Third Readings

, on behalf of the Minister of Commerce: I move, That the Building Societies Amendment Bill, the Commerce Amendment Bill (No 2), the Companies Amendment Bill (No 2), the Co-operative Companies Amendment Bill, the Distress and Replevin Amendment Bill, the Financial Reporting Amendment Bill, the Friendly Societies and Credit Unions Amendment Bill, the Life Insurance Amendment Bill, the Personal Property Securities Amendment Bill, the Securities Amendment Bill (No 2), the Securities Markets Amendment Bill (No 2), the Superannuation Schemes Amendment Bill, and the Unit Trusts Amendment Bill be now read a third time.

The key public policy objective of this legislation is to ensure that the law affecting business operation is clear, efficient, and effective. The amendments are part of a programme of regular incremental reforms to improve our business law. When taken together, these amendments have a significant and positive impact on the body of law under which businesses must operate. In particular, they remove unnecessary compliance costs, provide business—especially small and medium enterprises—with easier access to capital, clarify and update various statutory provisions, and achieve consistency between different legislative requirements.

The legislation resulted from close and ongoing consultation with the business community. It addressed what that community indicated as being some of its concerns with business-related legislation. These are generally the cumulative costs of complying with legislation and the difficulties in reconciling different legislative requirements. The amendments reduce some of those costs and promote the efficient use of economic resources, enterprise, and innovation in the economy. One example of a compliance cost reduction contained in the legislation is the extension of the exemption from the prospectus requirements of the Securities Act from small employer superannuation schemes to all employer superannuation schemes. This will not only lower compliance costs but support the broader and widely held economic objective of providing for workers in their retirement and increasing the national savings rate.

A number of submitters at the select committee said that complying with the disclosure requirements of the Securities Act imposes significant compliance costs on employer-based schemes, and these costs have to be passed on to members. Extending the exemption will reduce those costs and remove a disincentive to the starting of new schemes.

Another of the legislation’s key aims was to improve the clarity of our existing commercial law statutes in order to allow both businesses and regulators to proceed with certainty. Many examples of clarification were contained in the original bill, two of which I will mention briefly. The first amends section 196(1)(a) of the Companies Act of 1993. This section provides that at each annual general meeting a company must appoint an auditor to hold office until the end of the next annual general meeting. It is not clear in the statute whether an auditor may resign before then. The bill contains a clause clarifying that of course an auditor can resign between annual general meetings. The second example is contained in amendments to the Superannuation Schemes Act of 1989. The amendments allow prospective members to look at, or receive, certain information. An obligation is placed on the scheme’s trustees to ensure the provision of information to prospective members. For consistency and clarification, the trustees’ obligation extends to the provision of information to existing members.

The legislation aims to remove anomalies in the law that have emerged over time. These inconsistencies can result in, for example, similar investment products being treated differently when there is no sound reason to do so. This inconsistency is seen in the Securities Act. Section 53E of the Act provides that issuers of equity securities, debt securities, life insurance policies, unit trusts, and superannuation schemes must have their financial statements audited annually by a qualified auditor. In the case of participatory securities, annual audits are carried out only if the statutory supervisor so requires. The Securities Amendment Bill (No 2) contains a clause requiring that all arrangements or schemes to which participatory securities relate should be audited annually to remove that inconsistency.

Another inconsistency in the law was found in the Superannuation Schemes Act. The Act confers on members the right to look at certain documents, yet this right is not supported by any penalty provision and was therefore not enforceable. To correct this anomaly an amendment has been made to the Act’s offence provisions so that a penalty attaches if the member is denied the right to look at the documents.

Lastly, the legislation aims to update the law—a necessity in a rapidly changing business environment. Up to date statutory provisions allow businesses and regulators to take full advantage of technology, and there are many examples of that. The Commerce Amendment Bill (No 2) contains an amendment that will allow the Commerce Commission to take advantage of technology to convene meetings.

In conclusion, I commend the third readings to the House of the various bills that have been split from the Business Law Reform Bill that came before the House. I am commending the various bills in this legislation, because it helps to ensure the law affecting business operation is clear, efficient, and effective. In particular, I want to thank the Commerce Committee and other members for the contribution they have made to the passage of these bills.

These bills amend 13 pieces of legislation, and I think we have canvassed a fair debate on them over the course of the first and second readings and the Committee stage. I note that the legislation, as it is now framed, was sought and supported by the New Zealand Law Society and by the commercial sector generally. I believe it will make a positive impact on the business sector. Accordingly, the National Party strongly supports it.

As the Minister pointed out, there are three broad aims, and I will touch on those briefly. The first is to remove unnecessary compliance costs, and I will come back to that. The second is to clarify ambiguities and uncertainties. I think the bill has gone a good way along the path to accomplish that. The third is to update law and remove conflict within and between legislation, and I think that component has been dealt with rather well, also.

The issue of compliance is what I want to discuss in a bit more detail. The Minister’s comments were commendable, but I also have to say that he and his colleagues really struggle to get their heads around this issue of compliance. Under this Government, compliance costs for the average sized business have soared to record highs. They are standing at $52,000. I am sure members understand that for every dollar one spends, one has to create about $7 worth of revenue to pay for it. That is the ratio that most businesses work on. It is a huge imposition to place on businesses. Whilst the Minister has said that he wants to see compliance costs reduced, I do not see any evidence of that happening. New Zealand is drowning in red tape and compliance costs. That is OK when times are good. Most businesses can get thumped on the back, shake their shoulders, and deal with impositions of compliance costs when their revenue line is strong. However, when times get tough, as they are about to, and when these costs have been institutionalised as they have been at record highs, margins will get squeezed. I am not suggesting that many businesses will go belly-up, but it will stop businesses from growing. That is the true cost of compliance—the havoc it is wreaking on New Zealand businesses.

I also have to say that dealing with compliance is more than what this legislation purports to do. It is more than just amending this form or that form—playing around the margins, as I call it. One has to stop doing things. The Employment Relations Law Reform Bill demonstrates that the Labour Party has a lack of empathy with New Zealand business when it starts to deal with these issues. In particular, new subsection (2CD) of section 5, inserted by clause 90 of the Business Law Reform Bill, which I addressed in the Committee stage, is interesting. Whilst I am grateful to the Minister for taking a call and giving me some clarity around the definition and how it was arrived at as to who is wealthy in this country and who is not, I think even he would say that his constituents in New Lynn would agree that people who earn $150,000 a year and have net assets of $1.5 million are also wealthy. I wonder why there is a double standard in play, and why those people who have in excess of $2 million of net assets, those people who earn $200,000 or more a year, do not have the same protections as the people of New Lynn who have assets of $1.5 million.

The other issue that I thought the Minister might have touched on—but I see he avoided it; he was very quick on his feet—was the inherent contradiction in the definition of what is wealth and what is not wealth, when it comes to taxation. I am sure this is an issue that he has thought of. There is a contradiction in that earning $38,000 means someone is wealthy. My constituents in Ashburton, the many thousands of them who earn less than $38,000 a year, do not think they are very wealthy, and those who earn $37,000, $38,000, $39,000, or $40,000 a year do not think they are particularly wealthy, either. They want to know why, on an income of $39,000, they get taxed at the marginal tax rate, but on $37,000 they do not. They will be asking the question—and I think it is a very fair question—of the Minister as to why it is that someone who is wealthy when it comes to investor protection, is not so wealthy when it comes to taxation.

I am also concerned that many of the “landed gentry”, as the Minister referred to some of my constituents, might have farm values that have gone beyond the $2 million mark, but I know that a lot of them have very poor cash flow and they really struggle. They are not necessarily financially wise. I cannot see why they cannot get some of the protections that those who have equally poor cash flows will now get under this legislation. I say to the Minister that double standards apply here.

The other issue I want to touch on specifically is Supplementary Order Paper 152, which deals with void and voidable allotments. The Securities Commission has granted exemptions from the disclosure requirements of the Securities Act to Australian registered managed investment schemes and Great Britain collected investment schemes. It was discovered that a number of overseas issuers have breached conditions of the exemption notices under which they were operating. Most of these were minor breaches and more clerical in nature. The select committee moved rapidly and sensibly to deal with this. In most situations, investors receive the required disclosure documents allowing them to make informed investment decisions, yet some investors try to blame the poor performance of the funds that they invested in on the lack of disclosure or the clerical error that had not seen them registered. It is quite bizarre that some investors, who were beneficiaries of funds that performed above the investment expectations, were also caught in a situation where they were potentially being asked to repay some of those gains. The reality is that failure to file documents with the Registrar of Companies had no bearing on the performance of the fund, and issuers found themselves in an impossible situation.

As I have already noted, the select committee moved to address this concern by introducing a procedure that grants relief to issuers similar to the Illegal Contracts Act, but specifically designed for securities law. This will enable issuers to seek relief by going to the courts and will apply retrospectively. I have to say that generally I am strongly opposed to retrospective legislation, but in this case it is sensible and it carries my support. As I said at the outset, this legislation is sensible law. It is well supported by the commercial sector and the Law Society, and, accordingly, it carries National’s support.

Just before I call the next member I say to members that I heard a cellphone during Mr Connell’s speech. I urge restraint on honourable members, to respect the contributions of another. It is good conduct, common sense, and good form in this Chamber. I refer members to Speaker’s ruling 16/2.

I also urge members to give their full attention to the proceedings of the House. We should eliminate all unnecessary distractions from our duty. Cellphones should be switched off within the hearing of the debating chamber. All members can be alerted to urgent messages by messengers or via the party whips.

I rise to support the third reading of the various bills that have come out of the Business Law Reform Bill. The Commerce Committee did a very good job on this legislation, and reported it back in a way that improves the business regulatory framework. It has the support of a number of the key stakeholders, and I look forward to its rapid passage through the House.

I rise for the ACT party in the third reading and final debate on the bills that have come out of the Business Law Reform Bill. First, I want to say that ACT supports the idea of Business Law Reform bills—that is, bills with a whole lot of miscellaneous amendments that are regarded as largely technical and that are the kind of amendments that ordinarily might languish for a long time before the Government decides to use up some of its House sitting time to get them through. They are often matters that business people or others have been asking for for some time. As has been said, they are tidy-up matters, but are not exactly the same as those dealt with in Statutes Amendment bills, which traditionally have only things that are entirely non-contentious. There can be some dissent on matters in Business Law Reform bills, but there has to be substantial consensus before they go through.

The ACT party has supported and will support all the bills that have come out of the Business Law Reform Bill, even though we consider that some of the matters dealt with are dealt with poorly. We have decided that the changes are better than the status quo, but, in some respects, only just. It is a great shame that the fact that those issues have now been dealt with will mean that the Government will not return to them for some time. This Government is unlikely ever to return to those issues, because it will not be here. Even so, in bidding for priority for change, an incoming Government may find it is hard to go back and look at matters such as the Securities Act and the changes that should have been made—but have not been made—in this bill. Instead, the changes are half-hearted.

I will deal first with the void and voidable allotment question. That is really the “Australian bank rescue” provision. It is the provision that will allow WestpacTrust, Bankers Trust, and a few other Australian fund managers to apply to the New Zealand courts to get transactions validated that otherwise would entitle New Zealanders to refunds of some very large sums of money. They were even larger a few months ago before markets rose, which would have made it slightly less expensive if New Zealanders had decided to exercise their rights.

What concerns me about this retrospective law change is that the Commerce Committee reported on the bill without ever really identifying to the people who might be losing their right to pull their original investment out of the investments run by WestpacTrust and Bankers Trust just how much they might be giving away, and without alerting anyone, including the business press. Think of the irony of that in a Business Law Reform Bill. There are rules that force businesses to disclose—in the colloquial term, to spill their guts—the most untidy and unwelcome facts in a prospectus. But here we have, essentially, the Labour Government colluding with the Australians, who had this unfortunate lapse that they now want to have remedied, to avoid actually indicating to the New Zealand investors who could take advantage of it just what they might be giving up.

That is not to say that it is not a proper change. It is the retrospectivity that really raises eyebrows. If the Government had really adopted a principled approach to the issue—if it had said: “We will apply the same standards of disclosure and warning that we force business to apply”—it would have been upfront and explained to the investors in the Bankers Trust, WestpacTrust, and the other affected funds just what it is that they may forgo when those retrospective changes come in. If the Government had done that, it might have been able to justify the retrospectivity with more than the begrudging approval that it got.

The other concern about these provisions is that there is no indication the Government has secured from the Australians any kind of understanding for reciprocity. I have very little doubt that the hard-nosed ruthlessness that the Australian Government applies in matters concerning its own businesses—the sort of attitude it displayed in 1996 when it unilaterally abrogated its open skies agreement, and the sort of attitude it showed to Ansett when there were two mysterious groundings and then Ansett collapsed, which the Australians laid at the door of the New Zealand management—would not have resulted in the kind of consideration that the New Zealand Government has given to the Australian banks over the retrospective change to rescue the allotments.

Indeed, it almost looks as if it has gone the other way: that this is a change forced out of the New Zealand Government because of its supplicant role. I suspect that behind this change is the Hon Dr Michael Cullen’s arm right up his back. I suspect that it is part of a pattern whereby we want to throw Air New Zealand to Qantas, whereby we want to adopt the same insolvency law as the Aussies, and whereby the Government says that it is going to have the same insider trading law, which is already in force in New Zealand—continuous disclosure rules that even Australia does not live by. The New Zealand Government is rolling over and asking not to be growled at in almost every transaction it has with the Australian Government.

It is true that we should be humble. We reneged on immigration arrangements. We created an open, flapping back door to the Australians at a time when they were very worried, and rightly, about the risks of open-slather immigration. We reneged on the Skyhawk deal for training and exercises with the Australians, and we have not pulled our weight in defence arrangements. So maybe the Government has to sacrifice the interests of a whole lot of New Zealand investors to placate the Australians, and maybe that is what accounts for the retrospective change to the voidability provisions in the Securities Act.

I want to move now to some of the things that have been done sensibly, and commend the removal of the foolish extension of prospectus requirements to company or employer superannuation. It was predicted when they came in that that would kill a lot of superannuation. Belatedly, the regulators have recognised that, and this bill sees a very sensible rollback of a stupid extension of regulation 10 or 12 years ago.

I have already mentioned during the Committee stage debate that the timidity of the change to the pre-prospectus publicity rules is patently ridiculous. Pre-prospectus publicity rules have been fatuous in every regime. They are simply to make sure that the uselessness of the primary offering requirements in law are not shown up by people flooding in to offers without the benefit of all the expensive documentation that the law prescribes.

Similarly, the sophisticated investor exception, which the bill now extends, could have been extended in a way that respected the genuine risk that people want to take. The notion that an independent financial service provider will have to certify that the person who is exempt can assess the merits, the value, the risks in the offer, the person’s own information needs, and the adequacy of the information is patently ludicrous. I wrote hundreds of offering documents over my career. I did not rely on them to assess the offer. I would never have thought of relying on the offering documents to know the value of the security or the adequacy of the information. I would write a document and then ring a broker and ask what it meant. I once surveyed the lawyers in my firm—more than a hundred—and asked whether any of them ever relied on the offering documents that the law requires to be produced. The answer was “None”. This is an area of law that could have been swept away, to everyone’s advantage.

I want to take a brief call on the third reading of what was the Business Law Reform Bill and is now split into 13 different bills that amend various pieces of legislation. I would like to pick up a little bit on the big-picture issue that Stephen Franks has alluded to. I think it is a good thing that in this bill we are attempting to roll back and limit some of the more excessive compliance costs that we have put on the business community, with the very best of intentions.

Our intention has been to protect what we see as vulnerable people from being sucked into fraudulent or less than honest business schemes. In some ways we have gone too far in places, and it is good to see, as Stephen Franks alluded to—and I mentioned this in my second reading speech—that we are loosening the rules a bit for employer superannuation schemes. I think we need to do that because there is a maxim in public policy, and that is that if the Government wants more of something it should encourage it. On the other hand, if the Government wants less of something it should discourage it. In some ways we have been discouraging savings through employer-based superannuation schemes rather than encouraging them.

There is a lot more work to be done in that area because New Zealand and its economy—coming off a dis-savings base of about minus 11 percent per annum, according to the Reserve Bank’s projections—desperately need the saving rates of New Zealanders to increase, and to increase significantly. But at some point, we need to take a step back and wonder why it is that every time there are scandals in the business community—and I am referring here to some of the recent United States examples; Enron and the securities companies in New York, and so forth—we always have to react by putting in place more and more legislation and more and more information in prospectuses and other issue documents.

In that context I draw the House’s attention to the fact that, in my opinion, a better way for us to address those issues would be to give a lot more emphasis in our society to high ethical values. A lot of what we do is in terms of writing endless law. Stephen Franks has just mentioned, and I agree with him entirely, that we have huge documents that cost megabucks to provide—and no one reads them, and no one has much regard for them when making investment decisions. We are trying to shut the door after the horse has already bolted, because somebody down the line somewhere did something dishonest. It would be much, much better if we approached this issue on two levels, and that is, firstly, to encourage—insist, really—the business community to give much more emphasis to ethical values and standards, and secondly to put people in jail for a long, long time when they do something crooked and fraudulent. I think we would then get back to the good old days when economies prospered on a handshake because people trusted one another and trusted the standards of honesty and integrity in the business community. We have lost that, to our detriment, and I hope that at some stage we as a Parliament can think about that and ask whether that is the right way to go—whether we could start at the right end of the whole problem, and insist on better standards in our communities. With those few remarks I signal United Future’s support for the third readings of these bills.

Bills read a third time.