Business Law Reform Bill

Several days ago I was speaking about this bill, and my recollection is that I was talking about the significant contribution that small and medium-sized businesses make to this country, and how critical it is that the business environment in which they operate is of such a character that they can flourish within it. Those businesses commonly employ 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 goods and services.

National supports the Business Law Reform Bill, and I note that this bill is an illustration of the use of an omnibus bill, which I think should be encouraged. The relevant Standing Orders are Standing Orders 261 and 262, which certainly enable the passage of legislation that is remedial and worthwhile in its purport to be dealt with, without the delay associated with the requirement that one bill deal with one subject.

I was interested yesterday to read a comment in the New Zealand Herald, reporting a poll that had been carried out by the accountancy firm Grant Thornton. That international firm had surveyed 6,900 medium-sized businesses, including 150 businesses in New Zealand. One of those poll results, when the respondents were asked about the biggest constraint on the expansion of their businesses, was that 45 percent of the New Zealand respondents answered that it was red tape. I guess I was not surprised at that, because in the last few days the Hon Dr Michael Cullen journeyed to the Wairarapa to make a speech at a business breakfast, and he was bold enough—or one could say rash enough—to post the speech on his website. In it, surprisingly, he advocates greater use of red tape, and speaks about the advantage of red tape, in this short extract: “Turning to the issue of compliance costs, here again it is important to set aside the naïve view put about by some of my political opponents that the world would be a better place if there were no regulation of business.” He goes on to espouse the benefits of red tape, and says: “The truth is we all benefit from regulation.”

National welcomes this bill, because it is a modest—and I would say, only a modest—attempt to strip away some of the red tape that surrounds business activity. Indeed, the commentary on the bill, under a heading “Introduction”, states the amendments are for the purpose of removing unnecessary compliance costs. A raft of statutes is referred to in the bill. I will not deal with them at any length, but I note that significant changes are being made to the Distress and Replevin Act 1908—one of the older Acts on our statute book.

Distress, of course, is a self-help remedy available to landlords of commercial properties, which enables them to enter the property to seize chattels belonging to a tenant for the purpose of recovering rent in arrears. The word “replevin” refers to the ability of a tenant to retake the seized goods. That may happen in circumstances where either the tenant’s rent is not in arrears or the value of the goods seized exceeds the outstanding arrears. The changes made there, which basically clarify the interaction between the Distress and Replevin Act and the Personal Property Securities Act, are no doubt welcome. Changes are made to the Personal Property Securities Act and to the Securities Act.

As other members have commented, one of the more interesting changes made to the Securities Act is that for the first time it defines what a wealthy investor is, in terms of both assets and income. There are also complicated provisions, introduced by Supplementary Order Paper 152, relating to the void and voidable allotments of securities issued by foreign issuers.

That is all very well. Those changes will, no doubt, be welcomed, and to some extent they make policy adjustments in terms of the bargaining power of the various parties to multiple commercial transactions. But I express the wish that this House become more seriously involved in the whole aspect of compliance costs, because this type of bill is the ideal vehicle for those issues to be addressed. In December 2000 the Government set up a ministerial panel on business compliance costs. My understanding is that the panel made about 160 recommendations on ways to reduce compliance costs. Limited progress has been made in that regard. It is good to see some progress being made, but it would be far better if there were much greater progress.

More cynically, since 2001 Cabinet has required that a business-cost compliance statement be completed for any proposals that have red tape implications for business. One of my tasks is to chair the Regulations Review Committee, which looks at all secondary legislation passed by the executive. I would have to say that the work of the executive in the reduction of business compliance costs is, to use a simple word, pathetic—absolutely pathetic. Just for a start, the Cabinet Manual, which deals—

💬 Hon Paul Swain: Oh!

I am glad the Minister is here to make that timely interjection, because it is important that he hears this. For a start, in the Cabinet Manual there are so many circumstances in which such cost statements are not required that the scrutiny obligation can be bypassed.

What I would like to see us consider, in a raft of initiatives to deal with aspects of compliance costs, is the possibility of picking up what has been done in the Australian House of Representatives, with the Australian Main Committee. I commend the House to look at that particular initiative.

It is indeed a pleasure to rise in support of the Business Law Reform Bill, and to follow the distinguished chairman of the Regulations Review Committee, Richard Worth. This bill signifies two important things. The first—and this is something that the public listening to the radio broadcast of this debate in their hundreds of thousands may not appreciate—is that many of the processes in this Parliament are imbued with a strong sense of cooperation, and this bill is one of them. By tradition, this bill brings together a number of relatively non-controversial amendments that are designed to make business regulation work more efficiently and effectively. By tradition, that is done through prior consultation with the various parties in the House and through taking a very bipartisan approach in the select committee. Clearly, the Commerce Committee has done a good job on this bill. It has given us a detailed report, and, clearly, the process of cooperation was working well, as it should.

Mr Worth mentioned the business compliance cost panel’s report, which, if I heard the member correctly, contained 160 recommendations for ways in which the Government could reduce compliance costs—several of which are reflected here in this bill. It is important to note that since that report the Government has implemented, or is implementing, in the order of 85 percent of the recommendations, representing in the order of 96 percent of the value contained the report. By anybody’s measure, therefore, this Government has been sincere about, and successful at, reducing business compliance costs.

We are proud to bring this bill to the House. It is a small, further step on the way towards making our laws more business friendly, and towards reducing any unnecessary compliance costs and other impediments to business. I commend this bill to the House.

In speaking on the second reading of the Business Law Reform Bill I should make it clear at the outset that National supports the bill for the good that it does. But I have to say that if the issue were not so serious, one could not help but smile at the Commerce Committee’s introduction to the commentary on this bill. It states—and, of course, colleagues have already pointed out that this Business Law Reform Bill changes certain statutes relating to business; 13 of them in all—that this bill was designed to remove unnecessary compliance costs. What saddens me about that is the absolute lack of understanding by this Government and its Ministers of what compliance costs are all about. If we went along the Labour front bench today, I do not think we would find any member who either runs a business today, or has ever run a serious business in the past. If the Labour members think this legislation will have a significant impact on the compliance costs of running a business in this country, they are deluded and are absolutely in a dream world.

The issues that add hugely to the compliance costs of running a business in this country are the kinds of ones that came through my letterbox the other day. I do still run a small business, and have done so for all the years that I have been in this Parliament.

💬 Darren Hughes: Does it make a profit?

Dr the Hon LOCKWOOD SMITH: It does not make much profit at all, sadly; in many years it makes a loss. I have continued to run that small business, even though it means a lot of hard work. On a Sunday afternoon, when I would rather have a bit of a rest from constituency work and the work of Parliament, I am involved in running that small business. The beauty of it is that everything the Government does to a business comes through my letterbox. I am the director of a private company, and everything the Government does to a business comes through my letterbox. It used to be the same when National was in Government. I was able to tell some of my colleagues what we were doing to businesses’ figures, because it all came through my letterbox.

One of the most recent things to come through my letterbox was a little package, about a centimetre thick, which tells employers about their responsibilities as from 1 April this year—in about 6 days’ time—following the changes to the Holidays Act. Those issues are real compliance-cost issues, and they are far bigger than the issues covered by this bill for small to medium-sized businesses. I would not mind betting that Paul Swain—is he the Minister responsible for this bill? No, he is not. This bill is in the name of the Minister of Commerce, so Margaret Wilson is now in charge of it. Goodness knows where she is. She does not seem to be particularly interested in either business law reform or compliance costs for businesses. Margaret Wilson is, I guess, the very Minister who has been responsible for the package of changes that employers will have to put in place in order to comply with the new holidays legislation. The survey of businesses in New Zealand that was tabled in this Parliament today makes it very clear that businesses up and down the country are desperately concerned about the whole issue of compliance costs.

This bill, while it is marginally helpful with regard to compliance costs, does not address in any serious way the major compliance costs that are crippling businesses—if they can comply with them. The Minister in charge of this legislation, Margaret Wilson, is personally responsible for some of the legislation that it is impossible for small businesses to comply with. I can absolutely assure members that if any of the Labour Ministers ran a business, or had any idea of what is involved in running a business, they would not try to put through this Parliament some of the legislation that they have. It will not be possible to comply with the centimetre-thick package of responsibilities for employers, following the passage of the Holidays Bill by this Parliament.

It is fascinating to realise that if members of Parliament had an employer, I doubt whether that employer could comply with those responsibilities. I think there is an interesting issue there around the compliance costs of running a business and employing people. Who employs members of Parliament? If there is an employer of members of Parliament, I do not believe that employer is complying with the law. Nothing has come to me as a member of Parliament that indicates my employer is in any way complying with the requirements that I have to comply with, as a business person who employs people in this country. That just shows, in my view, the stupidity of the compliance costs that this Labour Government is imposing on business, up and down the country.

The Minister of Finance stood in this Parliament today and chortled about how wonderful the Government’s relationship is with business and how wonderful growth has been under this Labour Government. The Labour Ministers do not seem to understand the issue of compliance costs at all; they have no feel at all for what is involved in running a business in this country. The introductory part of the commentary on the bill states that this bill is about removing unnecessary compliance costs. I can say, as someone who runs a business, that if we were to add up the total compliance costs associated with running a small business, we would find the changes made in this bill would not even scratch the surface of those costs.

Recently the Meat and Wool Innovation Economic Service, a service of the new combined meat and wool boards, put out its analysis of the movement in the input prices for running farming businesses—in this particular case, it was sheep and beef farming businesses. I guess I happen to have an interest in that, because I run one of those farms. In the last 12 months, three of the four biggest increases in the costs of running a business have been Government charges. Again, that is an example of the absolute lack of understanding by the Ministers of this Labour-led Government of business and of compliance costs associated with running a business. That analysis of running a farming business is not mine; it is from the Meat and Wool Innovation Economic Service. Its analysis shows that the biggest cause of increased input costs for the running of a sheep or beef farming business is Government charges.

We support the measures in this bill. Interestingly, one of the Acts that is to be amended is the Personal Property Securities Act, which this Parliament passed not so long ago. It is now being amended with this legislation. That shows the problem that occurs, with regard to some quite complex law, when things are done too quickly. The select committee did not understand the full implications of the Personal Property Securities Act, and here we are having to amend it. I see the Minister nodding as he acknowledges that fact. I hope that, with the changes being made in this bill, the Parliament is getting that law right this time. I would not mind betting that 99 percent of the members of this Parliament do not know whether the changes made in this bill will actually work. I bet the ACT MP Stephen Franks has a very good idea about the details of this bill, as does my very good colleague Richard Worth, but not very many other members in this House would have much knowledge about it. I suspect my colleague Brian Connell also has a good knowledge of the detail of the bill, but not many other members would. Parliament has to be careful when it passes law that is as complex as this and is not well understood.

Finally, I conclude by saying that this Labour Government has to get serious about reducing compliance costs. This bill, while positive, will barely scratch the surface of the huge challenge to be met if New Zealand business is to get ahead.

I rise for the ACT party to speak to the second reading of the Business Law Reform Bill. I say at once that we will vote for this bill, on the basis that something is better than nothing, even something as absolutely pitiful as this bill. This bill has been a very long time coming. Quite an interesting sequence of Ministers have had charge in this area—and we have now ended up with the Hon Margaret Wilson. None have had enough knowledge or authority to be able to persuade people that these are absolutely trifling matters and should proceed. So we have had the very long period of time during which New Zealand First was spooked by shadows, and eventually we have reached this stage.

The bits that I am interested in, and on which I will comment on, essentially for the record, a record of sad failure, are the changes to the Securities Act. They are absolutely hilarious if we look at what might have been. Very briefly, the bill states that people who are wealthy or who are experienced investors can be allowed to go forward with an investment without putting the offer to the huge expense of the prospectus requirements. I know, because that used to be my business. Typically, complying with the offering requirements, prospectus document requirements, and the reports and sign-offs, takes anything between $100,000 and $300,000 from the person who is proposing it, and ultimately from the investment and the project. That is simply dead money the moment it has been spent. It does not add a cent in terms of return.

We are now to take the very brave step of suggesting that wealthy people—with $200,000 or more in wealth—and people who are experienced investors might just be trusted to appraise an investment without someone having first produced a prospectus.

The next set of changes—and it would appear simple—is that the person who will decide whether they are experienced has to be an experienced financial service provider, and he or she has to be satisfied that the person who will be entrusted to spend his or her own money can appraise the merits of the proposal, can estimate value, work out the risks, and is getting adequate information.

Next there will be a waiver of pre-prospectus publicity. A person can actually go out there in this world of free speech and say: “I’m thinking of putting together an investment, and I can tell you a very few limited things about it without exposing myself to criminal sanctions.” That person can say what the name of the issuer will be, give a brief description of the securities, the rate of interest, if any, the total number, the intended use of the subscription, the terms of the offer, the kinds of people to whom it will be made, and the date. He or she cannot tell the most important thing—for example, who is behind it, who the directors might be, who thinks it is a good idea or a bad idea, what other businesses of that kind have performed, where it might be risky, and what their view is of the risks. In other words, this is very lame.

We have a very sensible exemption for employer superannuation schemes. I, along with many others, said 10 or so years ago that when the prospectus regime was applied to superannuation a lot of employers would say: “Flag. I don’t need that. We’ll do without it.” This is a mistake of securities law being remedied.

Lastly, there are the provisions to rescue the Australian issuers who have breached our law—Westpac and others. Let us look at these. What social purpose is this law serving? What possible value is securities law when it stops wealthy people, or people with disposable income, from deciding how to invest their money, but it does not stop people from drinking themselves to death? We have no law that states people cannot climb mountains and kill themselves, or ride motorbikes and kill themselves, for the very obvious reason that people ought to be able to take those risks if they wish to. We have no law that states that people cannot gamble their whole estate on racehorses. We have no law that states people can buy a house only after it has been appraised by a valuer, and that people are not allowed to throw their money away on a farm that will not produce. We have no law that states that a young person cannot invest his or her entire assets in a hot Japanese car, a second-hand car, or new car of any kind that will lose 40 percent of its value in the first year after a person buys it.

We do not have a law that defines when people can marry or when they can have children. Can members think of anything more likely to affect their life chances and the value of their assets than having children? We have nothing that restrains having children. Indeed, the Hon Margaret Wilson, the Minister in charge of this bill as the Minister of Commerce, now presides over a law that people with disposable income cannot be trusted to invest their income. Yet this Minister produced a law that without warning cuts people’s assets in half the moment they let their star boarder or the live-in boyfriend or girlfriend stay 1 day past 3 years.

In other words, she automatically married people for property purposes, cut people’s assets in half, and overturned all the expectations that they and their families might have had in terms of what would be there to look after them in their old age, and what might have been there to provide against sickness. All of that gets automatically cut in half the day after some boyfriend or girlfriend is allowed to stay longer than 3 years, and with no warning. One does not have to have a prospectus. No one has to sign up. When the boyfriend turns up and offers companionship he does not have to say to the widow or the lonely mother: “If you let me stay, I may well be able to bring an action, even before 3 years are up, and take half your assets.”

But here we have this Government timidly saying that wealthy people, and experienced people, might just be allowed to make decisions about the investments of their own surplus money if they can get an experienced financial services provider to undertake that they are capable of making that decision. What a pathetic piece of reform! Securities law is a great big rort wherever it is. It works brilliantly for advisers. It works brilliantly for the people who publish prospectuses. It works brilliantly for the people who do glossy advertising. It works very well for accountants. There is no proof, anywhere in the world, that prospectus requirements, and rules against pre-prospectus publicity, make one blind bit of difference to the performance of financial markets.

If anyone in this Government knew anything about business, instead of signing up to even more onerous requirements from Australia they would be taking the money that has been wasted. I would guess from the number of floats on offer that this must be an industry worth $100 million a year from the advisory and other fees plus expenses. If they took a tiny fraction of that and applied it to enforcing the law against fraud, and enforcing the Fair Trading Act against misleading and deceptive conduct, and to chasing crooks, a message would go out that would be of value to everyone in the commercial community.

If they took a tiny fraction of what is wasted on securities law and on the Securities Commission’s pursuit of someone like the former chief executive of Air New Zealand, one of Hawke’s Bay’s most successful businessmen, who has been hounded because he dared to allow some wealthy people to invest in his business without jumping through these ridiculous hoops, and spent a mere fraction of that on chasing the dishonest, or beefing up the Companies Office investigating accounting resources, instead of having a couple of overworked accountants—if they had five or 10 of them to chase fraud—we might have seen some practical reduction in compliance costs and some practical increase in commercial morality.

Instead, the Commerce Committee has laboured long and has not even produced a mouse. This modification of our prospectus regime is utterly hilarious and utterly pathetic. Here is a Government that has decided to push this legislation through. It came in under the Hon Lianne Dalziel’s name, and is now under the Hon Margaret Wilson’s name. What commercial experience have those people got? How could they be put in charge of legislation like this? Well, only because Labour has no one who knows anything about making money. None of them have ever made a buck on their own. They have always taken someone else’s salary and money, and always used money with no risk. Those people presume to tell business what it can and cannot do in offering instruments for the investment of their own money.

Bill read a second time.