New Zealand Guardian Trust Company Amendment Bill

I move, That the New Zealand Guardian Trust Company Amendment Bill be now read a first time. This is a private bill, promoted by the New Zealand Guardian Trust Co. Ltd for Parliament’s consideration. The bill substitutes the name of the Guardian Trust’s parent company from the Royal and SunAlliance Insurance Group to Promina Group Ltd in order to enable the company to transact business with its parent company.

Guardian Trust has been operating as a trustee in New Zealand since 1883 when the Guardian, Trust and Executors Company Act was passed. In 1982 it merged with the trust department of the New Zealand Insurance Company Ltd, necessitating the passing of the New Zealand Guardian Trust Company Act in that year. The trust has 14 branches throughout New Zealand and acts on trusts and estates for many thousands of New Zealanders. The Guardian Trust is a trustee company authorised under the New Zealand Guardian Trust Company Act 1982 to carry on business as an executor, a trustee, a trustee company, and in other fiduciary capacities. This Act currently allows the trust to transact business with its parent company, which is named, and any subsidiary or company associated with its parent company. It also allows it to attain the financial benefit from such transactions, which would otherwise be precluded under trust law. The ability to transact business in these circumstances is necessary, given the size of the corporate group with which Guardian Trust is associated and the opportunities that may be lost if the ability to transact business with such companies was not available. Similar concessions exist for all other trustee companies.

The Act currently defines the parent company to mean the Royal and SunAlliance Insurance Group. In a corporate reorganisation that occurred in 2003, the New Zealand and Australian businesses of the Royal and SunAlliance Group were consolidated into one holding company—Promina Group Ltd. As part of that reorganisation, Guardian Trust was sold to Promina Group Ltd. Accordingly, the objectives of this bill are to enable the company to transact business with its current parent group company, Promina Group Ltd, and with Promina Group Ltd’s subsidiary and associated companies, whether or not they are incorporated in New Zealand; to validate any business transacted with various parent companies, subsidiaries, or associated companies of its various parent companies, whether or not they are incorporated in New Zealand, on or after the commencement of the principle Act until the commencement of the bill as an Act; and to ensure that the principle Act accurately reflects the current ownership structure of the New Zealand Guardian Trust Co. Ltd.

I recognise that a number of select committees—and, indeed, this House—have wrestled with the issue of whether generic legislation would better protect people who have dealings with the New Zealand Guardian Trust Company. Each select committee has recommended that generic legislation be introduced to deal with the need for the various trust companies to bring legislation of this sort before the House. I hope the select committee will be able to deal with this particular issue in relation to the New Zealand Guardian Trust Company, and I hope we will see legislation in some short time, so that it will not be necessary for legislation of this type to take up the time of the House and committees. However, in the meantime it is, so, in accordance with the Standing Orders, the notice of intention to promote this private bill has been distributed to those persons who have a direct interest in the subject matter of the bill. It has been publicly advertised, and I commend it to the House. At the appropriate time I will move that this bill be referred to the Commerce Committee.

It is probably fair to say that two of the great commercial names in New Zealand would have to be the New Zealand Insurance Co. Ltd and the South British Guardian Trust Co. Ltd. Those companies, of course, no longer exist. In the course of history they have been subsumed into the name New Zealand Guardian Trust Co. Ltd. We are here confronting a bill that National supports. It is a private bill that, for some of the reasons the Minister, Judith Tizard, indicated, is a somewhat unusual type of bill in a setting where this Parliament deals with four types of bills: Government bills, members’ bills, local bills, and, much less frequently, private bills. Private bills are promoted by a person or a body of persons for the particular interest or benefit of that person or body of persons. The Minister was right to say that this type of legislation, for the reasons she gave, should not be encouraged. Here, however, we have that class of case where clearly it is appropriate to make an exception.

The purpose of this New Zealand Guardian Trust Company Amendment Bill is to amend the principal Act of 1982—although the history of the two entities goes way back beyond that—really to do two things. The first purpose is to enable the company to transact business with its present parent company and that parent’s subsidiaries and related companies, and the second purpose is to validate retrospectively those transactions that have already taken place in relation both to the present and past parent companies, their subsidiaries, and related companies. So I join with the Minister in hoping that this legislation will be passed with alacrity, because it is clearly an unsatisfactory circumstance that transactions are occurring that may not be properly sanctioned.

It was in 1982 that the New Zealand Insurance Co. Ltd, which was founded in Auckland in 1859, and the South British Guardian Trust Co. Ltd merged to form the New Zealand Guardian Trust Co. Ltd. That entity became a wholly owned subsidiary of the New Zealand South British Group Ltd. There were a number of reasons why the principal Act was necessary, and it is relevant to talk about those issues, because this bill is an amendment to the principal Act. What was the principal Act about? I guess we could summarise four primary reasons for the legislation. First of all, it was to amalgamate the trust and agency businesses of the merged companies and the transfer of those businesses to the new company; secondly, the vesting in the company of all those appointments, rights, and duties that the merged company was to assume as an executor, a trustee, and a fiduciary; thirdly, the empowering of the company to act as an executor of wills and administrator of the estates of dead people; and finally, to include the company as a trustee company under the Trustee Companies Act of 1967.

What happened in the course of history—and this is a matter of record—is that the New Zealand Guardian Trust Co. Ltd fell under the spell of one of the great underwriters of the world, the Royal and SunAlliance Insurance Group plc of England. Then there has been the further change that has seen the Promina Group take a hold of the New Zealand Guardian Trust and become its current parent. The Promina Group is a big enterprise on any view of it. It is listed on the New Zealand and Australian stock exchanges and employs over 6,700 people. It has about 210 offices in Australia and New Zealand, and I understand that its combined gross written premium in its trans-Tasman business operations was A$1.458 million for the 6 months to 30 June 2004. So, we are dealing with one of New Zealand’s largest insurance and financial services organisations. Its brands, as I am sure members will know, include companies like Vero, Asteron, Guardian Trust, Tyndall Investment Management, Vero Marine Insurance, Vero Liability Insurance, AA Insurance, and certain other companies.

I note out of interest that in the current stock exchange listing for Promina Group, there is an indication of the strength of the company, with the last sale of its shares being at 481c. The company has a price/earnings ratio of 8.48 percent. So perhaps it is a good investment. I confirm that the position of National is to support this legislation, and I join with the Minister in seeking that the legislation be quickly enacted to make the changes the bill contemplates.

On behalf of New Zealand First, I say that we will support this bill going to the Commerce Committee. I think the time has come, though, when we should reconsider having bills of this kind coming before Parliament, and we should reconsider whether the main Act should continue.

The New Zealand Guardian Trust Company Act was passed in 1982, and I happened to be in Parliament at the time. I seem to recall there was a great deal of lobbying to ascertain whether we should have this kind of legislation that is specific to one company. I think there was some trepidation in allowing a precedent of this kind to come into existence. Here we are, 22 years later, and not only is the Act still here, but it has been amended once in 1989, and we are looking forward to amending it again today.

I think the Government of the day should reconsider this type of legislation and have a standard legislation that would apply to everybody. If we read the Act and the 1989 amendment, we see that section 21(1) of the Act is almost unintelligible. It is a typical trust company clause. It is a sentence of 20 lines. I do not think any member of Parliament understood what was in section 21(1), either in the original Act or in the 1989 amendment. It is not surprising, therefore, that the company itself possibly does not fully understand it, yet in the bill before us today clause 4 amends that rather unintelligible section. The main purpose of the legislation is to amend section 21, by adding paragraphs (a) to (e) to a section that has one sentence of 20 lines. I really think the time has come for the New Zealand Guardian Trust Company and whoever it owns it today to reconsider the situation.

In 1982 we were very proud to be doing something for a New Zealand - owned company, in general terms. The history has been set out. The Trust Department of the New Zealand Insurance Company merged with the South British Guardian Trust Company. Those companies are great old names. They had buildings in Queen Street, and everyone in New Zealand identified with them. We are now doing something for Promina Group. The National Party member Mr Worth has fully set out everything about Promina Group that we really need to know, but he has explained that it is effectively an overseas company. So here we are, in the New Zealand Parliament, trying to facilitate something for an overseas organisation that has swallowed up a New Zealand company. I really do not think that is the role of Parliament. The sooner the Government looks at standard legislation for all companies in that situation, the better.

It is only because it is the New Zealand Guardian Trust Company and because we have a considerable debt to such an old company in New Zealand that we support this bill going to the select committee. But, really, the time has come to reconsider this type of legislation.

I rise for the ACT party to address the bill just introduced by Judith Tizard. This bill is designed to allow the New Zealand Guardian Trust Company, a trustee corporation, to breach trust law and do things that trustee companies are not allowed to do; that is, to have transactions with its parent company where there may be a conflict of interest. It is not unprecedented. This arrangement has been permitted for trustee companies for some time, on a case by case basis, as members who spoke earlier have mentioned. Parliament, in effect, has approved new parents and said that they can have dealings with them.

But the introduction of this bill as if it were just another standard copycat bill is evidence of the commercial naivety of the Labour Party and of the utter unsuitability of Dr Cullen, and the Labour Ministers involved in the commerce area, to their jobs. This bill should not be proceeding in a form anything like this. It is a completely different matter to allow related-party or cosy transactions within a group where the entire group is in New Zealand than it is to allow those transactions to occur with something as vital to so many people as a trustee company when the parent is offshore.

We can draw parallels and lessons from Dr Cullen’s approach in allowing the control of the New Zealand banking industry to disappear offshore, and allowing New Zealand’s ability to recover from a banking crisis to be determined by Australian banks and Australian regulators who do not need to give a stuff about New Zealand depositors.

I urge the Commerce Committee, to which this bill will go, if it gets there, to have a look at some recent speeches: two speeches by the Governor of the Reserve Bank, Dr Alan Bollard, one in Chicago and one earlier in Australia, in August; a brief speech by Dr Michael Cullen to a tax and regulatory seminar on 14 October; and a speech by Mr John Key, the National Party finance spokesman, to a conference of independent financial advisers.

I mention those members because they show a complete want of appreciation and ignorance—which was not shown by the Governor of the Reserve Bank—of the significance of cross-border group transactions. What Dr Bollard has pointed out, and what ACT has been concerned about from the very moment I came to the House, is that the Australian Government is ruthless when the interests of its citizens conflict with those of New Zealanders. Australian banking legislation, for example, states that foreign creditors of an Australian bank will not be paid until every Australian depositor has been satisfied. I understand that there are similar provisions in some of the other law affecting Australian financial institutions. Insurance companies and trustee companies are in the same category as banks, in terms of people’s legitimate expectations that the Government will not simply sacrifice their interests to foreigners.

Dr Bollard very properly drew the attention of his audiences to the fact that when risk limits and capital adequacy are established overseas, when governance is driven from overseas, when the management of the company that might have the money is out of the jurisdiction, and when there may be an outright conflict of regulatory interests between the Australian regulator that wants to have happy and satisfied Australian creditors and the New Zealanders who are saying that their money went across to Australia, the regulators and this Parliament should be deeply concerned.

Dr Bollard has pointed out the practical problems. The Minister’s naive bill states that without any sort of restriction, transactions can be entered into. If those transactions included, for example, transferring the accounting functions, treasury management functions, the risk management functions, and mid-level and technical management, and contracting those back from Australia, and if there is a collapse in that group, the New Zealand beneficiaries who depend on the integrity and capacity of the company could be left swinging and waiting for a very long time. There would be no capacity in New Zealand even to know what was happening.

If the bills stopped being paid to the New Zealand provider of information technology, for example—if the organisation even had information technology capacity in New Zealand—because the group had gone into receivership in Australia, who would be able even to keep the records for the beneficiaries in New Zealand? This useless and utterly naive Government inherited a well-running economy from the National Party and an earlier breed of the Labour Party.

Taking the example from Dr Cullen and his approach to banking regulation—which is, essentially, “Oh, let’s leave it to the Aussies, it’s all too complicated for us, we don’t need to know about it—this bill comes in and states that the New Zealand Guardian Trust Company can do what it likes with its parent and we do not have to care about it.

Well, I hope the select committee gets some expert advice on the issue. I believe that because this is part of the financial sector, committee members should go to the Reserve Bank and ask it what kinds of safeguards they should write into the bill to make sure that when Promina Group goes down, if that happens, people do not suffer the fate of the creditors of, for example, the most recent major Australian insurance company collapse. It was only the toughness of the New Zealand legislation around the Accident Compensation Corporation denationalisation that meant the New Zealand claimants did not swing, after the Australians. It was the toughness of the US authorities, which promptly seized $500 million of assets of the Australian group, that meant the Americans got paid. We need a regime that makes sure New Zealanders are looked after, before a bill like this goes through to look after the now Australian-based shareholders in a company that is as important to many New Zealanders as the New Zealand Guardian Trust Company.

These trustee companies are not invulnerable. They are very dependent on the quality of local management. They are very dependent on the systems that are available. If the management and functionality is outsourced to Australia, it would not matter how well intentioned the New Zealand authorities were in trying to impose a moratorium, or in freezing things, or in fixing things—as the Government had to do for the Perpetual Trustee Company in Dunedin, 30 or 40 years ago. The Government had to step in there, impose a moratorium, put in administrators to run the company, and ensure the company was run until it could trade out. In those days, of course, one could go to look up paper records, and as long as they had not been thrown away, burnt, or dealt with fraudulently, one could trace back and find out what had happened.

In a company like the trustee company today, if an Australian receiver decided he did not need to bother to pay the information technology fees for a New Zealand business that he had already decided was worthless, we might find that the beneficiaries were quite helpless. The Government would have to step in and pay for what should be a cost met by the Australian owners, who would presumably have sucked the benefit out of the company. It is not hard to loot a group whose governance is not subject to local jurisdiction. It could be done even if local directors did not know it was happening. If treasury management was centralised in Melbourne or Sydney, it could simply be that short-term loans were made in perfectly good faith to the Aussie company when it was in strife, which the local directors did not know about. Lo and behold, when the balloon goes up they cannot repay those loans. A company that looked as if it had a perfectly sound balance sheet is suddenly shown to have undue exposure to its parent.

This bill needs a great deal of work. I disagree with the National Party speakers—this is not a simple matter. This is a matter that is a precedent for a lot of transactions between our financial sector and other foreigners, and it is not an anti-Australian move. We need to know that the capacity has been properly protected before allowing a trustee company open slather with its parent.

Let me say at the beginning that United Future will vote in favour of this bill being submitted to the Commerce Committee for due consideration. As I will say in the course of my remarks, it is very important, I believe, that the select committee does give the bill, as drafted, very detailed consideration before bringing it back to the House for its second reading. On the face of it, as Richard Worth and others have said, this seems to be quite a simple matter: the New Zealand Guardian Trust Co. has changed its parent from the Royal and SunAlliance Insurance Group to the Promina Group Ltd, an Australian company, whereby there is a switching of the parent from a British-based company to an Australian company. That seems to be a fairly straightforward matter. But, in addition to the matters that have been drawn to the attention of the House by Stephen Franks, the member who has just concluded his speech, I would like to say, too, there are some other matters that I think the select committee should have regard to in relation to this bill.

The first question is why we have an Act of Parliament to enable this particular company, the Guardian Trust Co., to operate these transactions with its parent company and other entities within the group. Since we have a Companies Act, surely it is unusual for a company to exist in New Zealand under its own special Act of Parliament. Now, such things have happened in the mists of time—some companies have special Acts going right back to the 19th century, and it actually becomes almost like a branding and marketing exercise for a company to be able to say that it was established under an Act of Parliament—in this case a 1982 Act of Parliament.

So the first point we would like to make is to ask the select committee to re-examine whether a continuing need exists for this company to have its own Act. Should that position be able to be changed so that it just becomes a company like any other, under the Companies Act? Why does it have to continue to have its own Act?

The second point I raise relates somewhat to the first. As this bill is necessary because the parent company has changed, does it mean that a new Act is required every time the parent company changes? Indeed, there have been quite a number of changes in the parent company of the New Zealand Guardian Trust Co. over the years. It seems to me to be a somewhat flawed process. Linked to that point, I ask whether it would be simpler to use some sort of delegated power—and there are instruments in a number of Acts to do that—so that the executive or, for example, the Government Administration Committee or the Regulations Review Committee, one of those bodies, without having to come back to the House, could simply change or swap the parent company’s name, when and if that happens. I think that needs to be looked at.

The other concern I have about the way this bill is drafted is that it changes the interpretation so that, for the first time, a subsidiary includes an overseas company. I want to ask why that is being done. What is the commercial and economic rationale for that, and, furthermore, is it something that should be done? I say that because it is quite clear, of course, that the Royal and SunAlliance Insurance Group was an overseas parent and, as Richard Worth pointed out, had a multiplicity of subsidiary companies right around the globe. It is a multinational company. So why are overseas subsidiaries being introduced into the bill for the first time? I think the select committee should have a serious look at that and just conclude that there is a valid reason, because the explanatory note of the bill does not really explain it. It just states that we are doing this, but it does not tell us why. I ask what the implications are, and whether it is a good thing. With those remarks, I once again signal that we will vote for this bill on its first reading.

I want to thank members of the House for the comments that they have offered on this private bill. As the MP for Auckland Central I have been asked a number of times to introduce private bills and I see it as a duty of members of Parliament on occasions to do that. I think that the issues that Mr Franks has raised are good ones that should be thoroughly considered by the Commerce Committee, and I am sure that thorough consideration will be given to this legislation. It is slightly different in nature to earlier private bills relating to the New Zealand Guardian Trust Co. in that it is now owned by a parent company that is registered in New South Wales, Australia. I urge the select committee to take any advice it needs to in order to examine the bill and to cross-examine the promoters of the bill. I look forward to this legislation being received back.