Business Law Reform Bill

As previous speakers have said, National is speaking and voting in support of the bill. I rise to speak to Part 3 of the Business Law Reform Bill. I enjoyed my time on the Commerce Committee. It is a good, solid committee, and I note that the National Party managed to keep the quorum together, in the spirit of good faith in Parliament. I will not speak for too long, because there is obviously a lot on the Government’s agenda. We may well get to the Conservation (Protection of Trout as a Non-commercial Species) Amendment Bill tonight—one never knows.

In previous speeches on this bill I have raised the issue—and I raise it again—of, in particular, the exemption power of the Accounting Standards Review Board. I have read the Minister, Lianne Dalziel’s, introductory speeches. I have read the committee’s explanation in the commentary. It is quite full and quite wholesome; that is fantastic. But I do see contradictions. For the life of me I cannot understand why that provision was included, particularly when we had a very good submission from the Accounting Standards Review Board, which pretty much pleaded to the committee—and had made, I believe, representations to the Minister and various other ministries—not to include this clause.

I read in the commentary that the committee, in relation to sections 24 to 27 of the principal Act, essentially rejected that submission—or, at least, the officials have written the report in that way. I will quote a small bit relating to the Financial Reporting Act. Basically, the committee justifies the inclusion of this provision because there is existing law and process allowing an exemption. The commentary states that the committee had concerns that not including this provision would lead to weak accountability because the “if the Board thinks fit” test does not make clear the criteria the board is using, etc.

Basically, the committee expressed very little faith in the Accounting Standards Review Board. That did worry me somewhat, because I believe that it is the Minister who appoints this board. People like New Zealand’s chief accounting officer, Mr Warren, and some very high-powered individuals are on that board. I will not list them all, but looking at the names of the members of the Accounting Standards Review Board, I would tend to put my money behind them, their views, and their opinions on matters affecting New Zealand’s accounting standards than on what the Minister has taken on board. I appreciate the commentary from the committee, and I look forward to the Minister expanding further as to why that submission from the board was excluded.

We will be speaking to other parts of the bill later. As Katherine Rich noted, when this bill was first launched it was described as an omnibus, technical bill. It has five different parts; I have just been speaking to Part 3. The National Party took the bill on board in the spirit of making existing law a little bit better. But we have politicisation—we even saw it today in question time—around the takeovers provisions of this bill. Yes, I am speaking to Part 3; I will get back to it later. I just make the point that National could go hard and politicise this bill a lot more than it is. We will not, in the spirit of the intent of this bill, but I think we require many more explanations, particularly since National members recently raised similar Supplementary Order Papers during, I think, the debate on the Securities Legislation Bill and were voted down. I would be interested in an answer to that.

As I said, I will speak briefly on this. I invite the Minister to explain further why she overruled that submission from the Accounting Standards Review Board, given the weight, intellectual grunt, and commercial nous that sits on it. It is the gatekeeper of good regulation in New Zealand.

I am quite happy to respond to such invitations. I thank Craig Foss for raising the question of the Accounting Standards Review Board’s exemption-making power. I am well aware that the board itself did not seek this exemption-making power, as it believed that it already had this power in respect of its current arrangements.

I draw the member’s attention to Supplementary Order Paper 72, in my name, which addresses some of the concerns that the board has raised with me. I met with Warwick Hunt, the chair of the board, after he made his appearance at the Commerce Committee, and I thought we had a very constructive discussion. In the end we did not agree on the fundamental issue, which was whether to have legislative authority for the exemption-making power, but we did take on board some of the concerns he raised on the specifics. That is why we are removing the ability to make individual exemptions; the ability will only be for class exemptions. I felt that that was a very particular concern that Mr Hunt had raised.

We are replacing the exceptional-circumstances test with what I consider to be an even higher test, and that is whether the compliance with the relevant provision of the financial reporting standard would result in financial statements that are misleading or are likely to mislead. It is a very specific test that will now apply to the granting of an exemption. We are also, of course, removing the “fit and proper” test, which nobody, I think, considers to be necessary any more.

I know that this amendment has not gone the full way to meeting the concerns that the Accounting Standards Review Board raised. But I have had that conversation with the chair, and I feel that the amendment goes a considerable way towards addressing the concerns that the board raised.

I thank the Minister, Lianne Dalziel, for providing further explanation of Supplementary Order Paper 72 in her name. National fully intends to cooperate on the Business Law Reform Bill as it was when introduced, but I want to raise a process issue about the exemption power of the Accounting Standards Review Board, which the Commerce Committee spent quite a bit of time tackling.

I commend some of the submitters for their discipline in not wanting the board to grant an exemption to certain companies or classes of companies from adherence to the standards. They wanted to ensure that when a standard is promulgated, every entity abides by it. That is, indeed, the ideal position, but the select committee, after vigorous debate, agreed to go along with the recommendation of the officials. We understand that the board has not been utilising the existing exemption power because that particular criterion is rather broad. The board can grant an exemption as it sees fit. I think the board has shown its integrity by not utilising that provision, because one can also see that for the board to grant an exemption for individual companies or groups of companies as it sees fit could result in a very subjective and non-transparent application of the law.

But in the process of debate, the select committee came up with more formalised written criteria under which that exemption power can be exercised. The Regulations Review Committee also indicated that there was a question as to whether the exemption power should be allowed at the regulation stage rather than in the primary legislation. We are, broadly, happy with the ultimate provision arrived at in the select committee.

But one is slightly concerned about the process when select committee members have agreed to, and believe they have arrived at, a position, and then—as we understand it—the Minister, Lianne Dalziel, has further conversations with the Accounting Standards Review Board and comes up with further agreements. In this case we are happy to support those agreements. But it makes one wonder about the robustness of the select committee process in general. If other submitters knew that they could suggest further amendments, they might have also wanted to do so. I want to compare that to a previous case. When we debated the Communications Legislation Bill, a class of non-profit broadcasters had an eleventh-hour negotiation with the Minister of Communications because a New Zealand First member had introduced an amendment at the Committee stage. We find that these particular behind-the-scenes negotiations completely override the select committee’s position.

I take this opportunity to raise and emphasise again that the National Party has been cooperating in terms of streamlined legislation, but we are still concerned about the procedure whereby a conclusion reached at the select committee can be overridden between a bill being reported back to the House at the second reading and the Committee stage. We hope that type of process will be minimised. Otherwise, it is not fair to the submitters, who see the select committee process as a way for them to clarify their position, and it is not fair to the select committee members, who have taken their task seriously and come to a certain conclusion, only to find that further amendments have been introduced in the Committee of the whole House stage. But as we expressed, in this particular instance we concur with the Supplementary Order Paper and we agree to support Part 3 with these amendments.

This is quite an important part of the bill because it seeks to streamline some of the concerns that many within the business sector have seen for quite a long time. During the submission process we had two powerful submissions, one from GE Finance and Insurance and the other from Citigroup. Both those businesses, starting with GE Finance and Insurance, argued that the financial reporting requirements, as they are, are unduly onerous. GE Finance and Insurance made the point that it was operating in about 70 different countries, and the requirement to file accounts in New Zealand as a stand-alone entity—that is, as a separate entity from its parent company, General Electric—required a lot of work for little benefit. Out of all the countries that it works within, New Zealand was the only country that required it to do this.

Likewise, Citigroup argued that it worked in over 100 different countries and territories, and that New Zealand was the only country in which Citigroup Inc. was required to file a set of stand-alone financial statements of this type in addition to its group financial statements. Producing those financial statements cost the business enormously. For example, we were told that it cost its New York office something like the time of three professional people for 10 days each just to produce the stand-alone accounts for New Zealand.

So there was an immense expense for little gain. Basically, there were plenty of other audit processes in place. These companies argued that when they work in so many other countries that do not require this specific process to take place, there was little reason for doing it in little old New Zealand. Both those companies argued that what was proposed here did not really go far enough. They argued that an exemption process was not as good as not being required to do the stand-alone accounts in the first place. So, to a certain extent, we have not solved all the problems that both those companies wanted us to solve. But I think we have gone some way towards making changes that will minimise the effects to those businesses when they seek exemptions.

It was pretty interesting, though, if one looks at the process for getting those exemptions, when the Accounting Standards Review Board comes along and says: “We don’t want this as a responsibility.” It showed, I think, a lack of consultation with the board to get it into a situation where it was happy with the changes. When one has a Crown-funded organisation come along and say: “We don’t want these new responsibilities given to us by the Crown.”, and says so in a public forum, that is pretty significant.

So in terms of the changes that are being made here, I think they do go some way to streamline some of the requirements on companies to report on their finances. I think there are probably some additional changes we could make, to make it even easier. It is hard for New Zealand to argue that it needs totally different stand-alone requirements when these international businesses work in so many different markets under so many different scenarios, and we ask them to put together additional accounts that are just totally unnecessary and go to that extent and cost them money without introducing any additional benefit.

So in terms of financial reporting, obviously it is a necessary part of the process. Governments need to know that organisations are working well and working honestly within a jurisdiction. But we need to make the process not as onerous as in other countries, because if we continue to do that we actually put people off coming here and setting up businesses in New Zealand. I think we could have done more to make some changes within this part of the process, but we have gone some way to include changes.

The question was put that the amendments set out on Supplementary Order Paper 72 in the name of the Hon Lianne Dalziel to Part 3 be agreed to.

Amendments agreed to.

Part 3 as amended agreed to.

Part 4 Friendly Societies and Credit Unions Act 1982