Debt Dictionary

B

Beneficiary

A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefit from a benefactor, or a Trust. It is also a term used to describe an individual that receives welfare benefits from Work and Income New Zealand (WINZ).

C

CA ANZ

A professional accounting body of which insolvency practitioners are often members - Chartered Accountants Association of Australia and New Zealand. www.charteredaccountantsanz.com

Caveat

A caveat is a notice that can be lodged against a particular title at Land Information New Zealand that prevents the sale of land, subject to certain procedural steps being taken by the caveator (a creditor that has been given the right to register a charge or mortgage as security for a debt).

Charging order

A charging order is a court order placing restrictions on the disposal of certain assets, such as property or securities, given after judgement, and entitling the creditor priority of payment over other creditors. 

Claim

A creditor can file a claim with an office holder in relation to money that they are owed by an insolvent person.

Class of creditors

Is a class of creditors that have identical rights and privileges arising at the point of insolvency.

Code of Professional Conduct

A code of practice adopted by RITANZ and CA ANZ, which must be complied with by all accredited insolvency practitioners.

Contingent asset 

An asset that might arise if a certain event occurs (e.g. a current legal action being taken by a person might result in an asset if you were to win the case)

Contingent debt

A contingent debt is a liability that may fall due and payable at some future date, but that is subject to a certain event happening which crystallises that debt (e.g. where a person has guaranteed a debt for someone, who then can’t or won’t pay).

Court-appointed receiver

A court-appointed receiver is a person, not necessarily an insolvency practitioner, appointed to take charge of assets usually where they are subject to some legal dispute.  The procedure may be used to settle a partnership or matrimonial dispute.

Credit

Credit means borrowing money from a person or company and repaying it at a later date.  A current insolvent cannot obtain credit of more than $1,000 without telling the person lending the money that they are under an insolvency procedure.

Credit reference agency

An organisation that collects information about a person’s borrowing payment history. When someone checks a credit rating they are checking the history to see if the borrower is a potential credit risk.

Creditor

A business or person who you owe money to. There are two types of creditor - secured and unsecured.

Creditor’s application

An application to the Court by a creditor to have a person made bankrupt.

Creditor’s Claim

The claim a creditor is required or entitled to make against a company or individual for the purposes of proving their debt in the insolvency process for the purposes of receiving a dividend or distribution from the insolvent’s estate.

Creditors Proposal

A Proposal to creditors that is made by an individual under the Insolvency Act 2006, which is a formal agreement to either pay creditors a lesser sum of money than they are owed, or to defer payment for an extended period of time. 

Credit report

A report that shows a person’s credit history using information from banks, suppliers and other creditors.

D

Declaration of Independence, Relevant Relationships and Indemnities

A declaration that must be provided by an accredited insolvency practitioner at the beginning of an assignment and updated periodically thereafter. 

The declaration is to inform creditors and other parties of:

1. any relationships the insolvency practitioner, or their firm, may have with the insolvent;

2. whether they have been provided with any indemnities in respect of the work that they are to undertake; and

3. whether there are any actual or potential threats to their independence in carrying out their duties under the administration.

Debt Consolidation Loan

Consolidation means combining all debts into one loan, sometimes at a lower interest rate, and one that may be secured against property.

Debtor

A person who owes a debt.  This expression is widely used in personal insolvency to denote the individual who is insolvent.

Debtor's application

An application by an individual to the Official Assignee to have themselves made bankrupt or placed under a No Asset Procedure or Debt Repayment Order.

Debt Management Plan (“DMP”)

An informal agreement between an individual and his or her creditors to defer payment of their debts over a longer period of time.

A DMP is normally negotiated by a budget adviser or financial mentor, and that person may even take control of payments to the creditors.  Generally, a DMP does not stop interest and charges from accruing, which is one of their disadvantages.

Debt Repayment Order (“DRO”) replacing Summary Instalment Order (“SIO”)

Debt Repayment Order (DRO) is an alternative to bankruptcy, when a person owes less than $50,000 in unsecured debts. An individual will need to select a supervisor to manage the process for them for the term of the order, normally 3 , but can be extended to 5 years in certain circumstances.

Discharge

Discharge normally happens automatically after three years. When a bankrupt is discharged, the bankruptcy restrictions are removed and most of the debts that remain owing are cleared. However, a discharged bankrupt may still have to pay some debts such as fines and reparations.

Disclaimer

The process by which the Official Assignee can repudiate onerous contracts, or abandon assets of no value, or assets that may give rise to future liabilities.

Dividend

Payment made to creditors from a bankruptcy or other insolvency procedure.

E

Employee creditor 

A creditor who, in an insolvency, would normally be paid their employment-related entitlements in priority to other unsecured debts, known as preferential creditors [for wages, salaries, holiday pay, and redundancy pay in certain circumstances]. 

Evidence

Documents used to prove something is true or false.

Expenses

Money that a person needs for personal living costs such as rent, mortgage repayments etc. and which are taken into account when determining a person’s surplus income.

F

Financial Mentor

A person that provides on-going support and assistance to an individual, family or whānau, guiding and supporting them to manage their finances, or reach agreements with creditors.

Fixed charge 

A fixed charge is a form of security granted over specific assets, preventing the debtor from dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.

Fraudulent debt

If a personal debt is incurred by fraud, then this will have to be repaid after the insolvency procedure has completed, as the debt is not expunged by the procedure.  For example, if a person claimed a benefit from Work and Income which they knew they were not entitled to, the debt would be considered a fraudulent debt and would not be discharged by their insolvency procedure.

The Official Assignee may terminate an insolvency procedure (other than bankruptcy) if it appears a debt may have been incurred by fraud that would take the insolvent above the debt limit.

Furniture and tools of trade

Things owned personally when a person becomes bankrupt vest in the Official Assignee and that person is then prevented from dealing with them. However, the bankrupt may be able to keep up to $1,300 cash, tools of trade, furniture and personal belongings, and a motor vehicle worth up to $6,500.

G

Garnishee Order – (also Attachment Order)

A legal procedure by which a creditor can seek settlement of a borrower’s debt by claiming money owed to the debtor by someone else and having the proceeds of that debt diverted to the creditor as opposed to the borrower.

Going Concern

A going concern is the basis on which an office holder prefers to sell a business. Effectively, it means the business continues, jobs are saved, and a higher price is normally obtained. 

Guarantee

A guarantee is a legal commitment to repay a debt if the original borrower fails to do so. For instance, directors may have given guarantees to banks in return for the bank giving finance to their company, to landlords or indeed to trade suppliers.

Guarantor

Where a person has agreed to pay a debt owed by someone else, if they can’t or won’t pay, then that person is known as a guarantor and will be liable to pay that same debt on default.

I

Income

The amount you receive such as wages, benefits, interest, pensions or dividends, or that a company earns as profits before tax is taken out.

Insolvency

The insolvency definition for an individual is being unable to pay debts as and when they fall due, or on a “balance sheet” basis.

Insolvency Act 2006

The Insolvency Act 2006, which is the legislation that deals with personal insolvency in New Zealand.

Insolvency (Cross Border) Act 2006

Statute enacted for the purposes of implementing the Model Law on Cross-Border Insolvency adopted by the United Nations to provide a framework for facilitating insolvency proceedings when a person is subject to an insolvency process in one country, but has assets or debts in another, or has more than one insolvency process commenced in different countries.

Insolvency and Trustee Service

The Insolvency and Trustee Service (ITS) is a government organisation which deals with all personal bankruptcies, NAPs and DROs in New Zealand and some liquidations.  The Official Assignee is the manager of ITS. www.insolvency.govt.nz

Insolvency officer

An Insolvency Officer is employed by the ITS to deal with bankruptcies and liquidations.

Insolvency practitioner

A person acting as a liquidator, voluntary administrator, a receiver, or receiver and manager, but not necessarily an accredited / licensed insolvency practitioner.  Currently, any person that is 18 years of age, not mentally unfit or otherwise debarred from acting as an office holder is entitled to act as an insolvency practitioner.

Insolvency process

A formal or legal process by which a debtor’s assets or estates are being administered by an office holder under a formal procedure laid down by legislation or appointed by Court.

Insolvency register / public register

This is a list of all bankrupts, people in a NAP currently (and for four years after their discharge) and people under an DRO, or companies where the Official Assignee is the liquidator. It can be searched for free by anyone over the internet, and includes details like the debtors’ names, addresses, and occupation. www.insolvency.govt.nz

Insolvent gift

If an individual that later becomes bankrupt has given something away before their bankruptcy rather than selling it for a fair amount the Official Assignee may recover the money.

Insolvent transaction 

A payment made, or other benefit given to a creditor by an insolvent company or individual which causes that creditor to receive more than they would through that person’s bankruptcy. 

The Official Assignee can seek to recover the value given subject to certain restrictions including the nature of the relationship between the parties, the knowledge of the entity or person’s insolvency, and the time periods in which the payments or transactions were entered into. 

Intangible asset 

An asset with no identifiable physical form (e.g. a contractual right, copyrights, patents and goodwill).

J

Judgment

A judgment is a judicial decision giving rise to a legally enforceable debt.

L

Licensed insolvency practitioner (“IP”)

A Licensed Insolvency Practitioner is a person accredited by RITANZ or NZICA to act as an insolvency practitioner (liquidator, receiver, receiver & manager, administrator, or trustee) under a statutory licensing regime.

Lien

Lien is the right to retain possession of certain assets or documents until the settlement of a debt, even after the appointment of the Official Assignee, in certain instances.

M

Ministry of Business, Innovation and Enterprise (“MBIE”)

The government body responsible for overseeing the operation, effectiveness and compliance with the Insolvency Act.

Mortgage

A mortgage is a transfer of an interest in land or other property by way of security, upon the express or implied condition that the ownership of the asset shall be returned to the debtor when the sum secured has been paid.

N

National Building Financial Capability Charitable Trust (“FinCap”)

The organisation that supports all Building Financial Capability Services and Budget services in New Zealand, working in conjunction with the Ministry of Social Development, as part of their Building Financial Capability initiative.

No Asset Procedure (“NAP”)

This is an alternative to the three-year form of bankruptcy. It is designed for people who have accumulated consumer debt (minimum $1,000, maximum $50,000) and for whatever reason find that their financial affairs have become unmanageable.  This procedure can only ever be used once by an individual.

Provided they qualify, the NAP provides an alternative and more flexible way to resolve an individual’s financial situation than going into bankruptcy, enabling them to make a fresh start. The process, which is one year, is administered by the Official Assignee.

NZ Gazette

This is the Official Government newspaper which is published weekly online. Official notices are published here, like new bankruptcies or parliamentary notices.

O

Office holder

An office holder is a compromise manager, trustee, supervisor, liquidator, provisional liquidator, voluntary administrator, deed administrator, receiver, or receiver and manager, including the Official Assignee.

Official Assignee (“OA”)

The Official Assignee works for the government and deals with all bankruptcies, NAPs and DROs and some liquidations. Insolvency Officers are employed by the Official Assignee to deal with bankruptcies.

Onerous property

The term onerous property in the context of a bankruptcy, applies to unprofitable contracts and to property that is unsaleable or not easily saleable or that might give rise to a continuing liability.  Such property can be disclaimed by a liquidator or a trustee in bankruptcy.

P

Per annum

For each year, often referring to the amount of interest paid on a debt each year. It can also be the amount of interest received each year for money in a bank account.

Personal property

The property of an individual, limited to chattel paper, documents of title, goods, intangibles, investment securities, money and negotiable instrument, but excluding land, all as defined by the PPSA.

Personal Property Securities Act 1999 (“PPSA”)

The PPSA is a legal framework by which security interests are entered into between a borrower (or debtor) and a lender (or creditor), and how such security interests are then perfected, recorded and prioritised against other security interests.  

Poll (of creditors) 

A voting procedure where both the number of creditors voting a particular way and the value of their debts is considered in deciding if a resolution is approved or not, and a poll may also be applied to a particular class of creditors, whose entitlements are the same or similar.

Preferential creditors or debts

When a dividend is paid from a bankruptcy, some debts like unpaid wages, holiday pay, and GST are paid before other debts.

Prescribed period

The time period over which insolvent transactions may be set aside under the Acts.

Priorities 

The order set down by the Act for the payment of unsecured creditors of an insolvent company by an officeholder, or by the Official Assignee when dealing with a bankrupt’s estate, or when dealing with a Creditors’ Proposal. 

Proof of debt

An expression used to describe a claim or notice of claim completed by creditors at the office holder’s request, setting out details of their claim against the individual, including how the debt arose and the amount claimed.

Property

Property of every kind whether tangible or intangible, real or personal, and includes rights, interests, and claims of every kind in relation to property, however they arise.

Property Law Act 2007 (“PLA”)

The PLA governs transactions in law and property, and contains various provisions relating to the appointment of receivers, voidable transactions and other issues affecting the administration of insolvent entities.

Provable debts

Anything owed by a person when they became bankrupt that a creditor can file a claim for. This does not include court fines, reparation, child support or anything that is owed after they became bankrupt.

Proxy

A proxy is a document by which a creditor authorises another person to represent them at a meeting of creditors. The proxy may be a general proxy, giving the proxy holder discretion as to how he/she votes, or a special proxy requiring him/her to vote as directed by the creditor. A body corporate can only be represented by a proxy.

Proxy form 

A prescribed form that must be completed by creditors or shareholders to appoint a proxy for a creditors’ or shareholders’ meeting. 

Provisional Trustee

The office holder nominated by an individual to act in respect of their Proposal to creditors under Part 5 of the Insolvency Act 2006.

Purchase Money Security Interest (“PMSI”)

A PMSI or claim on property that enables a lender who provides financing for the acquisition of goods or equipment to obtain priority ranking ahead of other secured creditors.

Public examination

The Official Assignee can apply to the court to question a bankrupt, or any other person who may be able to give information about the affairs of the individual.

R

Realisable assets

An asset that can be sold that will mean that some of the debts can be repaid in a bankruptcy.

Realise 

Convert assets into cash, often by selling them or collecting them in. 

Receiver (and Manager)

A person appointed by a secured creditor to realise enough of the assets subject to their charge or security to repay the secured debt, including interest, and costs and charges of enforcement, including those of the receiver.

Less commonly, a receiver may also be appointed by a court to protect an individual’s assets or to carry out specific tasks. He/she can carry on business and sell the business and other assets comprised in the charge to repay the secured and preferential creditors.

Receivership

Receivership is where someone – a receiver – takes over the control of a company, where a company cannot meet its financial obligations.

Relative

A relative in relation to any person, including any parent, child, brother or sister of that person, any spouse, civil union partner or defacto partner, or any of their parents, children, brothers or sisters, or a nominee or trustee for any of those persons.

Reparation

Where a person is found guilty of a crime a Judge can make an order for compensation to be paid to the victim. If a person becomes bankrupt or is accepted into a NAP, there is still a requirement to continue to make reparation payments.

Relevant Date

A relevant date is the date by reference to which claims are calculated in any form of insolvency administration.

Reservation of Title (or Retention of Title)

Reservation of title (or retention of title) is a provision under a contract for the supply of goods which purports to reserve ownership of the goods with the supplier until the goods have been paid for. A complex and continually evolving area of law.

RITANZ

The Restructuring, Insolvency and Turnaround Association of New Zealand, a professional organisation representing the interests of accredited insolvency practitioners and other people [solicitors, bankers, financiers, agents etc.] working in the restructuring industry. www.ritanz.org.nz

S

Secured creditor

A person or business owed money, who have security over an asset or assets, and under default under the loan or finance agreement has rights to then repossess or sell the asset(s). (e.g. a mortgage over a house or hire purchase over a television).

Sorted.org.nz

An independent, impartial provider of financial knowledge and resources about financial products, budgeting, tackling debt, home buying and investment products.

Statement of Affairs

A Statement of Affairs form is the document that must be completed by an individual to apply for No Asset Procedure, Bankruptcy or Debt Repayment Order. It asks for details of what they owe and who they owe money to.

Statutory obligations of office holders 

The Insolvency Act 2006 is the primary legislation governing insolvency law and practice.  Nevertheless, many other statutes and statutory instruments are also relevant or impact on the role and responsibilities of office holders.

Summons

Where someone is served with a summons, which means that they must attend an interview with the office holder or the court, when they will be questioned on oath.

Supervisor

A person appointed by the Official Assignee and selected by the debtor to help manage a Debt Repayment Order.

Surplus Assets

Means the assets of an individual remaining after the payment of creditors’ claims and available for distribution back to the individual.

T

Tangible asset 

An asset with a physical form (e.g. stock or real estate).

Termination or Cancellation

A NAP or a DRO can be terminated or cancelled if it is discovered that the person was not entitled to enter the procedure.  Once terminated, creditors are then at liberty to chase the person for repayment.

Transactions at undervalue

A transaction at an undervalue can be described as either a gift or a transaction in which the consideration (i.e. value in monetary terms) received is significantly less than that given.  In certain circumstances such a transaction can be challenged by the OA in bankruptcy and set aside or monetary compensation awarded against the recipient of the gift or transaction.

Trustee in bankruptcy

The term used for the Official Assignee who is appointed in a bankruptcy.

U

Undischarged bankrupt

A person who is bankrupt.

Unsecured creditor

An unsecured creditor is any creditor who does not hold security. More commonly used to refer to any ordinary creditor who has no preferential rights, they are the last in the queue, apart from shareholders.

V

Voidable charge

A charge or security granted over property that can be set aside by the Official Assignee in a bankruptcy.

Voidable preference

A voidable preference is a payment or other transaction made by an individual which places the receiving creditor in a better position than they would have been otherwise. 

The OA may recover sums which are found to be preferences, if the transactions took place within a period of either two years (where the creditor is a connected person) or six months (in other cases) of the insolvency.