Companies (Clarification of Dividend Rules in Companies) Amendment Bill

I move, That the Companies (Clarification of Dividend Rules in Companies) Amendment Bill be now read a second time.

What a fantastic day for the New Zealand farmers, with the opportunity to reflect on a piece of legislation that finally provides clarity: that if you wish to establish yourself under the Companies Act with cooperative principles at its core, you can, and you can structure your constitution in such a way that, if you provide supply, you can get dividends on your shares, and if you do not, you have, under constitution, the ability for those shares to be treated in a dry context and not attract the dividends.

I accept that, in the context of the conversations that this House has had to reflect on over the last few hours, you probably could not get a bill that is more contrasting in terms of its lack of consequence. But, for all of that, it is a very small, technical amendment, which, in my view, will advance the cause of those who work the land, who have produce that gets taken off around the world, and who would like to be able to structure their effects and affairs in a way that is very cooperative at its principle. We, of course, have had a select committee process that has run over a number of months, and it has been an enjoyable process. Can I acknowledge Kieran McAnulty and David Bennett, who have shared over time the role of chairing the particular committee as we have ushered this piece of legislation.

Just to remind the House, this is very much a simple bill that gives companies clarity around the right to distribute profits according to their constitution. There is currently doubt around the ability of a company’s constitution to provide for dry shares. These are shares which do not carry dividend rights in prescribed circumstances and are, typically, used in cooperatives when the shareholder no longer supplies the company and there is a desire by that company, that is structured in such a manner, to be able to differentiate between the shares of the suppliers who supply the company, and those who do not and have a differentiation in terms of dividends. Currently, section 36 of the Companies Act suggests that provision for dry shares can be made in the constitution of a company. However, section 53 can be read in a manner that would seem to negate that right. This amendment seeks to clear up this historic confusion, which will provide much more clarity for companies and their shareholders.

As we went through the select committee process, we had submissions from the cooperative association. We had a submission from Zespri International who, I know from past experiences, had had challenges with the lack of legal clarity over the effect of those two sections 36 and 53. We also had a significant contribution from David Goddard QC, and I acknowledge his support for this small technical amendment and the good work that he did with the officials to reach a simple and, I think, quite effective outcome. As we stepped through the select committee process we looked, in particular, to the clause 4 of this bill, section 53 amended (dividends), to see whether what was suggested in the original bill was still fit for purpose. We received some very good advice that all of the committee members took on board and agreed would make sense, that suggested that we replace the clause four which is in the current amendment bill with a new clause four which would replace section 53(2). It would, firstly, retain the three existing exclusions for when a board may authorise a differential dividend, and make it clear that a company’s constitution may provide for differential dividends, and that the board may authorise a dividend in accordance with the constitution.

I appreciate that this is a very small and technical amendment. But there are a number of companies that are in the agriculture and horticulture sectors that would like to be structured in a way that is under the Companies Act, but they would like to treat their shareholding in a co-operative context. The clearest and cleanest way they do that is by having a distinction between whether the supply back shares can receive the dividends and the non-supply back shares do not. The whole purpose of bringing this small technical amendment to the House is the fact that there are two parts of the Companies Act which appear to be, at a particular reading, contradictory, in terms of what they give effect to. Section 36 provides a wide assumption of what a constitution can enable, including the ability to treat shares differently with respect to dividend rights if it’s so included in the constitution. Section 53 suggests otherwise, and negates that right.

In previous lives, I have been in the agricultural sector and the horticultural sector when companies have sought to try and create this ability in their own constitution and have had legal advice which suggests that sections 36 and 53 are at odds. I appreciate it is very technical, but I think, coming from a region that has a significant number of agricultural and horticultural companies, a significant number of those companies wish to be structured like this. There should be clarity in the law. When that perspective is given voice to by an eminent lawyer like David Goddard QC—and we worked through that with the select committee—I think we’ve landed at the right place.

There have been very good cross-party collegial conversations. I appreciate that the members on the other side have had, at times, questions that they wanted to get clarity on, but I am pleased that we had unanimous support from the select committee to support this legislation through to the second reading, and I very much look forward for that support holding. It is very minor, it is a small, technical change, but it will allow companies that wish to be structured under the Companies Act but act with cooperative principles to have clear legal clarity so that they can structure their affairs in such a way that supply back shares can have dividends, and non-supply back shares cannot. I think that will be a step forward for agriculture and horticulture in New Zealand. A minor change, yes, but it is one that I know, in the areas that I have worked in over my career, will be welcomed. Thank you, Mr Speaker, and I look forward to the contributions.

Debate interrupted.