Regulated by one’s competitors

There are many good arguments against professional licensing. One argument is that it can sometimes takes away a person’s livelihood. In a recent New Zealand High Court case, an insolvency professional, Mr. Grant was denied membership of Restructuring and Insolvency Turnaround Association New Zealand (RITANZ) which meant that as per the newly introduced Insolvency Practitioners Regulation Act 2019 (IPRA) he would be unable to practice in his chosen profession (i.e. that of a liquidator) of 14 years.

The IPRA has introduced a co-regulatory model under which accredited professional bodies are responsible for licensing. As per the IPRA, insolvency professionals should be a member of the New Zealand Institute of Chartered Accounts (NZICA). There are some exceptions to this requirement, one of which is that the person should be a member of a “recognised body”. RITANZ is a recognised body as per the IPRA and since Mr. Grant is not a chartered accountant, his only route to being licensed is through membership of RITANZ. Membership decisions at RITANZ are made by empanelled members of an elected board in accordance with procedures set out in Section 5 of the Association’s Rules. One of the rules under this section states that the applicant must, amongst other things, “be of good character (as determined by the Board in its absolute discretion)”. Also listed amongst the Association’s rules is one that states that the Board is “not required to give any reason for determining not to admit an applicant to membership”.

In other words, RITANZ can make membership decisions which might determine a person’s right to practice as an insolvency professional without needing to give any reasons. This is already problematic without adding the additional fact that the market for insolvency professionals in New Zealand is a small one. Thus, what we have is a small community of professionals well-known to each other making decisions about the ability of members’ of the community to practice the profession. The court recognises this latter point when it says, “the involvement of other industry professionals (even, in a literal sense, competitors) in the decision-making process is an inevitable consequence of the statutory regime” while discussing the IPRA as against the scheme of regulation for legal professionals in New Zealand. This comment is however supplemented by a footnote where the court notes that “in the present case, …only a minority of the Panel (Mr Fisk and Ms Johnstone) were themselves insolvency practitioners. Their evidence was that, professionally, their paths seldom crossed those of Mr Grant”.

Mr. Grant had a criminal history, by his own admission. As Justice Muir notes, “in summary the position is, therefore, that Mr Grant has a serious history for dishonesty offending, albeit that the last such offences occurred 27 years ago”. However, Mr. Grant has not re-offended since 1994 and the court makes much of presenting him “as something of a “poster boy” for reform”. I reproduce the court’s words regarding his reform story below:

In prison, he recommitted himself to earlier academic studies, enrolling with the Open Polytechnic. On release, he completed his Bachelor of Commerce Degree and Honours Degree in Economics. He then worked in the gas industry. In 2006, while a consultant to that industry, he accepted his first appointment as a liquidator. He then undertook extensive private study in respect of insolvency law and practice. That is the genesis of what is now Waterstone Insolvency – a firm of which he is the principal and sole director and which has now grown to in excess of 20 employees. Mr Grant has himself been appointed to over 800 insolvencies (i.e. liquidations, receiverships and voluntary administrations). His current appointments number approximately 200.15 He says that over the last three years he has been appointed in respect of approximately three per cent of all insolvency applications in New Zealand and approximately five per cent of all non-IRD appointments.

(Footnotes omitted.)

Now, getting back to the matter of his RITANZ membership application, the said application was made after the IPRA was introduced and subsequently rejected with no reasons given for the rejection. Mr Grant then commenced judicial review proceedings which were resolved by way of agreement on the part of RITANZ to conduct a rehearing of the application. As per the agreement Mr Grant could attend the rehearing in person with counsel and RITANZ also agreed to provide a written decision with reasons within 14 days. His application was however again declined after the rehearing. As the court notes, in the rehearing, there was a “significantly greater focus on Mr Grant’s past, including the genesis of his offending, aspects relating to his apprehension and plea, the extent of any amends etcetera, than on his subsequent history as a successful member of New Zealand’s commercial community”.

In response, Mr. Grant has brought the current application for judicial review arguing that (i) the decision was made in error of law, was (ii) unreasonable and unlawful because it took into consideration irrelevant matters and failed to adequately consider relevant matters, and (iii) that the decision involved an unfair process, apparent bias and predetermination. Elaborating on the third ground, Mr. Grant submitted that “the approach adopted in the decision was in each case to focus on the most negative aspects and most negative interpretation possible and to minimise the overwhelming body of evidence indicating reform and thus present good character”. He submitted that this was indicative of apparent bias, “the origins for which may ultimately lie in the fact that Mr Grant was in direct and sometimes adversarial competition with some of the decision makers – both those involved in the initial decision and those empanelled for the rehearing”.

The court concluded that the decision was indeed problematic on the first two grounds in Mr. Grant’s submissions. With respect to the third ground however, the court said that there was no evidence of bias in the decision-making. Ultimately, the court said that although the Panel’s decision was quashed it will not substitute its own decision and make an order admitting Mr Grant to membership of RITANZ. Mr. Grant’s application was remitted to RITANZ for reconsideration.

One aspect highlighted by this case (if not by the judgement) is that professional licencing and regulation is complicated by the fact that a professional is regulated by her competitors. Although Justice Muir says at one point in this judgement that he “would not have been prepared to quash the decision on the grounds of apparent bias arising out of the professional status of the Panel members” that is simply the limitation contained within the statute and within the principles of judicial review. As Justice Muir goes on to note, “the statutory regime precludes challenge on the grounds that those adjudicating the application (or at least some of them) may (in the broadest sense) be considered competitors in Mr. Grant”.

From a policy perspective, we need to need to reconsider whether professional licensing decisions should be made by the competitors of the person about whom the decision is made. Justice Muir seems to be aware of this issue when he says that the reconsideration of Mr. Grant’s decision by RITANZ “may well be a case where the Board would benefit from the appointment of senior counsel assisting”. Justice Muir further seems to be conscious of the adverse impact of a delayed decision in this case. He notes that “Mr Grant is currently unable to accept further professional appointments” and “within 10 months he will not be able to continue to act in respect of existing appointments”. This is exactly the kind of case that should make us carefully weigh the benefits versus harm of professional licensing regimes.

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