member issued with an insolvency practitioner licence, who was not an NZICA member or non-member partner: Would be required to sign an agreement with NZICA (Compliance Agreement) agreeing to: Abide by relevant provisions of NZICA s Act; Abide by NZICA s Code of Ethics and Rules; Be subject to NZICA s disciplinary process; Be subject to NZICA s practice review process and NZICA s Insolvency Engagement Standard; and Pay any NZICA fees and charges, including practice review costs. Would not obtain NZICA membership status by virtue of NZICA issuing an insolvency practitioner licence; and Would be able to refer to the fact that NZICA had issued them with an insolvency practitioner licence and that they were an NZICA licensed insolvency practitioner. Assuming the proposal proceeds, NZICA would be required to amend its Rules to reflect the revised arrangements and would have an opportunity to do so at its Annual General Meeting in November 2013. 8

Constitutional change and memorandum of understanding INSOL will cease to be an affiliate group of the NZICA INSOL SIG and will develop a new constitution, governance structures and membership criteria to reflect its new separate legal status, and also in order to reflect its revised arrangements and relationship with NZICA, including the new status and NZICA requirements. NZICA and INSOL will enter into a new Memorandum of Understanding reflecting the revised arrangements and a draft outline of the Memorandum of Understanding is attached in Appendix 1. NZICA members - licence requirements NZICA members wanting to undertake a regulated insolvency engagement would be required to meet minimum requirements in the following areas: Certificate of Public Practice; Competence; Fit and proper person; Acceptable practice review results; Professional development and training; and Insurance arrangements. Certificate of Public Practice Under NZICA s Rules an NZICA member can only undertake insolvency services when they hold a Certificate of Public Practice. 3 For NZICA to issue a Certificate of Public Practice an NZICA member must meet the following requirements: 1. Have met NZICA membership entry requirements, namely I. three years approved tertiary study; and II. three years approved practical experience with supervision by a registered mentor in an Approved Training Employer; and III. successful completion of the Chartered Accountants Professional Competence Programme as prescribed by the Admissions and Membership Committee; and 2. Have two years acceptable practical experience as a Chartered Accountant; and 3. Have attended an NZICA approved course for new practitioners within the two years preceding first obtaining a Certificate of Public Practice. An NZICA member undertaking a regulated insolvency engagement would be required to hold a Certificate of Public Practice. 3 NZICA Rule 18.1 and 18.2 9

Competence NZICA members are required to comply with the Code of Ethics which includes a Fundamental Principle of Competence requiring that members should only undertake work which they have the necessary competency to perform to the technical and professional standards expected. 4 In addition, NZICA members will be required to demonstrate they are competent to undertake a regulated insolvency engagement. Competence would be demonstrated by either: Meeting practical experience requirements; or Being otherwise competent. Practical experience requirements It is considered that practical experience is a necessary element of ensuring competence and it is only through specific insolvency work that a practitioner develops the skills, experience and judgement to meet the required level of competence. Overseas insolvency regulators often require an insolvency practitioner to meet minimum experience requirements. For example: The Institute of Chartered Accountants in England and Wales requires, amongst other things including formal examination, practitioners to have 600 hours of practical experience over the three years preceding a licence application, of which 50% must specifically relate to work on formal insolvency engagements; The Insolvency Practitioners Association of Australia requires an applicant to have worked fulltime for three out of the last five years under the supervision of a full member on insolvency assignments, together with formal examination; and The Canadian Association of Insolvency and Restructuring Professionals requires 2,400 hours of relevant experience or a degree and five years experience. It is proposed that an insolvency practitioner that is an existing NZICA member or has been admitted as a non-member partner would be required to have at least 1,000 hours of practical experience on regulated insolvency engagements over the three years immediately prior to a licence application. The practical experience would need to be at a senior level (manager, director or partner level). When applying for a licence application an applicant would need to detail the aspects of work undertaken on regulated insolvency engagements demonstrating the applicant s skill, diligence and judgment, noting specifically: 1. Complex matters that the applicant was directly involved in and the nature of the applicant s involvement; and 2. How the applicant s experience in particular engagements demonstrates they are competent to undertake regulated insolvency engagements. It is proposed that INSOL members who were not full NZICA members or not otherwise admitted as non-member partners would be required to have at least 2,000 hours of practical experience on regulated insolvency engagements over the three years immediately prior to a licence application. As with NZICA member applications, the practical experience would need to be at a senior level (manager, director or partner level). Moreover, an applicant would need to detail in their application 4 NZICA Code of Ethics paragraphs 82-91 10

aspects of their work undertaken on regulated insolvency engagements demonstrating their competence. NZICA would develop rules covering situations when an insolvency practitioner had not worked fulltime over the preceding three years, for example part time employees or employees taking maternity or paternity leave. NZICA would also develop rules allowing an insolvency practitioner to complete the practical experience over more than three years when circumstances justify it. An insolvency practitioner would be allowed to complete their relevant experience, or a part of it, while overseas. Otherwise competent There may be circumstances where the practical experience requirements exclude some insolvency practitioners who are otherwise competent to perform regulated insolvency engagements. Accordingly, it is proposed that the competence requirement could also be satisfied when an insolvency practitioner could demonstrate that they are otherwise competent to undertake regulated insolvency engagements. To demonstrate competence an insolvency practitioner would need to provide: Evidence of their specific insolvency experience including hours worked; Evidence of specific insolvency roles; Evidence of insolvency training and courses undertaken; Written confirmation from an experienced insolvency practitioner (preferably a licensed practitioner) that they consider the applicant to be competent to undertake a regulated insolvency engagement; Written confirmation from an experienced banker or lawyer specialising in the field of insolvency and restructuring; and Any relevant reviews. After receiving the relevant information NZICA would determine if the insolvency practitioner was otherwise competent. In making this assessment NZICA would determine the qualities an applicant must have to be issued with a licence and whether the experience relied upon by the applicant evidences those qualities. The assessment would necessarily call for the exercise of judgement, rather than providing an exact quantitative measurement (which is provided in the practical experience requirement), and would include assessing whether the applicant had the professional knowledge, technical skills and experience to undertake regulated insolvency engagements. NZICA and INSOL will work together to manage applications from INSOL members. In particular: NZICA will advise the INSOL committee of all applications for licences from INSOL members; The INSOL committee will have the opportunity to provide any information to NZICA that it considers may be relevant to a licence application by any INSOL member; and An appeal process to deal with applications by INSOL members that have been declined. Proposed insolvency qualification NZICA and INSOL are also intending to develop a joint NZICA/INSOL insolvency qualification. In future, successful completion of this course may be a pre-requisite for obtaining an insolvency practitioner licence issued by NZICA. 11

Fit and proper person Currently, a person is only eligible for membership of NZICA if NZICA is satisfied that the person is of good character and reputation 5. This requires a potential member, at the time of applying for membership, to: Submit a current criminal convictions record obtained from the Ministry of Justice with their application; and Confirm that they have not been adjudged bankrupt; been disciplined, warned, censured or otherwise sanctioned, as a result of disciplinary proceedings by a statutory or professional body; been prohibited by the Registrar of Companies from managing a company; or have failed to satisfy a judgment debt in the last seven years. It is considered that a person s honesty and integrity are relevant considerations when considering whether a person should be permitted to undertake a regulated insolvency engagement. Accordingly, an applicant for an insolvency practitioner licence would be required to be fit and proper. It is intended that the following matters would be taken into account when determining whether a person is fit and proper: The person has been convicted of a crime involving dishonesty. A crime of dishonesty includes: any offence under sections 99 to 106, 108 to 117, and 217 to 266 of the Crimes Act 1961; any offence under sections 15 to 20 of the Summary Offences Act 1981; or any offence under any overseas law which is equivalent to one of those Crimes Act or Summary Offences Act offences set out above. The person has been convicted of any offence under any provision of the financial markets legislation (as defined in the Financial Markets Authority Act 2011) or any offence under any provision of any overseas Act governing auditors, financial markets or financial services, corporations, financial reporting, or requirements for preventing money laundering. The person has been banned from acting as a director of a company or other incorporated body, or from being involved in the management of any class of incorporated or unincorporated entity. The person has been subject to disciplinary action against them by any professional body or disciplinary tribunal, where those actions resulted in penalties being imposed or censure. The person has had a court ruling against them in respect of a civil case, or has reached an out of court settlement, relating to their profession. The person has been declined membership of any professional body, or has been declined any registration, licence, authorisation or accreditation required in relation to any profession by any public body, self-regulatory organisation or exchange, or has had any such membership, registration, licence, authorisation or accreditation revoked or withdrawn. The person has been dismissed, or asked to resign, from a position of trust, fiduciary appointment or similar position. The person has been placed into statutory management, or has been a director of a company which has been placed into statutory management. The person has, in the last 10 years, been made bankrupt, or made the subject of an official assignment for the benefit of their creditors. The person has, in the past 10 years, been a director or senior manager of a company, or other incorporated or unincorporated entity, which has: been placed into liquidation, administration or receivership (or any overseas equivalent status); 5 NZICA Rules, Clause 2.6 12

entered into any compromise agreement, moratorium or other restructuring to avoid liquidation, administration or receivership; The person is subject to pending proceedings which, if any adverse finding is reached, will result in one or more of the matters set out in the paragraphs above applying to the person. If none of these matters existed then an insolvency practitioner would be assessed as fit and proper. If any such matter existed then the insolvency practitioner would be required to provide full details of the event, their conduct in relation to the event, any findings made in relation to the event, and any penalty or sanction imposed. NZICA would then determine whether the insolvency practitioner was fit and proper. Practice review results NZICA member firms are subject to NZICA practice reviews which assess a member s technical compliance and competency in public practice and also in regard to ethical issues such as independence. Standard cyclical practice reviews are conducted on a five-year cycle, unless the individual circumstances demand remedial action or an earlier review. In addition, NZICA undertakes regular risk-based review programmes. NZICA members are charged a fee based on time which is currently about $3,000 per practice. Each review is graded on one of the following three outcomes: Satisfactory indicates there were no significant issues identified. In this case the relevant practice will be reviewed again in five years following the last review, subject to risk-based reviews and/or the receipt of other business intelligence; Re-review indicates there were issues identified that warrant a revisit. The relevant practice will be reviewed again within a specific time to ensure that satisfactory progress has been made in resolving the issues identified during the review; and Unsatisfactory indicates the issues identified during the review were serious enough to be referred to the Practice Review Advisory Group for consultation on NZICA management s proposed recommendations. This may result in remedial action, a referral to the Professional Conduct Committee, and/or restriction on the provision of services in accordance with NZICA s Rules. It is proposed to take into account the member s firm s latest practice review outcome when considering an insolvency practitioner licence application. Where the member s firm s latest practice review was graded as either satisfactory or re-review and, in the case of the latter, NZICA is satisfied that the member has resolved all major issues identified during the practice review then the insolvency practitioner will be eligible for an insolvency practitioner licence. Professional development and training NZICA s Rules do not currently require any specific insolvency training. However, they require that an NZICA member or non-member partner must satisfactorily complete 120 hours of approved Continuing Professional Development (CPD) training over each rolling three year period, of which 60 must be verifiable 6. A minimum of 20 hours CPD must be completed each year. 6 Verifiable CPD training is a learning activity that is able to be objectively verified by a competent source. Non-verifiable CPD is considered to be an activity that is independent and informal, such as reading technical or professional articles and entering discussion 13

It is considered that a regulated insolvency engagement licence should be restricted to practitioners who actively maintain their technical knowledge. On-going training and development play an important role in ensuring that insolvency practitioners maintain their specialised skills as well as providing an appropriate forum in which insolvency practitioners can keep up to date with developments in insolvency practice and current insolvency issues. It is proposed that a licensed insolvency practitioner would need to complete: At least 30 CPD hours of verifiable insolvency training (which would need to be defined in the future) over a rolling three year period; and Another 90 hours CPD in the rolling three year period. Meeting these requirements would fulfil the insolvency practitioner s NZICA CPD requirements. NZICA and INSOL would need to ensure there were sufficient courses available for insolvency practitioners to meet these CPD requirements. Insurance arrangements NZICA s Rules currently provide for firms to self-determine levels and coverage of insurance arrangements and state that: The practice entity shall at all times have professional indemnity insurance cover appropriate to the nature and scale of the accounting services it offers to the public. 7 It is considered that insolvency practitioners should be required to certify in their application that they, or their firm, have indemnity insurance in place that meets NZICA s Rules. It is also proposed that the following information would need to be provided with each application: A general description of the insurance (or reinsurance) arrangements; The limit of indemnity for any claims (in the aggregate and per claim); and Details of insurance coverage, exclusions, costs covered, cancellation and any reinstatement arrangements. INSOL membership and licence requirements INSOL intends to create a tiered membership base for the purposes of creating a mechanism to accommodate both formal appointment takers and other categories of membership of INSOL. The likely structure is that actual or proposed appointment takers will be admitted as full members of INSOL (or something similar) and associate membership created for solicitors, bankers, nonappointment taker insolvency personnel etc. The requirements for full members of INSOL (who are or are intending to take formal insolvency appointments) will be the satisfaction of certain entry requirements, which in the main mirror those of NZICA (see chart below). No application for full membership of INSOL will be conferred without that member having first entered into a Compliance Agreement with NZICA of the type contemplated at page 8 above, and having been issued with an insolvency licence by NZICA. Where an insolvency practitioner does or intends to take a regulated insolvency engagement but has failed to obtain an insolvency licence from NZICA, then that person s application for membership (in whatever capacity) of INSOL will be refused. 7 NZICA Rules, Appendix IX, rule 2.10 14

Proposed NZICA and INSOL entry requirements Current NZICA requirements Proposed NZICA requirements Current INSOL requirements Proposed INSOL requirements Certificate of Public Practice Required Required Not required Not required Practical insolvency experience or otherwise competent Code of Ethics requirement to only undertake work in which they have the necessary competence 1,000 hours of practical experience on regulated insolvency engagements over the three years immediately prior to application, at a senior level or Not required 2,000 hours of practical experience on regulated insolvency engagements over the three years immediately prior to application, at a senior level or Can demonstrate are otherwise competent to undertake regulated insolvency engagements Can demonstrate are otherwise competent to undertake regulated insolvency engagements Fit and proper person NZICA member must be of good character and reputation Will be designated fit and proper criteria and an applicant must declare that none apply. If any matter applies the applicant must disclose the relevant details and a decision made whether the applicant is fit and proper Not required Will be designated fit and proper criteria and an applicant must declare that none apply. If any matter applies the applicant must disclose the relevant details and a decision made whether the applicant is fit and proper Practice review results Not required unless required through NZICA s disciplinary processes Where the member s latest practice review was graded as unsatisfactory or re-review NZICA must be satisfied that all major issues have been resolved Not required Any adverse findings by NZICA or the Registrar of Companies during licence period would need to be disclosed and reviewed by NZICA CPD training 120 hours over three years with 60 hours verifiable 120 hours over three years with at least 30 hours being related to insolvency training 8 Not required 120 hours over three years with at least 30 hours being related to insolvency training Insurance arrangements Must have indemnity insurance cover appropriate to the nature and scale of services offered to the public Must certify that have professional indemnity insurance cover appropriate to the nature and scale of services offered to the public and provide insurance details Not required Must certify that have professional indemnity insurance cover appropriate to the nature and scale of services offered to the public and provide insurance details 8 The CPD requirements relating to insolvency would not be a requirement for initial licensing 15

Transitional rules NZICA and INSOL recognise the need to develop transitional rules to ensure there are no unintended implications from implementation of a licensing regime. Transitional rules are also required to give insolvency practitioners sufficient time to make arrangements for the introduction of a licensing regime. A transitional regime is proposed whereby insolvency practitioners could undertake and complete regulated insolvency engagements that they were appointed to before a designated date. It would require an insolvency practitioner to be licensed for all regulated insolvency engagements accepted after the designated date. The designated date would depend on the proposal s progress. However, it is our current intention that the designated date be 1 July 2014. Licence application process Both NZICA and INSOL members wanting to obtain an insolvency practitioner licence would need to apply to NZICA for a licence. NZICA would establish a licensing process as follows: NZICA would issue a licence when it was satisfied that the applicant met the qualifying criteria. An applicant would be required to provide supporting information with their application; There would be an NZICA fee for considering and processing an application with the fee set on a cost recovery basis; A licence would be personal to the individual insolvency practitioner; and NZICA would maintain a database of licensed insolvency practitioners on its website which would contain licence details and information concerning the insolvency practitioner (e g. street and postal address, website address, professional firm name etc.). Make a submission NZICA and INSOL wish to undertake appropriate consultation with affected stakeholders and invites comments on these proposals and the attached questions. Should you want to make a submission it should be made by 31 July 2013. You can send your written feedback to Craig Neil at: insolvencyregulation@nzica.com or to the following members of the INSOL committee: Brendon Gibson; David Perry; Shaun Adams; Greg Sherriff; Michael Robinson; whose details are available on the INSOL website: www.insol.org.nz 16

Questions Reasons and scope of proposals Q 1. Q 2 Q 3. Is there a need for greater regulation of insolvency practitioners as specialists? Does the proposed definition of regulated insolvency engagements catch all relevant engagements? If not, which engagements should be included? Should solvent liquidations be excluded from the proposals? INSOL Q 4. Will requiring INSOL members to comply with NZICA s Code of Ethics and Rules, disciplinary processes and practice review processes provide a sufficient framework for regulating non-nzica members? If not, what else should be included? Licence requirements Q 5. Q 6. Q 7. Q 8. Q 9. Practical competence should insolvency practitioners be required to meet a practical experience requirement? If so, is 1,000 hours of practical experience on regulated insolvency engagements over three years an appropriate requirement for NZICA members and NZICA non-member partners? Is 2,000 hours an appropriate requirement for non- NZICA members? Practical competence - is the otherwise competent requirement needed? Fit and proper person are the listed matters appropriate? Should any be added? Should any be removed? Should a different approach be adopted? Practice review results should these be taken into account when determining to issue a licence? Professional development is 30 hours of dedicated insolvency training over three years an appropriate amount? If not, what is an appropriate amount? Q 10. Insurance - should an insolvency practitioner be required to disclose professional indemnity arrangements when applying for a licence? Transitional rules and application process Q 11. Is the proposed transitional rule appropriate? If not, what should it be? 17

Appendix 1 Draft INSOL and NZICA Memorandum (contents outline) This document is designed to provide an overview of the matters that could be covered by a Memorandum of Understanding between INSOL NZ and NZICA. It is not exhaustive and will be the subject of further development if member consultation supports the overall initiative. Parties INSOL New Zealand Incorporated New Zealand Institute of Chartered Accountants Background INSOL New Zealand is an industry body representing professionals in New Zealand who practice in the fields of insolvencies and corporate reconstructions and related disciplines or roles and will be a member association of INSOL International. NZICA is a body corporate under statute with broad functions including the control and regulation of the profession of accountancy by its members. There is a considerable overlap in the membership of the Parties and their members undertake the majority of insolvency engagements in New Zealand each year. The Parties wish to cooperate in relation to the initiatives outlined further below Purpose The parties wish to cooperate to: (a) provide their members with access to high quality professional development and networking opportunities; (b) establish a framework for enhanced regulation of members taking appointments as insolvency practitioners; (c) jointly develop an insolvency qualification which will encompass the core competencies necessary for insolvency practice; and (d) record matters relating to the service provision and payment arrangements necessary to implement the above. Guiding principles Transparency Good faith Communications Joint Initiatives Professional Development Shared objectives Events Promotion Access Quality assurance Licensing of insolvency practitioners Overall Framework Licensing Criteria 18

Practitioner Compliance Agreements Applications processing Joint Advisory Committee Application Review procedures Quality assurance Development of an insolvency qualification Objective Project Management Timeline Cost sharing Service provision and payment Events management Administration Financials Payment Intellectual Property and brand use Use of IP and brand Confidentiality Confidentiality of applications Access to information Privacy Act compliance Disputes Identification Escalation Mediation Termination Notice Disengagement scenarios General 19