Status of Redundancy Payments Bill

Part 2 amends the Insolvency Act in a number of ways. Essentially, it deals with issues in the Insolvency Act, providing for no lien over a bankrupt’s books. It deals with priorities, and makes some consequential appeals as a result of the amendments that are made, as well. The importance of this is to establish redundancy as part of the priority for employee entitlements. Prior to that, employee entitlements were basically wages, holiday pay, and other incidentals that might have been accrued during the time of employment. But, as has been discussed in the currency of this debate, many employees in the process of negotiating their redundancy deals trade away things to obtain that little bit of security at the time that a company might be going through hard times and subsequently folding up.

Rick Barker talked a lot about Tomoana Freezing Works, and I have talked about Ocean Beach freezing works. There are a myriad of freezing works in this country that have been affected. I thank Phillip Field for raising the issue of Patea. Having come from Taranaki myself, I know that the Patea community was absolutely rent asunder when that particular freezing works closed. Nobody wishes that on anybody or on any community, and nobody wishes redundancy on anybody, either. Nobody wants to see a firm fail and go under, but that is the cut-throat nature of business, and, as I mentioned earlier in a contribution, in my electorate there is talk about building another freezing works. I have to say that that concerns the Alliance freezing company, quite seriously. It has been through major reorganisation, and, having had to cut chains, to close Ocean Beach Freezing Works, and to bring in double shifts to be able to process the stock, now faces the establishment of new chains. I do not know—other speakers might want to elaborate—when a new chain has been built in New Zealand in the freezing industry for quite some period of time. These are the pressures that go on businesses as they face their normal business. So including the redundancy settlement as part of the employee priorities simply means that that part of the wage and salary package is protected to a maximum of $15,000.

Let us go back to the situation at Tomoana Freezing Works. We are talking about $35 million across 2,000 workers. That is a heck of a lot more than $15,000. That is a dead loss to those employees. Those particular workers were totally unable to do anything about looking after their mortgages and their families. I am sure Rick Barker can tell the Committee some of the stories. Workers are very reluctant to come forward to tell us the difficulties that they face when they are trying to look after their families on no income. It is highly personal, and highly embarrassing to them, and a little bit of decency about protecting those particular matters is important.

The other thing that this particular part of the bill does is ensure that there are periodic adjustments and it provides the mechanism for the periodic adjustment to occur. That will mean that the House will not have to revisit this matter again once this particular legislation has been passed. It will mean, as a result of cost-of-living increases, that, in time, these amounts will be reviewed against that and increased by Order in Council. That will mean that this will not diminish over time and will not devalue as a result of inflation. Those workers who subsequently find themselves in a position later on in their working lives to lose income are able to pick up their redundancy payments at a rate more appropriate than perhaps the $15,000 rate. Again, I thank the select committee for the work it did, and I thank the submissioners who submitted on this part of the bill. I say to the Committee that this legislation is moving this part of our industrial law into the 21st century.

Most members of this Committee can understand why Mr Peck has such an interest in redundancy, and even have some sympathy. Members may wonder what Mr Peck has done to deserve Trevor Mallard and his Sonny Bolstad impressions down in Invercargill.

I want to pick up on just two points before I move into what I think is the main issue here. The first is the comment that Mr Barker made that somehow the ACT party’s position was driven off the bankers supporting the ACT party. It may come as quite a shock to Mr Barker, who may not know who funds the Labour Party, but if he looks at financial contributions from financial institutions he will see quite clearly that the largest benefactors were the Labour Party and the National Party—not the ACT party. He might want to check that out. [Interruption] It is a matter of public record, and if the Minister does not understand that, then he should have a look at it.

The second point I want to make concerns the issue that Mr Tisch raised regarding growers and how their losses will be suffered, and I think it is testimony to how the Labour Government sees self-employed people. The growers in the Manawatu, Rangitikei, and the Horowhenua who are losing their entire livelihoods and will not be protected by some sort of union-driven status of redundancy bill, are being offered three-quarters of the unemployment benefit by this Government. They are not even good enough to get the unemployment rate—they are being offered three-quarters. That is what the Labour Government thinks of self-employed people—when they are really down as a result of the flood they get three-quarters of the unemployment rate. It is a disgrace.

I want to pick up on a point made by Mr Prebble in his speech in relation to the fairness of these redundancies and the fairness of this legislation. The logic behind this bill is so silly that one would imagine that nobody has taken a reasonable time to look at it. I want to make this first—the first and most obvious point. There is nothing stopping any employee in New Zealand from having this treatment currently. Employees can negotiate the position. They are absolutely free to negotiate this position with employers today—and they do not do it. Why do they not do it? They do not do it because, firstly, they do not see the value in it doing it, and, secondly, employers understand what the impact will be on the banks’ capital structures. The second point I want to make in relation to fairness is that if anybody can see that a redundancy is likely to happen, if anybody can see that a collapse is likely to happen, it is the people inside the company. It is not people outside the company. We have all had experiences of going round to large employers in New Zealand, and we can recognise when the writing is on the wall. So if people need protection, then it is small businesses that operate with those, and customers.

I make one final point. We have heard quite a lot of debate about the issue related to small businesses, but no mention has been made of customers who pre-pay for activities with a company that goes broke. There is a large group of New Zealanders who will be adversely affected. However, I want to speak tonight mainly about what this bill will do to the capital structure of investing in New Zealand and in companies. One of the great tragedies of this bill relates to whether New Zealand is committed to getting back into the top half of the OECD—and we know that the Government does not like to talk about that. We know the Government has abandoned that proposition. Treasury tells us day after day, as it tells the Government, that the Government’s policies are anti-growth, and that they will not deliver higher living standards for New Zealand any time before the 21st century—unless, with the good grace of the people of New Zealand, we can put a National-ACT Government in power, which I have no doubt will occur very soon. Very importantly, we need entrepreneurial activities, and we need banks to want to invest in small businesses. The first thing this bill does is make small companies that interact with large companies more vulnerable. That is exactly what this bill does. It makes them more vulnerable and less likely to get a payout than anybody else. Banks will automatically adjust their risk profile if this legislation goes through.

💬 Peter Brown: Rubbish!

The member says “Rubbish”, but he has not actually spoken to the banks about it.

Part 2 sets out a new order of payment. I have a question for Mr Peck, if he is able to answer it. It would appear from my reading of clause 8 that one could actually sign a redundancy agreement the day before a company goes insolvent, and, as a result of that, the employee would immediately get a credit. Is that correct? If so, then we are enabling people to “defeat the creditors”, and that is regarded as very naughty. In fact, a person can go to jail for that. It appears to me that if the manager of a company realises that the firm is going broke, then, provided that person is not a director, he or she ought to negotiate a redundancy agreement with himself or herself. He or she probably can, being the manager.

Nothing I have seen in the bill stops a manager of a company, provided he or she is not a director, from negotiating with himself or herself, signing an immediate redundancy, which would be for only $15,000, then going to the liquidator and putting the company into liquidation. Is that correct, or have I misread it? It may be, on reading section 104(1)(d)(iv) in clause 8(1), that it has to be 4 months before a company is put into liquidation. However, I would like an answer to that question. Members have been telling us how carefully they have studied it, so Mr Brown could tell me.

Are we really allowing the manager of a company to do this—a manager who may have made the company insolvent through his own misdeeds? Perhaps the manager gambles and drinks, and is told by his accountant that he has to put the company into liquidation. The manager may say: “Nick, I’ve just got to do one thing first. I need to negotiate myself a $15,000 redundancy. Just wait a second while I sign the agreement, then I’ll put the company into liquidation.” Are we seriously doing that? If we are, I assure the Committee that what I am describing will not be a joke; it will happen. Of course it will happen. Human beings are not perfect, but they are very ingenious. If the incentive is for a manager to write himself or herself a $15,000 redundancy agreement, because he or she will get priority over everyone else—and he or she will get paid—then that is exactly what will happen.

Where is the commercial logic in that? Where is the morality of it? What is the point of us having an Insolvency Act that states it is a criminal offence for a person to defeat the creditors when we then put up a measure that enables people who put a company into liquidation to give themselves $15,000 redundancy? I would like that simple question answered. Am I reading it correctly? If I am not, what is the situation? It would appear to me that a redundancy deal signed the day before a company is put into liquidation would get priority. If that is so, then there is nothing to stop a manager, if he or she has the proper authority, from signing himself or herself a $15,000 redundancy deal. How can we possibly think that is fair law?

Normally I start my speech in these debates by saying that I am pleased to take a call, but I am not. I feel compelled to take a call, because I think that this legislation is some of the worst that has been perpetrated in this House.

In my last call I was speaking about insolvency and working through an example that I did not conclude, so I will take the opportunity to do that now. Members will remember that I was saying that the receivers had moved in and that there was $35,000 in the bank that was owed to creditors. Under this legislation, the employees are owed $75,000, not to mention their superannuation, holidays, and wages owing—and I would have made that point more carefully had Mr Barker allowed me to. Thirty-five thousand dollars does not cover the redundancy liability, so mum, dad, and the kids have their house sold from underneath them. It is worth $150,000. The employees, who did none of the risk taking, will divide up the spoils. They will get their wages, holiday pay, etc., and now they will get $15,000 to boot. Wages, holiday pay, and redundancy sees them get $17,000 each, and on a rough calculation, a grand total of $85,000. There is a shortfall of $50,000 owed to the employees, so they will be working to sell up mum and dad, as well. It will pit Kiwi against Kiwi, and mum and dad against mum and dad. The bank takes the balance to cover the loan of $70,000, and that is fair and reasonable, because it is protecting shareholders’ funds—the same people, the mums and dads, who make deposits. Seventy thousand dollars, plus $50,000, for the quicker people in the House, is $120,000, a positive balance of $30,000 with regard to the value of the house. Moneys owed to other creditors amount to $35,000; therefore, mum and dad are now left penniless, if not bankrupt, and the employees have the option of either going on to the dole, or working elsewhere. That sounds really fair, does it not? It sounds very fair, indeed. Well, I do not think it does.

I shall now respond to the comments made by Mr Field. I thought that his contribution was very level headed, and I commend him for it. I tell Mr Field that the workers and the mums and dads who run a business are equal. Why should we cherry pick? Why should some be more equal than others? Because mum and dad form a business or incorporate, they are just workers who are deriving their income in a slightly different way. This legislation will not encourage people to take risks. Essentially, we will end up getting a very risk-averse culture where it is just not seen as being worthwhile to put up one’s house as a stake in order to raise money to get into business.

Mr Key raised the issue of the cost of capital. I ask Mr Peck: what will this do to the cost of capital? I would like him to take a call to answer that question. I do not think he really knows the answer, so it is probably unfair to ask him. However, I will give him the answer. This bill will increase the cost of capital, because banks will not have the same level of security—and banks price for risk. The other thing the bill will do is remove capital out of the marketplace. Banks will simply say: “The deal is going to be shorter, so we’ll call up money sooner, or we’re just not prepared to risk, at all.”

This legislation will do immense harm, and for the life of me I cannot understand why Mr Peck and his Government colleagues cannot heed these warnings. They are not coming just from me. The Status of Redundancy Payments Bill was opposed—and Mr Peck says by just a few—by Business New Zealand, the Financial Services Federation, the New Zealand Business Roundtable, the Joint Insolvency Committee of the New Zealand Law Society and the Institute of Chartered Accountants of New Zealand, Federated Farmers, and I shall stop there. Does anyone in the Chamber actually support this legislation, other than unionists? Interestingly enough, the Council of Trade Unions submission was one of six in favour of the bill. Others expressing similar sentiments came from the Rail and Maritime Transport Union, from the New Zealand Nurses Organisation—

The point I would like to pick up on—and I agree that the Hon Taito Phillip Field did make some very good and sensible points in his speech—is that when a large business fails in a small community it can also bring devastating results. I agree with that.

From United Future’s perspective—and we are a true centrist party, so we do try to see both sides of the spectrum and try to come with a common-sense middle ground—what we need to understand is that big business is great. We would agree with that, and we would support it. But a big business does not just arrive all of a sudden, except in some cases when it comes in as an overseas entity.

But take, for example, Stephen Tindall and The Warehouse. That business started in a building that we once shared. He started with only one or two employees and the business gradually grew. Any sporting club that fails to cultivate the youth, and stays only with older people eventually dies.

In this country we need to see the importance of small business. I take the Hon Richard Prebble’s point that over one-third of our population earns their money from outputs now. That will only increase. Much as the Government says that we are the least regulated, it is the type of regulations that we are talking about here that is putting the brakes on small business. It is making people less likely to want to employ staff. They would rather employ contractors, because they do not want to deal with all these issues. I think that, as MPs, we have a responsibility to make a fairer level playing field that will not only support people who want to be wage earners but equally will support people who are prepared to take a risk, put their house on the line, and give it a go. Because if we fail to support those people, we will not have the Stephen Tindalls in this nation: the people who are prepared to put everything on the line to serve the population of New Zealand. A business is only there to serve its customers and it rises and falls on its merits and ability to serve its customers well.

We create difficulties when we continue to bring in legislation that will affect those entrepreneurs who want to go out and work under contract. We say to them that we will give support to the contracts that wage earners have, but the contracts that contractors may have with a business in order to get paid will be put aside. Contractors will wait in line after the Inland Revenue Department, after the banks, and after the redundancy payments. As we have heard a few times, we are not talking about workers’ wages or holiday pay—nobody would want to restrict those payments. But redundancy clauses can be put into many packages, and whichever way it is viewed, it is payment for work that has not been done, whereas possibly one-third of the workforce are on an outputs-based income.

United Future cannot in any way see the fairness or merit in paying people for work that has not been done, ahead of paying people for work that has been done. Any leader who does not base his or her efforts on truth, compassion, and mercy really is in trouble. I seriously ask Mr Peck, and those who are supporting this bill, to ask themselves whether they are showing compassion and mercy to the entrepreneurs of this country who lay everything on the line to help other people get work. All they are asking for is fair pay for themselves.

It is good to follow the United Future party. I note the member said it is the true centrist party, and it is—it controls half a percent either side of the centre, and long may it continue to do that.

This bill is a terrible bill. We are debating Part 2, and all of it is new. The entire part was introduced at the select committee. It did not form part of the original bill. Mr Peck said that people did not come along to the select committee and argue and make submissions, so on that basis we should put the bill through. I say to Mr Peck that the public and business sector at large did not believe that the Government would pass this bill. They did not think it would be as stupid as that. I challenge the Government to send this bill back to the select committee, adopt it as a Government bill, and tell the people out there who will be really hurt by this bill, that the Government is prepared to listen to them.

But the Government will not do that, even though it knows that lots of small-business people stand to lose the shirts off their backs. That is the reality of this bill. Any small business that has paid out for goods or services, and provided them to a large company that then becomes insolvent, will go to the wall, whilst the workers get their redundancy. That tells us what Labour’s priorities are. Its priorities are not about creating wealth. Labour does not give a fig for small businesses out there that are providing services to larger businesses. This bill offers them no protection—none at all.

💬 Hon Rick Barker: It’s not—

Rick Barker says that it is not designed to. That is fine. So small businesses will go to the wall?

Now I come to New Zealand First. I cannot understand why that party is supporting this bill. It does not fit at all with the leader of New Zealand First who has championed small business during his time in Parliament. How does New Zealand First argue that this bill is good for a small business that is providing goods and services to a large business, when it places it at risk? I cannot see how New Zealand First, which normally claims a lot more common sense on these issues, can support a bill that puts lots of small businesses at risk.

💬 Hon Rick Barker: Rubbish!

That is an intelligent interjection from the member. Let us consider a rest home that goes into receivership. It happens.

💬 Hon Rick Barker: A who?

A rest home. Is the member aware of rest homes? The staff component is about 40 percent of the wage bill. The rest home has a redundancy agreement, so that all the staff—all the nurse aides—walk away with a couple of thousand dollars redundancy. Who misses out? The suppliers do. The people who are owed money for supplying food, security services, checking alarm systems, and all those personal services, miss out—lots of tiny companies and small businesses. No Labour members have got to their feet to say they think that workers deserve more than small businesses. Why does Mr Barker think that all the little businesses that were providing services—

I will try to answer some of the questions that have been raised in this portion of the debate. Firstly, the Hon Richard Prebble gave the scenario of a manager who, knowing the company is about to go belly up the next day, signs up his own redundancy agreement, which is capped. This bill includes holiday pay, wages, and redundancy. The $15,000 cap does not relate just to redundancy; it relates to everything. If a manager is as desperate as that—and I do not know a manager who would be inclined to do that, but I accept that the honourable member might know of somebody—then I am prepared, as we are in the Committee stage, to support an amendment to this bill that will address that concern, and exclude directors and company managers who are likely to do such a thing. I am certain someone could work out a little bit of wording, and New Zealand First will support a clause preventing a manager from ripping off the system.

In terms of the point raised by the Hon Roger Sowry, I say to that member that we are talking in the main about employees of large companies. Not many small businesses employ unionised workforces that have redundancy agreements, but there are—

💬 Hon Roger Sowry: We’ll wait for the next bill.

We will wait for the next bill, but we are talking about this bill at this point in time, and the member should not get confused.

💬 Lindsay Tisch: Look ahead.

The member has to be kidding. Does he think ahead? That is why Don Brash this morning, or this afternoon, was in Katikati. He blocked off the road and the car-parks for a paltry little crowd. Is that thinking ahead?

💬 Dr Wayne Mapp: There were 600 people.

I would not bet on that. [Interruption] I do not mind those guys chipping in, but it is a little bit disconcerting when they are seated behind me. Never mind, they want to have something to say.

We know that with many redundancy agreements signed up in this country, the working people, the employees, have made some sacrifice to get a redundancy agreement. In essence, it is like an insurance policy. We know that over the years things have gone wrong in many industries. I asked the library to research where there have been major redundancies. The library gave a summation of such a size it is hard to collate, including the meat industry, sharemarket industry, clothing industry, car industry, airline industry, and shipping industry, as well as stevedoring.

If the National Party wants to dismiss that information so frivolously, and as Mr Connell earlier suggested that this bill was opposed by a number of submitters, then I ask those members why they did not oppose it at the Commerce Committee. I ask National Party members why they signed up to this clause in the commentary on the bill: “We recommend that redundancy entitlements be included within the employee priority.” In other words, the total contract is treated as one. “We consider that such entitlements form part of a contractually negotiated package for employees, which may have included trade-offs in relation to wages or salary.” That is what National Party members signed up to, at the select committee.

💬 Hon Richard Prebble: Were they actually there?

That is a good question. But the document tells me there were two National representatives on the select committee: the Hon Maurice Williamson—

💬 Hon Richard Prebble: Maurice Williamson would not have been there.

—he might not have been there; the member thinks not—and their current deputy leader, Gerry Brownlee. He might have had other things on his mind. [Interruption] Well, if that is supposedly the Government-in-waiting, God help this country. If that is what those members do with one little bill like this—sign up to it, not know what they are doing, and not turn up at the select committee—then God help this country if they ever come to the forefront of it. If that is true, that is a disgrace.

This bill puts working people’s contracts to the fore, and that is a fair way of handling things, in the view of New Zealand First. We support this bill and will be pleased to see it go through the House in short order.

Peter Brown had some very good advice for the National Party and the people it claims to represent. It is very simple: “If you don’t like it or agree with it, don’t sign up for it.” It is as simple as that—even Richard Prebble would agree with it. But if they sign up for it and agree with it, then they should be bound by it.

There was a very interesting presentation given recently by Mr Roger Sowry. I note Mr Sowry is the previous chair of the Commerce Committee. This bill has come back from that committee, but do I see any dissenting report on it from Mr Roger Sowry?

💬 Hon Roger Sowry: I raise a point of order, Mr Chairperson. It is true I am now the previous deputy chair of the Commerce Committee, and I want to thank Labour members for voting for me for that role. But in fact I was not on the committee at all when the bill was before it. I wish I had been, because National would have opposed it.

Point of order—

The CHAIRPERSON (Hon Clem Simich): No, that is not a point of order and we will not get into a debate on it.

I should be protected from spurious points of order, and that is a debatable point.

Anyway, I want to make the other point. The deputy chair of the Commerce Committee was Gerry Brownlee, that outspoken, bombastic deputy leader of the National Party. He speaks out volubly on Māori affairs. He does not know anything about that area, but that does not stop him from speaking out on it. But when it comes to this very key, heartfelt issue for the National Party, what do members see from that party? Silence. I cannot find a dissenting opinion at all.

That does not surprise me, because I listened to one of the presentations by Roger Sowry before, and he talked about the Lakeview Farm Fresh meat-processing plant being in Dannevirke. Well, I have news for Mr Sowry; it is in the Otaki electorate. No wonder he was not elected, but defeated, time after time. He does not know where these places are. Has Mr Sowry ever visited the electorate, or does he just put his name on the ballot paper?

💬 Hon Member: He’s passed through it.

I am reliably told that he has passed through it three times, while going to Auckland. He might have stopped for a cup of tea at Levin. Anyway, I say to Mr Sowry that Lakeview Farm Fresh is at Lake Horowhenua in the Otaki electorate; it is not in Dannevirke at all. How does that give credibility to Mr Sowry’s opinion?

But he asks a fair question: “What about small business?”. Well, what about small business? I say to members that this is not about being anti - small business, pro-this, or anti-that. What this is all about is that a long time ago, for the amount of money guaranteed for wages and holiday pay, which is owed—which Brian Connell said was not worked for and not earned, but I will put that aside for the moment—the bar was set much higher. It was the Tory party that cut the level back. The Tory party did that—but it is nothing unusual. The Tory party cut penalty rates for workers, did it not? It had gone around before the election and said there would be no cuts to penalty rates.

The CHAIRPERSON (Hon Clem Simich): I tell the member he has had more than half of his time, and it would be nice if he would come to Part 2 of the bill.

💬 Hon Roger Sowry: I raise a point of order, Mr Chairperson. Given that your predecessor has on many occasions ruled that parties have to be called by their correct names, I would appreciate your upholding the same ruling in this Committee. The name is the National Party, and we are proud of that. The Tory party is in another part of the world, but unfortunately the member does not seem to understand that.

The CHAIRPERSON (Hon Clem Simich): I thank the member for that.

Part 2 is very interesting, because it talks about priorities and allocation. When we talk about priorities, we can see what National Party priorities are about. Those members want to maintain the boundary so that when there is a diminished amount of money left over to pay out, most of it to goes to business. They want most of it to go to banks. They do not care about the ordinary working people who have sweated and slaved over those jobs.

When a business goes broke people not only lose their income; they lose their livelihood. Their life’s work could be put into those businesses. In the example of a rest home, which Mr Sowry talked about, a supplier like a butcher might turn up and put over a few shanks of meat, but that butcher will be serving many other rest homes. But for people working in the rest homes, their jobs are their full-time jobs and their only jobs, and their livelihoods are at stake.

We say the bar that was reduced by the previous National Government to a miserable $6,000 should be increased to $15,000. As Peter Brown put it very well: when someone has signed up for a redundancy agreement, we believe in the sanctity of that contract—unlike United Future members, who say that it does not matter what has been signed. We say we must honour the sanctity of the contract; if the employer has agreed to it and signed up to it, the deal should stick.

We are very happy to say that working people should have redundancy payments, holiday pay, and annual leave protected to a maximum of $15,000. That is what the bill is about, and we are very happy with that. If the National Party wants to take more off workers, we are not surprised, because when it comes to the matter of 4 weeks’ annual leave, what have those members said? They will abolish it. We have said 4 weeks’ annual leave, but the Tories want to cut it to 3 weeks’ annual leave.

There was one serious matter raised during the debate that I felt should—

💬 Hon Rick Barker: I thought I raised at least three.

I really appreciated the member’s contribution to the debate, but the Hon Richard Prebble raised a serious matter concerning a redundancy agreement being negotiated just prior to bankruptcy or litigation. I am advised by the officials that the law is not clear, but it is unlikely that the payment could be challenged by the liquidator or official assignee on the basis that it was giving an unfair advantage to the employee, because the employer would not be a creditor at the time the contract was negotiated.

However, I draw members’ attention to clause 5(7), which deals with the definition of who is an employee and who is not. It is quite clear that in any such circumstances the employee must be a genuine employee, hired by an employer “to do any work for hire or reward under a contract of service”. So in the situation of it being alleged that a form of insider trading could have been entered into—to assist employees and disadvantage other creditors—the question would have to be asked why a company would want to do that, particularly in the light of it not having had a redundancy agreement in the past. Most particularly, it would be unable to assist anybody who had any interest in the ongoing nature of the business, especially shareholders, family members, directors, or the like.