If a debtor is unable to repay its debts and believes there is no prospect of this changing, the No Asset Procedure (“NAP”) provides an alternative to bankruptcy as a one-off opportunity to sort out the debtor’s financial affairs without a formal bankruptcy.
Requirements to entering the NAP
A successful application will give a debtor protection from creditors, similar but not identical, to that provided by bankruptcy. To be successful in the application, the debtor must satisfy the Official Assignee on reasonable grounds that:
- the debtor has no realizable assets;
- the debtor has not previously been admitted to the NAP;
- the debtor has not previously been adjudicated bankrupt;
- the debtor has total debts not less than $1000 but no more than $40,000 (this does not include student loan); and
- under the prescribed means test (which assesses whether the debtor has surplus income after household usual and reasonable living expenses are paid) the debtor does not have the means of repaying any amount towards those debts.
Barriers to entering the NAP
However, a debtor must not be admitted to the NAP the Official Assignee is satisfied on reasonable grounds that:
- the debtor has concealed assets with the intention of defrauding his creditors;
- the debtor has engaged in conduct that would, if the bankrupt adjudicated, constitute an specified offence;
- the debtor has incurred a debt or debts knowing that the debtor does not have the means to repay them; or
- a creditor intends on applying for the debtor’s adjudication as a bankrupt as it is likely that the outcome will be materially better than if the debtor is admitted to the NAP.
Full Analysis of NAP
It is important for creditors to take this into account as part of considering taking action.
For a full analysis of how shareholders do this and relevant considerations for creditors, we refer you to the article by Norling Law: https://www.norlinglaw.co.nz/blog/alternative-to-bankruptcy-no-asset-procedure.