Business Law Reform Bill

, on behalf of the Minister of Commerce: I move, That the Business Law Reform Bill be now read a second time. This, the second Business Law Reform Bill to come before the House, is part of a programme of regular incremental housekeeping reforms to improve our business laws. Most of the changes in the bill are not dramatic, but when taken together will make a significant contribution to keeping our business laws efficient, effective, and up to date, and reducing unnecessary cost to business.

The Business Law Reform Bill contains 122 clauses amending 13 business law statutes falling within the responsibilities of the Minister of Commerce. Some changes are purely technical and I do not intend to outline them. Instead, I shall talk about six areas where the bill itself makes significant changes, or where major changes to the bill were recommended by the committee.

One of the statutes amended by the bill is the Personal Property Securities Act, which came into force on 1 May 2002 and unified the very complex law governing securities over personal property and the priority of different debtors. The bill contains a number of provisions clarifying how that statute will work. In particular, it contains an amendment to the Distress and Replevin Act, to set out how that Act and the Personal Property Securities Act fit together. It clarifies the priorities between landlords and other creditors, and, as introduced, it provided that landlords’ rights under the Distress and Replevin Act have priority over security interests under the Personal Property Securities Act. Some submitters suggested that that amendment disturbed well-settled law and pushed the commercial balance too far in favour of landlords at the expense of secured creditors. The bill was amended to achieve a better balance between those competing interests, and now more closely reflects the position before the Personal Property Securities Act came into force.

I accept that the Distress and Replevin Act is in need of a comprehensive review. That review is outside the scope of this bill, but it is on the 2004 work programme of the Ministry of Justice.

Clause 68 amends the Personal Property Securities Act to draw a more appropriate commercial balance between the interests of accounts receivable financiers such as factoring companies, and trade suppliers. In doing so, it recognises the important role that factoring companies play in providing cash flow to small and medium sized enterprises.

In relation to wealthy and experienced investors, the third major change reduces the costs for businesses of raising capital. As a protection for potential investors, the Securities Act requires extensive disclosure of information before securities can be offered to the public. The bill provides exemptions where the investors have reduced need of that protection, and disclosure costs are not justified by the protection given. The wording of the exemption was adjusted in the select committee as a result of submissions made on the bill. Originally, the bill required that investors should be wealthy in assets and in income, and experienced in investing money, for the exemption to apply. Submitters suggested that the test was set too high, and that the exemption would be of limited use. I agree. So did the committee. It has been adjusted accordingly, so now exemptions apply to investors who are wealthy or experienced.

There is a further exemption where the minimum value of the security to be subscribed for is $500,000 or more. Investors with that sort of money are generally people in a strong position to make their own investment decisions. For the same reasons as the wealthy and the experienced are exempted, those investors do not generally need the same degree of protection.

The change in pre-prospectus advertising is designed to reduce the cost for businesses considering raising capital. The bill will allow people to publish advertisements that seek expressions of interest in the offer, without complying with all the disclosure requirements. The public are protected by a number of provisions ensuring they understand that the advertisement does not amount to an offer.

The fifth change also relates to compliance costs under the Securities Act. Schemes offering superannuation must comply with disclosure requirements under the Securities Act, and, in particular, must produce a prospectus. That imposes large compliance costs on employer superannuation schemes—schemes to which employers contribute—that are then passed on to members, reducing their retirement savings. Currently, there is an exemption from the prospectus requirements for small employer superannuation schemes, which do not have to produce prospectuses. The bill extends that exemption to all employer-based superannuation schemes. Specific requirements have been intended to ensure that employees are properly informed.

In relation to void and voidable allotments, the committee has, in accordance with Supplementary Order Paper 152, recommended further amendments to the Securities Act to empower the High Court to make relief orders in connection with contraventions of sections 37 and 37A of that Act. The Securities Commission has exempted certain overseas collective investment schemes from the requirement for a prospectus under the Securities Act, on certain conditions. A number of overseas issuers have committed minor breaches of that exemption notice, many simply by the late filing of documents. As a result, the exemption notice no longer applies, and any securities allotted during the period of non-compliance are void, and the issuer and directors liable to repay the securities with interest. This severe penalty occurs even when the breach is minor and would not have altered the subscribers’ investment decisions. Ordinarily, where contracts are void, issuers may be able to seek relief under the Illegal Contracts Act, but there are arguments this Act does not apply in the security law area. So issuers may have no effective avenue to seek relief from allotments voided under the Securities Act. A number of overseas collective investment schemes risk losing millions of dollars if the situation is left as it is. This could lead to negative perceptions about New Zealand’s financial markets.

The bill amends the Securities Act to include a procedure allowing issuers to apply to the court to grant relief. The relief would be similar to that available under the Illegal Contracts Act. The amendment will be retrospective, allowing the court to consider breaches of sections 37 and 37A before or after the date of enactment, and applying to proceedings not already concluded. The procedure is seen as an appropriate balance of all competing rights, allowing relief in some situations and protection for investors where appropriate.

In conclusion I say that although this bill deals with a range of amendments, they are united by the aim of keeping our business laws up to date, clear, efficient, and effective. The changes will help business by doing so, and by removing unnecessary compliance costs. I wish to thank the members of the Commerce Committee for their work in considering this bill, and acknowledge the contributions of those who provided submissions. I commend this bill to the House.

I find myself agreeing very much with the last speaker. This might be a red-letter day to a very large degree. The bill contains changes to 13 business law statutes, so in every sense it is an omnibus bill. The aim of the bill is to make the law clearer, more efficient, and more effective. It will have a significant and positive impact on business law, and accordingly the National Party supports it.

Interestingly, I note that a number of the amendments have been suggested by some of the National Party’s strongest supporters; people like the law practitioners, enforcement agencies, and the business community generally. [Interruption] National to the core, as one of my colleagues called out. We have 49 percent of the polls, soon to be 60 percent—we are on a roll.

The bill has three main aims: one, to remove unnecessary compliance costs; two, to clarify ambiguities and uncertainties; and three, to update law and remove conflicts within and between legislation. These are all very commendable, but I have to wonder about this Government’s ability to deal with the issue of compliance costs reduction. Under this Government—and it is now a fact—compliance costs have risen to a record high. The average-sized business in this country now experiences compliance costs of $52,000. That is a huge figure. As a rule of thumb, it might interest members to know that for every dollar businesses spend, they have to make $7 to pay for it. That is the ratio most businesses work on when they are restructuring.

Currently, New Zealand business is drowning in red tape and compliance costs, and I fear it will destroy business confidence. In the good times, businesses can carry increased compliance costs. They may not like it—

💬 Pansy Wong: They shouldn’t have to.

It is not a good time. The member is quite right—they should not have to. But most businesses can sort of roll their shoulders and take another blow. What happens when the bad times bite—times like now—the cost of compliance starts to squeeze margins. The reason for that is that these compliance costs are institutionalised into the business. The owners, shareholders, and management of those businesses have no ability to control those costs. Margins get squeezed as the top line turns down, and what happens is that a number of businesses then go out of business, or at least cease to be as competitive as they were.

Reducing compliance costs is not about playing around with the margins, as this legislation reports. It is more than just changing this form that form, or doing away with a prospectus. In my experience, if one wants to stop doing things, one actually has to stop doing things. That might sound overly simplistic, but that is the reality. That is what National will do for businesses in this country. We will just exempt some of them from some of these hideous costs.

I believe that Labour members have trouble intellectualising that. How can they believe, on the one hand, that they will reduce compliance costs when, on the other hand, they introduce law like the Employment Relations Law Reform Bill, which is more concerned about looking after their union buddies than actually dealing with the people whose businesses they are attacking.

I now turn my attention to the Securities Act. Clause 90 amends section 5 of this Act by providing for a number of exemptions from the Act’s disclosure provisions. This deals with wealthy or experienced investors. In particular, I want to deal with the inherent contradiction, in my view, of what this Government defines as wealthy. One is deemed wealthy under this legislation if one earns $200,000, or one has net assets of $2 million. If one meets these criteria, one is deemed able to make one’s own investment decisions.

💬 Hon David Carter: Cabinet Ministers are.

Cabinet Ministers are.

💬 Pansy Wong: The threshold is too low.

A colleague says the threshold is too low. The question is what happens if one earns $199,000 a year, and one’s net assets are only $1.9 million? Is that person in a position to make informed investment decisions? The Labour Government says that person is not wealthy, not capable. It is just an arbitrary line in the sand. The Labour Government says that some investors in this country are not able to make those decisions. If we allow that that is fair enough, I know of some people who meet these criteria, despite really not having the financial investment acumen to be able to make those decisions. The point I want to make is this. [Interruption] There is a guest member in the House. She used to do something really important, but I cannot remember what it was now.

💬 Hon Chris Carter: She used to be wealthy.

Is that what it was? She used to have a real job. She used to turn up and make a contribution. Now she sits at the back and just calls out.

The contradiction is this: if, for the purposes of this Act, people are considered wealthy because they earn $200,000 a year, or have net assets of $2 million, why is it that they are defined by this Government as being wealthy under this law, but for the purposes of taxation are considered to be wealthy if they earn $38,000 a year? Why is one considered wealthy if one earns $38,000 a year, if this is what this Government really believes? Mr Cullen and the Government are applying a double standard.

The other issue that I want to canvass relates to some of the other disclosure requirements. The Securities Commission has generated exemptions from the disclosure requirements of the Securities Act to Australian-registered management investment schemes and Great Britain collective investment schemes. It was discovered that a number of overseas issuers had breached the conditions of the exemption notices under which they were operating. Many of these breaches simply related to the late filing of documents with the Registrar of Companies. Most were simply clerical errors, and some did not even realise that they had to register.

In most situations, investors understood that they had read, or that they had been given the opportunity to read, the disclosure documents. It made no difference at all in terms of the performance of the fund, or whether they would have invested in that fund. Yet some investors have tried to use this loophole to gain compensation for their investments, because some of the funds have performed poorly. Quite bizarrely, because of the way this loophole was being exploited, some of the issuers were caught in the position of having to repay in cases where the funds had over performed, and that was simply unfair. The reality is that failure to file documents has little to do with the performance of the funds, and issuers have been caught in an impossible situation.

I believe that the select committee has done a good job, and has addressed this issue by introducing a procedure that grants relief to issuers. It is similar to the Illegal Contracts Act, but designed specifically for securities law. This will enable issuers to seek relief by going to the courts, and will apply retrospectively. Generally, I do not support retrospective legislation, but in this case I think it is sensible.

💬 Hon David Carter: It’s logical.

I support it because there is logic to it, as my colleague Mr Carter has said. It is sensible law, and I come back to the point where I started. We support this legislation. I think it will improve the wider environment for—[Interruption] It supports more broadly the commercial environment that some of these companies have to operate in.

The Business Law Reform Bill seeks to make the law affecting the operation of businesses clear, efficient, and effective. The bill will clarify and update various provisions within existing legislation. It will remove unnecessary compliance costs, and remove the conflicts within and between pieces of legislation. In effect it is an omnibus bill, because it effects changes to a number of pieces of legislation.

It is a good bill, because it is business-friendly and it reduces unnecessary compliance costs and other impediments to business. I am very pleased to see this bill before the House, because it recognises the fact that New Zealand is a good place in which to do business, and because it will help businesses to operate efficiently and effectively. I am very pleased to see the bill progressing through the House, and wish it a speedy passage.

I have taken quite a close interest in this legislation on behalf of New Zealand First, even before it was introduced to the House. New Zealand First generally opposed the introduction of this bill in an omnibus form, because of—

💬 Hon David Carter: They generally support the Government on all other matters.

We did not support the Government on the no-confidence motion earlier this year—which the National Party did. Twice we did not support the Government on a no-confidence motion this year—unlike the National Party—and there could be no more important debate than that. I suspect that will end the National Party’s comments on that particular issue. The National Party twice voted for the Government to stay in office. On amendments to the Prime Minister’s statement, the National Party voted with the Labour Government to keep it in office. On the Greens’ amendment on the question of genetic modification, the National Party voted with the Labour Government to keep the Labour Government in office. How much more cuddling up to the Government could there be than that—to keep the Government in office on two motions of no confidence? Three out of three times New Zealand First voted against the Labour Government; only once out of three times did the National Party vote against the Labour Government. So I suggest that National Party members pull their heads in; they do not realise that, on no-confidence motions, they voted to keep this Labour Government in office, and New Zealand First never did, at all.

💬 Lianne Dalziel: Get back to the bill.

I come back to the bill. I appreciate the interruption, because it gave me something to say and to get off my chest. I still do not think the National Party members realise that they voted to keep this Government in office.

I have taken a close interest in this bill, even before it was introduced into the House. It is an omnibus bill, and totally breached all the Standing Orders for omnibus bills, and the requirements of the Standing Orders Committee that considered these matters. It was necessary for the House to move a motion to allow the bill to be introduced. I spoke at that time as well, having gone through the bill in great detail at that stage. My concern then was that this bill might be held up in the Commerce Committee for the 2 years or so that the previous Business Law Reform Bill of about 1998 or 1999 had been held up. I must congratulate this select committee on getting this bill through much more promptly than was the case on the earlier occasion. I am not sure whether there has been a change of Government in-between, because the first bill was such a long time ago, but this select committee has to be congratulated on getting this bill through in prompt time.

My criticism of the bill stands entirely correct when we look at the bill, and, in particular, the amendments to Part 10. This bill was supposed to be all in order before it came to the House. Everything was supposed to be up to date and up to scratch—perhaps one or two slight amendments might need to be made in the select committee to give effect to the legislation. But when we look at the amendments to Part 10, “Securities Act 1978”, we see that there are, effectively, about 36 pages of amendment—it is virtually a new bill. An omnibus bill is really meant to be a short bill—not quite a Statutes Amendment Bill, but a shortish bill with a shortish list of issues to be considered. That is the way an omnibus bill goes to the House. This bill has 36 pages of amendments to Part 10. That is some omnibus bill! That is some amendment to the legislation! I suggest that it is not the way in which omnibus bills are meant to work. Clearly, the next time the Standing Orders Committee meets, it will see that this is a classic example of all its provisions for omnibus bills being breached.

Does anyone in this House particularly understand what has happened to Part 10? [Interruption] I must thank Lianne Dalziel for writing to me on that issue. She wrote to the New Zealand First member of the committee, and the letter was passed on to me to try to interpret. It was a fairly complicated piece of information, which I was just about able to grasp. We worked on the basis that no one seemed to object to it. On balance, it seemed to work out as fairly as it possibly could, in a very, very difficult situation. New Zealand First does not oppose Part 10. We did not oppose it in the select committee, and we do not oppose it now. This is a classic example of legislation going to a select committee, people then discovering they want to add something to it—this so-called omnibus bill—and the bill coming back twice as big as it was before it went to the committee. The remaining members of the House have to accept the word of the nine members of the select committee that all is in order, and that this massive addition to the bill is fine. I have had the opportunity, as I said, to read the previous Minister’s letter, and I take the committee’s word—as one always does—that the amendments are in keeping with what was in the correspondence.

I note my favourite clause in all legislation, clause 13: “Section 2(3)(b) of the principal Act is amended by omitting the word ‘capital’, and substituting the word ‘capital,’.” It must be a wonderful piece of statutory interpretation just to move a comma. The law draftspeople concerned obviously have to be congratulated because, clearly, that resulted in a substantial amendment to the legislation, and must have had considerable import for everybody.

I looked at another piece of the legislation with considerable interest, because I am one of those practitioners of law who has dealt with the Act concerned—the Distress and Replevin Act 1908. I saw that it was not quite correct before it went to the select committee, and amendments have been made to it. Those people who have an interest in that Act will realise that clause 38 of the bill contains amendments to section 4 of the Act. The committee recommended “that the provision be clarified to ensure that a secured party has priority over a landlord for the purposes of distress for rent if the security interest relates to a motor vehicle, property owned by a company, or property owned by an incorporated society. Generally speaking, landlords will have priority over a secured party where the goods are the property of a tenant or person in possession of land, who is an individual.” It is a very important point. When a tenant is in arrears with the rent, under the very, very archaic provisions of the Distress and Replevin Act one has to give notice, lock up the premises, and conduct an auction in terms of the Act, to make sure that one knows precisely what one is seizing, so that one cannot be subsequently sued by the tenant if anything goes wrong. These amendments are intended to clarify the interaction between the Distress and Replevin Act and the Personal Properties Securities Act 1999, and to confirm that the landlord’s rights under the former Act will prevail over the latter Act in certain circumstances.

It is quite a wonderful quirk of history that something that was passed in this House in 1908, before there was even the thought of a computer or the types of security systems we had in the mid-1960s, 1970s, and 1980s, with the chattel transfer legislation—although that was an issue in 1908—higher purchase legislation, leasing, and the like, is still being applied. Now we are into computers and all the things that the Personal Properties Securities Act covers. It is quite extraordinary. If we could somehow get a member of Parliament from 1908 to see that that legislation is still hanging on in 2004, that member would not believe what has happened. But that is our responsibility; for all we know, this amendment being passed today might still be active in another 100 years’ time. From the way in which this Government is delaying making amendments to the Distress and Replevin Act, or producing a new Act, it might be yet another 100 years before someone gets around to introducing new distress and replevin legislation. I believe that the matter is before the Law Commission, and I am looking forward to the Law Commission’s report coming to hand as promptly as possible.

The amendment to the Distress and Replevin Act is promoted in order to mitigate the potential effect of section 22(2) of the Interpretation Act. Again, that shows that Parliament is fiddling around with legislation—such as the Personal Properties Securities Act 1999, and putting in a new Interpretation Act in 1999—and not fully appreciating the other amendments that need to be made. The section provides that a reference in an enactment to a repealed enactment is deemed to be a reference to an enactment that replaces or corresponds to the enactment repealed. I am sure we all understand what that means.

I repeat that I am very pleased that my concern over the way in which this legislation would be expedited has resulted, I believe, in the Government making sure that there would be no delay due to this bill hanging around in the select committee, and that it came back to the House promptly. New Zealand First wants to see it passed as soon as possible.

I want to take a brief call on the second reading of the Business Law Reform Bill, and briefly mention a couple of aspects of it that are of interest to me and to United Future.

The first concerns the Distress and Replevin Act of 1908. I was asked at the United Future caucus this morning what the word “replevin” means, and I had to confess that I had absolutely no idea. But I have rectified that since by looking it up in the dictionary, and I find that it means “the recovery of goods unlawfully taken”. So for those, like myself, who have never heard that word before, that is its meaning.

Like the honourable member Dail Jones, I marvel that the 1908 Act has managed to stay the law of New Zealand for a total of 94 years. That is a pretty good effort. The Act is being amended now only because of the need for it to interact with the Personal Property Securities Act of 1999. Please God, let some of the bills that we are passing during this Parliament still be around in 94 years’ time.

The only thing of substance that I will speak about is the amendments that have been made in the bill in respect of employer superannuation schemes. Such schemes will henceforth be exempt from the prospectus requirements, which have not been required up until now for small employer superannuation schemes but they have been for larger ones. I am delighted that the requirement for all superannuation schemes to have a prospectus is now to be removed.

New Zealand has a serious problem with saving for retirement. Just today, for example, Sovereign has issued a new survey of savings patterns for retirement by New Zealanders and it is extremely concerning to find that fewer and fewer New Zealanders are systematically saving for retirement. One of the best ways that people can do that is through an employer-based superannuation scheme. Although this amendment is relatively minor, anything at all that we can do in Parliament to encourage retirement savings should be done. The Government needs to do a great deal more, and I sincerely hope that in this year’s Budget we will see removed the present overtaxation of the earnings on superannuation schemes for the 74 percent of New Zealanders who pay tax at less than 33c in the dollar, because we really need to incentivise those schemes.

As others have mentioned, the aim of this bill is to make the law clearer, more efficient, more effective, and to reduce business compliance costs. I think those are very worthy objectives. I understand that the business community is anxious to see this bill enacted, because it recognises that, for once, this Parliament is doing something to reduce compliance costs. That is a good trend and long may it continue. We are happy to support the bill.

National supports the Business Law Reform Bill, and, in the dying minutes that this House continues in session, I look forward to the opportunity of presenting the arguments that I will develop at a later stage. I understand that National’s plan is for Pansy Wong to speak after me, which will certainly be a cameo moment for members of the House as they hear her insightful comments on the bill. In what time there is remaining, I will focus on one aspect of the purpose of the bill that, maybe, has not been sufficiently dealt with, and that is the aspect of removing unnecessary compliance costs. I believe that this Government pays only lip service to that very important aspect.

One of the constants in the economy for much of New Zealand is the importance of small to medium sized enterprises—or SMEs, as they are called. They are commonly defined as businesses employing 19 or fewer employees and they represent about 97 percent of all New Zealand companies. They employ 43 percent of all employees and produce 39 percent of all the goods and services. It is true to say that they are more than just the backbone of the economy; they are a large part of the skeleton and the musculature as well. It is in all of our interests that these businesses grow—if not in size then in productivity and profitability.

So it is that the amendments proposed by the Business Law Reform Bill have as their purpose the removal of unnecessary compliance costs. The record of this Government in dealing with compliance costs can best be described as lamentable. I say “lamentable” because a number of initiatives have been pursued with no vigour and no common sense.

Debate interrupted.

The House adjourned at 10 p.m.