Do receivers and liquidators deliver the right medicine, or bleed the patient dry?

If Hollywood ever wanted to make a TV show about life in the insolvency industry, it would probably be modelled on something like ER.

After all, those who work in the industry are regularly expected to drop everything to help save some business' life. And even in New Zealand, some of the dramas they are dragged into are equal to almost anything Michael Crichton could dream up.

In cases of serious trauma, their initial job is to stem the bleeding of red ink. But in cases where the patient is clearly beyond saving, they might have to put the company out of its misery, leaving grieving creditors to fight over any remaining assets.

Sometimes, the patient may voluntarily check themselves in for rehab. But that might be just the start of their problems.

Witness the public reaction to the voluntary administration of REDgroup, which in New Zealand includes the Whitcoulls and Borders chains: what has really upset some creditors - and even rival practitioners - is the fact that the senior staff of the Australian company brought in to handle the operation are being paid $830 an hour.

To some, those are Charlie Sheen rates, rather than early George Clooney. "I think the fact that they're applying Aussie rates for a New Zealand assignment is completely wrong," says one local practitioner.

Others note that some of those at the very top of the profession are more like Hugh Laurie's character in House - difficult pricks, and not necessarily well liked, but respected all the same for their wide range of skills.

"At the end of the day, we do a bloody difficult job, so why shouldn't we be paid similar rates to an auditor, or a lawyer, or an investment banker?" the local practitioner argues. "We are professional people and we work under huge stresses and strains. Why shouldn't professional rates be charged?"

It is certainly true that unlike real doctors, receivers and liquidators often have to deal with patients who are undergoing treatment against their will.

But the argument over professional rates is a tricky one, given that not all insolvency practitioners in this country are in fact professionals. Across the Tasman, they are required to have a recognised accountancy qualification, several years' experience at a senior level, further training, and good references.

Insurance cover or a bond is also required for registration.

In New Zealand there is no requirement for any qualifications at all, nor is there any registration. It is widely believed that in this country, there are ex-plumbers and ex-auto electricians who are working as financial surgeons.

Not surprisingly, officials have agreed this might not be ideal.

Each year in New Zealand, around 3000 businesses hit serious financial strife.

In 2009, that figure swelled to nearly 4000 a year. It has since dropped back a little, although it is still well up on just five years ago.

While the vast majority are fairly straightforward liquidations, a good chunk are rather more complex receiverships, mostly involving small and medium-sized businesses.

Corporate doctors are often called on to sort out terrible messes, which are often of the business owners' making. But inevitably, some business owners and creditors have horror stories of their own to tell about the corporate doctors. The most common complaints are about conflicts of interest, over-charging, and seemingly stupid decisions.

While the sums involved may seem trivial to the bureaucrats, that's not always the case. High-profile receiverships and liquidations can drag on for many years and there has been debate as to whether hourly rates provide a perverse incentive to lengthen the time spent in surgery.

In New Zealand, the statutory managers of Equiticorp are still sorting out the disgraced company's affairs almost 22 years after they were initially appointed. And the more recent collapse of a string of finance companies is seen by some as more likely to benefit the insolvency industry than help hapless investors in the long term.

Reports filed by Bridgecorp's receivers over the past three years show that PricewaterhouseCoopers has so far been paid at least $3.4 million to sort out that particular mess. And financial campaigner Gray Eatwell has taken the side of Allan Crafar in the Crafar saga, pointing out that according to its reports, KordaMentha has already been paid at least $4.2 million to handle the receivership of the family's farms.

Eatwell has even suggested KordaMentha has done more harm than good, citing Fonterra reports that show production has plummeted on at least one of the farms. KordaMentha has rejected the allegations.

In Parliament last year, Labour MP Shane Jones noted that many insolvency practitioners were still being appointed by "virtual associates and virtual friends", and he wondered aloud whether it was time New Zealand adopted the American approach to regulation "which really moves very quickly into criminality".

But if Australia's experience is any indication, then those hoping that regulation will improve the industry's image here may be disappointed.

Last September, a Senate committee completed an 18-month inquiry into Australia's insolvency industry. Among other things, it found that the Australian Securities and Investments Commission (ASIC) had ignored numerous complaints about incompetent practitioners. It also raised concerns about conflicts of interest, possible overcharging and over-servicing.

The committee has suggested ASIC be stripped of its responsibility for the industry, and it has also recommended a tougher licensing system be introduced - including "flying squads" to audit insolvency practitioners at random intervals.

It has to be said that many of the committee's recommendations look unlikely to be adopted by the current Australian Government. But those who believe that Australia's corporate watchdog is far more active than its New Zealand equivalent may be surprised by much of the evidence heard by the committee.

One of the most notorious cases in Australia is that of Stuart Ariff, who was eventually banned for life from being a liquidator and ordered to pay A$4.9 (NZ$6.7) million to those involved in 16 companies he was found guilty of mishandling.

According to the Senate committee, ASIC received many complaints over many years about Ariff, but only acted once the media took up the case. Because Ariff is now bankrupt, his victims have not yet received a cent, and he has yet to face any criminal charges.

The committee noted his victims "rightly remain bitter". As one of them told the inquiry: "In most other countries Mr Ariff would have faced charges of criminal breach of trust, embezzlement, theft and false accounting, to say the least, and if convicted, spent time behind bars. Instead he is walking free and he and his ill-gotten gains are enjoying protection under the umbrella of bankruptcy."

If ASIC had acted sooner, it might have been able to get to Ariff before he became bankrupt, the person argued.

Similar claims have been made in New Zealand about Blue Chip director Mark Bryers, and Blue Chip liquidator Jeff Meltzer has also come under fire for failing to identify any serious wrong-doing by Bryers that might have appeased his outraged investors.

Receiver Damien Grant, from Waterstone, argues that it is not inadequate laws that are usually the problem in such cases, but the lack of money to pursue a prosecution, or the lack of assets owned by directors.

"Ninety per cent of the files that come across my desk, there is an opportunity to make a director personally liable for something if I had the money to chase them," he says. "The problem is not the law. The problem is who is going to fund it. And finding a creditor who is prepared to throw good money after bad is really hard."

Last year, Inland Revenue Commissioner Bob Russell took a swipe at the industry for not delving deeply enough into the affairs of failed companies, Grant notes. "My response was: 'Don't blame friendly liquidators for your own incompetence'. Part of the reason why IRD is losing so much money is that they sit there and don't do anything themselves. They've been slow and unresponsive."

Stuart Ariff didn't exactly do himself a favour by, among other things, charging one of his clients A$60 just to read a story about himself in The Australian.

Last May, former Australian High Court judge Michael Kirby argued that insolvency work was inherently expensive "because of the intensive nature of the investigation of accounts that insolvency practitioners must analyse and understand". Unless the public was willing to pick up the tab for these costs, "a significant burden on creditors is virtually inescapable" he suggested.

In Australia, KordaMentha partner Mark Korda has defended the industry's fee structure, claiming that the hourly rates of insolvency professionals "are at the lower end of the standard rates of accounting and legal professions". But according to barrister Geoffrey Slater, some are earning millions of dollars a year.

"For some of the larger firms in Australia we are talking well over A$4 million, or A$5 million, or A$6 million per year for the partners of the insolvency firm," Slater told the Senate inquiry. "That is more than any of the partners make at the big [law] firms."

In New Zealand, most practitioners generally charge $300-$400 an hour. But Kiwis are not likely to be competing against Australians for the big jobs any time soon. Although Australians can practise in New Zealand, the reverse is not the case, because of our lack of regulation.

You can, however, understand Australia's stance on the issue, given that there have been several cases here of insolvency practitioners who have also come under public scrutiny.

Last August, Environment Minister and Nelson MP Nick Smith told Parliament he had received "a considerable number of concerns" about several insolvencies involving Nelson firm Norris Management Services, or NMS.

According to Smith, Pat Norris advertised himself as being a "highly experienced insolvency practitioner", and charged himself out at $200 an hour. In fact, he claimed, Norris was an auto electrician whose only previous experience of liquidations was his own spray-painting business in Hamilton, which went into liquidation and left more than $150,000 of debts to unpaid creditors.

Smith also noted, using the protection of parliamentary privilege, that Norris had been convicted of fraud in 1999, and had also been convicted last year of illegal filming in a private residence.

In one liquidation Norris had been involved in, of a bus company called Murchison Buses, he had effectively sold a bus to his own company for nil value, he claimed. There were also allegations, he said, that his partner now owned another of the company's buses.

Norris has disputed the allegations and threatened to sue the Minister. Nevertheless, Smith told Parliament he was perturbed at how little protection there was for creditors and business owners when problems arose in such situations.

Most creditors, he noted, seemed to be resigned to cutting their losses and simply moving on. "My greatest frustration with these issues is how little can be done," he said. "There are no checks or balances under the current law, and an insolvency practitioner is in a very powerful position. We need to be realistic that the director of companies or businesses concerned will often be broke, and they will be in no position either emotionally or financially to be able to legally challenge a decision of an insolvency practitioner."

Auckland businessman Ram Rai is a rare example of someone who refused to accept the status quo. A former owner of Mission Bay restaurant Jewel of India, Rai got into a dispute with liquidator Gilbert Chapman in 2009 when Rai attempted to sell an associated business that sold curry to supermarkets.

Rai was keen to sell the business to a new owner, and to wind up his own affairs. He became alarmed when Chapman decided to take over the running of the business himself.

At loggerheads with Chapman over the process and the amount he was being charged, Rai took the battle to court and succeeded in getting Chapman's charges reduced by more than half.

Judge Roger Bell also criticised Chapman for placing the business in liquidation before the sale process had been finalised. According to Rai, the move prompted the potential buyer to slash the amount he was prepared to pay for the business.

The judge praised Rai for bringing the case to court, and noted that it was often impractical to legally challenge a liquidator's charges. "Most times, it is not worthwhile for a creditor to do so and that, to a certain extent, leaves the liquidator in a position of some immunity."

At the time, Chapman told the Herald he planned to appeal the decision, but he hasn't done so. He has since been replaced as the liquidator of Rai's business, and another judgment has been made against him.

Last month, Judge Bell ruled that Chapman had taken another $14,000 in fees without the court's permission. He ordered Chapman to hand over almost $70,000 to the new liquidator, as well as the extra $14,000, and to pay almost $10,000 in costs.

The new liquidator, Paul Sargison, says the money has not been forthcoming and bankruptcy proceedings against Chapman are under way.

For Rai, it has indeed been an emotionally and financially exhausting experience. And to make matters worse, legislation due to be passed in the middle of this year to finally address the problem has been delayed once again.

Parliament began a major review of New Zealand's insolvency laws in 1999. One of the key reforms so far is a new option known as voluntary administration.

It was hoped voluntary administration might help more companies survive tough times without some of the problems and costs associated with receivership, but most in the industry agree it has so far been a disappointment.

According to Damien Grant, the industry has gone off the option since a court case involving his own firm established the rules around casting votes, used when creditors cannot agree on the way forward. The upshot of the case is that the hurdles for liquidators are now higher in New Zealand than in Australia, he says.

The same case also established that the IRD can effectively veto voluntary administrations, which was not what was originally envisaged, Grant argues. The case is due to be reconsidered by the Court of Appeal in July.

"If we win, you might see a bit of a swing back to voluntary administrations. If we lose, then you can expect to see voluntary administrations languish unloved," he suggests.

Meanwhile, a decade after the Law Commission suggested the regulation of insolvency practitioners, officials have yet to make up their minds exactly what should be done.

The first discussion document on the issue was produced by the Ministry of Economic Development in 2004.

In Parliament last year, former Commerce Minister Lianne Dalziel revealed that she had battled with officials over the issue. Officials were concerned that any new regulations might be using "a sledgehammer to crack a nut", she said. They also argued that regulation might be unnecessarily expensive, given that only a handful of people were believed to be causing serious problems.

According to Dalziel, a proposal for a negative licensing system - which would effectively allow officials to ban people deemed to be incompetent - was her "last-ditch attempt to get some traction on the issue".

As it happened, it was current Commerce Minister Simon Power who introduced a draft bill to Parliament last April that would give the Registrar of Companies greater powers to get rid of incompetent practitioners. The bill was supported by every party in Parliament except the Greens, who argued it was yet another example of "a classic bottom-of-the-cliff approach".

However, many people in the industry appear to agree with the Greens. Although the commerce select committee has not yet reported back on the bill, it is believed to be reconsidering the issue.

A new discussion document issued by officials just before Christmas has once again raised the option of positive licensing, and introducing some form of registration. Officials were due to meet with select committee members this week to clarify their next move.

Because almost anyone can advertise themselves as an insolvency practitioner in New Zealand, no one knows exactly how many people might be working in the industry here. There are fewer than 600 registered practitioners in Australia, and only around 800 in Britain. Given that Australia has roughly five times the population of New Zealand, and Britain is roughly 15 times bigger, you would expect New Zealand to have 50 to 100 practitioners. But some estimate there could be more than 200, most of whom carry out only one liquidation per year.

KPMG insolvency specialist Shaun Adams used to work in Britain, and admits he was initially looking forward to New Zealand's lighter regulatory regime when he first moved here. But Adams is now convinced that more regulation is badly needed.

"I'm just horrified," he says. "I don't think there are a huge number of cowboys. But it's incredible that there is little or no recourse against someone who is responsible for taking possession of someone's assets and money, other than taking them to court."

Like others in the industry, Adams is keen to see other changes, too. He believes, for example, that the rules relating to voluntary administrations are too rigid, too costly and too time sensitive.

Another major bugbear in the industry is the differences between the New Zealand and Australian regimes, and the priority that is given to the IRD in New Zealand. Australia has another tool some New Zealand practitioners would also love to see here: the ability of its Tax Office to issue a notice which forces a company to address its problems much sooner than in New Zealand.

And there is still much debate about whether measures could be taken even earlier than at the voluntary rehab stage, to ensure companies don't fall off the wagon in the first place.

Grant believes the industry itself is largely to blame for not better promoting its skills to companies experiencing less serious problems. "One of the real frustrations that those of us in the industry have is that we're brought into the thing far, far too late. We'd rather be oncologists than morticians. If we were brought in more early, we can generally do something to help."

But as some note, if the speed of reform on licensing is any indication of how quickly further reform might occur, it might not pay to hold your breath for those changes to happen any time soon. The company doctors, it seems, have been asked to join the waiting list.