Companies and Limited Partnerships Amendment Bill

I move, That the Companies and Limited Partnerships Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. The Companies and Limited Partnerships Amendment Bill will strengthen the rules that apply to the governance, registration, and reconstruction of companies. New Zealand has an international reputation as one of the best and most trusted places in the world to do business. We have a high rating for the ease of registering a business. However, this has the potential to increase our vulnerability to overseas interests using New Zealand - registered shell companies to undertake criminal activity. I note that the corporate risk profiling team in the Companies Office has removed nearly 2,600 companies from the register since 2010, including companies that have been identified in the media in recent months. But we cannot remain complacent, and that is why this bill was introduced.

The registration provisions in the bill are designed to reduce the potential for the misuse of New Zealand - registered companies and limited partnerships for overseas criminal activity. The provisions are limited in nature and relate only to the company and limited partnership registration process. The bill aims to strike a balance between deterring the activities that threaten the integrity of New Zealand’s company registration system and maintaining ease of business for New Zealand companies.

The measures in the bill form part of the Government’s wider approach to strengthening New Zealand’s resistance to organised crime. They are linked to other work aimed at deterring money-laundering and making it easier for New Zealand law enforcement agencies to find the ultimate owners of companies.

The bill introduces a requirement for every registered company to have either a director or a resident agent who lives in New Zealand or in an approved jurisdiction. It is proposed that Australia be described as an approved jurisdiction, as regulatory criminal fines can be enforced in that country through the Agreement between the Government of New Zealand and the Government of Australia on Trans-Tasman Court Proceedings and Regulatory Enforcement. The resident agent must be a natural person and must otherwise meet the qualifications of being a director. The resident agent is liable if the company does not carry out certain administrative responsibilities, including the filing of documents with the Registrar of Companies and the maintenance of company records. The role of the resident agent is essentially administrative and not that of a de facto director. The provisions make clear that the resident agent is not responsible for the content of any document where there has been a breach of the Act unless they had knowledge that the content of the document was incorrect.

In addition, the bill gives the Registrar of Companies enhanced powers to investigate, respond to, or remedy non-compliance with the Companies Act, and to take effective administrative action against companies and directors that do not respond to his requests. These provisions apply to all companies and not simply to those that require a resident agent. I would particularly welcome the select committee’s views on these matters.

The bill aligns the rules applying to limited partnerships with those applying to companies. This is to ensure that persons misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead. The changes to the Limited Partnerships Act made through this bill are to introduce qualifications for general partners—those responsible for the management of the limited partnership—while also requiring a resident agent where the general partner has no connection to New Zealand, to give greater scope for the registrar to deregister limited partnerships that do not comply with the Limited Partnerships Act, and to introduce grounds for banning persons from acting as general partners.

The next major feature of the bill is to better align the Companies Act with the Takeovers Code. This is to ensure that shareholders understand the effect that changes in companies’ control will have on the value of their shares. The Companies Act includes reconstruction provisions, which set out procedures to be followed when two or more companies want to amalgamate into one, or a company wants to come into an arrangement with shareholders as to a change of control. The proposed changes address a loophole that enables companies to which the Takeovers Code applies to take over another company using the reconstruction provisions of the Companies Act rather than using the Takeovers Code. This means that takeovers can be undertaken with less information provided to shareholders and with a lower level of shareholder participation or support. Where there is an amalgamation involving a company that is subject to the code, this can also mean a lower level of regulatory oversight by the court or the Takeovers Panel. The Takeovers Panel expressed concern about this and recommended to the former Minister of Commerce that this loophole needed to be closed. For this reason the use of amalgamations that do not require the approval of the court will be prohibited where one of the amalgamating companies is subject to the code. In circumstances where a reconstruction arrangement must be approved by the court, the court must be satisfied that shareholders of the company would not be adversely affected by the transaction being undertaken under the Companies Act rather than the Takeovers Code, or the applicant must have filed a statement from the Takeovers Panel indicating that the panel has no objection to the scheme being approved by the court. The amendments ensure that processes under the Companies Act are consistent with the procedures for changing control of companies under the Takeovers Code.

The final set of reforms in the bill is the introduction of criminal offences for directors who commit serious breaches of two duties under the Companies Act. The relevant duties are to act in good faith and in the best interest of the company, and to not carry on business in a way that risks serious loss to the company’s creditors. These reforms recognise that substantial harm can result when directors breach the duties they owe, as was evident from a number of finance company collapses where the investors lost much of their savings. They are in addition to the civil remedies that are already available to the company and its shareholders.

These provisions give public enforcement agencies, the Registrar of Companies, and the Financial Markets Authority the role of taking action in the public interest. I am mindful that some submitters on this proposal were concerned that adding this criminal liability would deter people from taking up directorships. The offences will require the prosecution to prove that the director knew that their behaviour would be seriously detrimental to the interests of the company or would result in serious loss to the company’s creditors, depending on the particular breach of duty. This is a high threshold aimed at serious misconduct and would not catch an inadvertent act or omission by a director.

In conclusion, it is essential that New Zealand remains a trusted and well-regulated place to do business. The changes in the bill to our registration, reconstruction, and governance rules aim to increase the confidence in New Zealand’s financial markets and its regulation of corporate forms. I commend this bill to the House.

I can say from the outset that the Labour Party will support this Companies and Limited Partnerships Amendment Bill, at the very least at the first reading. Obviously, we will want to see the details as to how this bill progresses. We all agree that New Zealand has an international reputation as a trusted place to do business, and we all agree that that reputation should be protected and enhanced at all costs. I note that the World Bank and the International Finance Corporation have ranked New Zealand the easiest of 183 countries in which to start a business, and Transparency International ranks New Zealand the least corrupt country of the 183 surveyed. That is a tribute to our business people and our regulatory agencies in policing the laws and regulations of our land.

However, it has to be said that lately attention has been drawn, both domestically and internationally in respect of the media, to overseas interests exploiting New Zealand’s incorporation processes by using New Zealand - registered shell companies to undertake illegal activities. In fact, I am advised that a New Zealand - registered company was used to run a $25 million Ponzi scheme. I know that the National Party is very fond of that term in recent days, given that it has some relevance to other matters before the House. But that Ponzi scheme was run by an American chief executive and owner who is now facing up to 15½ years in a United States jail after pleading guilty.

So the question arises: this is sound in principle, and this is a sound piece of legislation, yet the Government has taken some time to process and have this bill introduced in Parliament. My recollection is that this was unfinished business by the previous Minister of Commerce, the Hon Simon Power. Yet, despite the threats to New Zealand’s reputation, the reputational risks that we face as a result of some of this nefarious activity in terms of exploiting New Zealand’s incorporation law, this bill has sort of languished. One wonders—and we will be asking him in the Committee stage—what priority the Minister of Commerce has given or is giving to the reputational risk management process for New Zealand, given that this bill has languished for months after being introduced.

I would have thought, and I do echo and agree with the Minister’s words, that New Zealand’s business and commercial reputation is paramount. The question then arises, as “The Maestro” sort of grins across the Chamber at us—

💬 Hon Dr Jonathan Coleman: 17 grand. He would have rushed it into the member’s ballot.

Well, who is it going to be? Which declaration would we like to start with first on that one, team? Would we like to start with Mr Foss, or “The Maestro”, or Mr Young, or any of them? I am very happy to have this debate—very happy to have this debate—anywhere, anytime, inside or outside this Chamber. And then we will see—then we will see. So which hen over there, which rooster over there, is going to have their head cut off, because if that—

💬 Hon Member: Mr Brownlee.

Well, Mr Brownlee—because if that member wants to start it, I will finish it. But getting back to more serious matters—and the Minister might look at the conduct of some of his own colleagues. But if you want to start it, I will finish it.

I say that this bill has languished—

💬 Hon Dr Jonathan Coleman: Come on. If you’re going to tell us to step outside the House next.

I will not need to. I will just ante up with some paperwork on you—not you, Mr Deputy Speaker, that one over there.

💬 Hon Dr Jonathan Coleman: You’re all talk.

Oh yes, talk and actions, mate. Roll the dice. So I say that the question before this House is why this legislation has languished for so long. Obviously, the smoke signals that “The Maestro” is putting up—because we all know he likes a cigar occasionally—show that he wants to divert some attention away from a serious piece of legislation.

In fact, what I found astounding doing the research on this bill was that—given the lack of priority that was given to this—earlier this year, which the Minister did not mention, New Zealand, along with Russia, was struck off the prestigious European Union banking and corporate white list over this country’s weak money-laundering and terrorism financial controls. I was the Associate Minister of Justice when Labour introduced and put through the anti - money-laundering legislation, as required through our international obligations. Because this Government has been introverted and self-obsessed with its own crises and its own mess-ups—whether they be asset sales or a whole raft of other things, ACC, the list goes on—New Zealand’s reputation has been damaged.

We have been removed from that white list. I know that Mr McClay, who I believe worked for the European Union or some of its agencies in a previous lifetime, will know very well the value of that institution and the value of being on the white list. We were struck off, and what that means is that banks and institutions in the EU “will not be entitled any more to make simplified research for banks and financial institutions registered in New Zealand”. And it also means, as I am sure Mr McClay is aware—and he might want to proffer some advice to his Minister—that European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

I recall the anti - money-laundering legislation very well. We got all the banks in and the financial institutions, because we were at pains to come up with a scheme of arrangement—given that we were obliged to put this legislation and these rules in place—that was appropriate, and at an appropriate level. It was not Rolls-Royce, it was not gilt-edged, but it allowed the financial processes to go through, and it also preserved and enhanced our reputation as a country engaging in international commerce. Because this bill has languished and nothing has been done about it, we are off the white list. We are off the white list because this Minister and his Government do not see this as a priority.

However, I had a phone call last week from a venerable journalist of the National Business Review, who was at pains to ask me and other colleagues about where this issue was at, when this anti - shell company legislation was going to come back into Parliament, and noted that it had languished for so long. Then, hey presto, an article appears in the National Business Review, and, my word, here we are today on Tuesday night at 5 to 8 in Parliament, the Minister’s feet have been put to the fire by the media, and we are processing the bill. Well, I want to thank that journalist. I want to thank him from the bottom of my heart, as do the business people and commercial entrepreneurs around this country, for attempting to call this Minister and his Government to account, and to ask the question as to when this legislation would ever see the light of day.

This is important. Any legislation, regulation, or scheme of arrangement that preserves our transparency, preserves our reputation as incorruptible, and keeps us right at the top of the rankings of transparency internationally and those other international watchdogs is vital, in terms of easing business and allowing our companies overseas to do deals, and allowing overseas companies in New Zealand to have confidence that they can come here and trust in our institutions. So I have a question for the Government and the Government members when they stand up to take a call—and I am sure Mr Coleman, being the vocal sort of fellow he is, will be rushing to jump up on the shoe leather and advance arguments in respect of this. What I would like him and his colleagues to tell us is why it has taken so long.

I recall Simon Power—and I have got to say, he was a pretty diligent Minister of Commerce; fair go. We disagreed on a few things around the edges in the justice portfolio, but a—

💬 Hon Member: He had a brain.

My colleague said he had a few brains—absolutely, more than a few. He now resides, I think, in the biggest or second-biggest financial institution in New Zealand. He put this up. He started, you know, kicking the ball. The ball started rolling, and then there was an election and he shuffled off to a different life, and this Minister was put in charge of this. So I want an answer from the Minister and his colleagues as to why this has taken so long to get on the Order Paper, and get before Parliament.

The bill, as we know, requires each company to register in New Zealand and to have a registered agent if there is no director living in New Zealand or in an approved jurisdiction. This is important because it provides a modicum of accountability within this country. We know that registered agents will be responsible for ensuring that companies provide accurate information to the Registrar of Companies, and will be liable if companies breach their record-keeping and filing requirements under the Companies Act. This bill gives new powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act, and this includes, of course, the power to flag companies on the register that are under investigation.

These are actually critical provisions, because, again, it is a form of accountability. I mean no slur to New Zealand companies, but we do know that New Zealand has been preyed upon, given the Ponzi scheme out of the United States, and given other alleged nefarious activity by those who simply want to use our good name, use the good name and reputation of our country and commercial enterprises to engage in those nefarious and criminal activities. It is incumbent upon this House to ensure that this legislation—which I am pretty sure will have basic bipartisan support, although we will be seeking detail, obviously, because we agree in principle with it. But it is incumbent upon this Parliament to take whatever measure is necessary to ensure that our reputation as a country is managed well and protected.

I say again to the Minister that we will be very interested in getting reports. I invite him, in the advice that he and his officials provide to the Commerce Committee, to tell us up front why it took so long. That is important. If this is a precedent, and if it has taken so long and we are off the white list in the European Union, then that is a problem, and that is a black mark against our name. Thank you.

I am very pleased to stand in support of the Companies and Limited Partnerships Amendment Bill, which is sponsored by the Minister of Commerce, Craig Foss. The Companies and Limited Partnerships Amendment Bill is outlined in National’s 120-point Economic Development Action Plan and the commerce election policy, and falls under one of the Government’s four priorities this term, which is to build a more competitive and a productive economy. National is focused as a party on boosting growth, and this is another important step along that way. This bill seeks to strengthen rules applying to the governance, registration, and reorganisation of companies and limited partnerships.

New Zealand does have a good international reputation as one of the best and most trusted places in the world to do business. It is quite surprising that after the introduction—the previous speaker, Clayton Cosgrove, mentioned it—of his anti - money-laundering bill, we were taken off the white list. Obviously, this work needs to continue in order to shore up our reputation, which we are doing. Our reputation does stand under threat from overseas interests using New Zealand - registered shell companies to undertake criminal activity. One recent case was a company called S P Trading Ltd, a New Zealand - incorporated company controlled from overseas, which was involved in chartering a plane, later used in weapons trafficking, in contravention of United Nations sanctions. It was reported by the Stuff website that a former fast-food worker: “was the sole director of Queen St registered SP Trading Ltd, a company that hired a plane discovered at Bangkok airport [in December 2009] flying 25 tonnes of arms from North Korea to an unknown destination, believed to be Iran. [The person] pleaded guilty to 74 charges of giving false residential information to the Companies Office, which registered multiple companies with [this person] as a director.” Such cases where foreign-controlled New Zealand companies are engaging in criminal activities are likely to seriously impact New Zealand’s international standing. These things happen, and we must close the hole in the net by which these things do occur. Fish will always swim through the hole in the net, and if our commerce laws have holes in them, they will attract all sorts of unsavoury species who would seek to take advantage of the opportunities that can be exploited. It is imperative that we discover these vulnerabilities, and we close them.

The previous speaker talked about the World Bank’s report on the ease of starting a business in New Zealand—it being the easiest jurisdiction in the world. That is due to the ability of an overseas person or a person resident in New Zealand being able to register a company here via the internet. If the person is overseas they can do that, with no apparent intention of operating in New Zealand. It creates an acceptable shop front to an unacceptable backroom criminal activity, as we saw in that previous case. We know that the Companies Office has already been responsive to this situation, to this vulnerability that we find, in closing down this anomaly. It has already, as the Minister of Commerce mentioned, removed nearly 2,600 at-risk companies from the register since 2010 when these matters were discovered.

The measures in this bill are linked to other work aimed at deterring money-laundering and making it easier for New Zealand’s law-enforcement agencies to find out the ultimate owners of companies. This bill will aid in stamping out this kind of behaviour and help ensure New Zealand remains a trusted place to do business. Thank you.

The Labour Party will be supporting this bill, the Companies and Limited Partnerships Amendment Bill, going to the select committee, as the Hon Clayton Cosgrove has already indicated. I want to start by saying, in response to the comment that was made by the last speaker on behalf of National, Jonathan Young, that this matter came to the knowledge of authorities in 2010. Those were his words, and I will take him at his word on that. In 2012, 2 years later, we are considering the first reading of this bill and the question has to be asked why it is, after 2 years of knowledge of serious fraud being committed around the world, in a way that besmirches New Zealand’s reputation and therefore imposes long-term costs on the New Zealand economy for our businesses, whose ease of doing business in offshore jurisdictions has been undermined by these instances of fraud, that the Government has taken 2 years to get this bill, from 2010 to 2012, into a first reading in this House.

We know that New Zealand has a long-standing reputation, which has taken approximately two centuries to cement in place, as being one of the least corrupt countries in the world. We know, because we are very good at using information technology to reduce business compliance costs in New Zealand, that New Zealand is an easy place in which to form companies, and we have known for some years now that some people have been taking advantage of that ease of setting up a company, and of the lack of checks and balances as to whether people are telling the truth when they are filing the documents that are filed via the internet when they form a new company, yet we have had such a lax approach by this Government that it has taken 2 years from the date when these problems became evident in 2010 for it to take some legislative step to bring about a remedy and protect New Zealand’s reputation overseas.

What have been the consequences of that in the meantime? Well, New Zealand has already been taken off a low-compliance white list in some overseas jurisdictions. Until we were struck off this white list in Europe, the European banking system was able to rely upon documentation originating from New Zealand as evidence that the entity was non-corrupt. They could take these things at face value because New Zealand had a reputation for properly policing our system and pushing against corruption, which is one of the reasons why, until now, we have been seen by Transparency International as one of the least corrupt countries in the world. But because of the lack of speed, the lack of alacrity, with which we responded to these problems that were being experienced, we have been struck off that white list, which means that the banks and the other institutions in the European Union are no longer entitled to carry out a simplified level of research, and they cannot accept and acknowledge customer identification and corporate identification at face value now.

That is of detriment to every New Zealand company that operates in Europe and has dealings with these European financial institutions that now have to be satisfied with more information being provided by the New Zealand corporate, which no doubt increases their compliance costs as a consequence of this problem not being remedied earlier.

The bill not only has restrictions on the registration of companies but enhances the registrar’s ability to investigate allegations of ill-dealing and deregistration powers for companies and, as the Minister rightly said, limited partnerships, which, if they were not covered, could be used as substitute incorporated structures. There are some preconditions that are set out in the bill. Obviously the registrar has to have reasonable grounds before they exercise these powers, otherwise we could be creating other injustices. Or if the registrar writes to the companies concerned and does not get a response from these companies because, using the example that Jonathan Young referred to, where there was a front of a Queen Street address where someone in the fast-food industry had registered companies on behalf of somebody else, it is likely that if there were queries put to that person by the Registrar of Companies they would not get an adequate response, or, in fact, they might get no response because the address might be fictitious or old, in respect of those instances where the registrar does not get a response or does not get other information to confirm the correctness of information that might have been provided, then there is a discretion for the registrar to strike those companies off. Indeed, even before striking them off, my understanding is that the bill confers some powers to put warnings on the register so that if someone is accessing those registers via the internet—and that could be someone in New Zealand, but it could also be someone who is having business dealings with them in an offshore jurisdiction—that person could see that the registrar of the New Zealand Companies Office had some concerns and they might have cause to doubt whether they should take the information at face value or look a bit further. That will improve New Zealand’s standing in the international community and therefore make it easier for New Zealand to protect its reputation and for our legitimate corporates to go about their business, because we will be taking a step to protect their legitimacy and the trustworthiness with which they are viewed by people overseas.

There are also other amendments, which are unrelated to this aspect, that relate to takeovers and amalgamations. Currently there is a route under the Companies Act 1993 that enables schemes of arrangement, including amalgamations or compromises that act a wee bit like mergers, to go outside the rules that relate to the Takeovers Code. So the protections that lie, for example, with minority shareholders, or requiring a certain level of shareholder support before a takeover can be put into effect under the Takeovers Code, have had this alternative route under the Companies Act, which they have been able to utilise in a way that avoids the Takeovers Code. This legislation makes changes to ensure that shareholders of the companies that are meant to be covered by the Takeovers Code cannot be disadvantaged by the company affected making the same changes under an alternative route under the Companies Act, as opposed to under the Takeovers Code. There is a prohibition introduced on code companies using long-form amalgamations under the Companies Act. They will have to do that—if my understanding is correct—through the Takeovers Code rather than under the Companies Act. There are also changes to the voting thresholds that are required in respect of schemes of arrangement, amalgamations, and compromises under Part 14 of the Companies Act. There is a mechanism to seek a ruling, a no objection statement, from the Takeovers Panel—it may be of assistance to the parties, if they are going through a court-related process, to gain some tick-off, if you like, from the Takeovers Panel that it does not have an objection to what is proposed.

The other change made by the bill that we are supportive of is the criminalisation of certain breaches of directors’ duties. There has been some terrible conduct on the part of some finance company directors that has been exposed since the global financial crisis caused a clean-out of finance companies. Not all of those finance companies were being improperly governed, but some were. Some of the finance companies failed in what has been the greatest recession around the world since the Great Depression, and you would expect, following a recession like this, that there would be some finance companies that would fail and that some people would lose some money. Certainly, on this side of the House we are not saying that in finance companies there ought not to be some level of risk that could come to pass that causes people a loss—we do not go that far. But where directors are so errant in their responsibilities that they recklessly pursue a course of conduct that they know will put investors at risk in a way that is not properly disclosed to investors, that is criminal—especially where they are profiting themselves personally, or where through related parties like family trusts they are profiting. The greatest ill-gotten gains in that regard in recent years in New Zealand were probably by Mr Petricevic, who has met some criminal penalties but who has not met criminal penalties for these sorts of breaches of duties, where he probably should have faced legal risk in respect of them. This bill criminalises some of these more serious offences by introducing a term of imprisonment of up to 5 years or a fine of $200,000, and in the worst of these cases that is absolutely appropriate.

I rise to speak on behalf of the Green Party on the Companies and Limited Partnerships Amendment Bill. The Green Party will be supporting this bill. This bill, I think, demonstrates, in a way that perhaps few others do, the poor economic management of the Government. This is a problem in the New Zealand economy—the problem with regard to the lax law around company registrations. This has been a problem in New Zealand for a number of years, and it has resulted in many New Zealand - registered companies being engaged in very large-scale tax-laundering and fraud, internationally. The New Zealand Government has been aware of this problem for some time. In fact, under written questions that I put in 2011, the then Minister of Commerce, Simon Power, said that Cabinet had agreed to the proposals to fix this up on 28 July 2010. So nearly 2 years ago to the day when Cabinet finally managed to get around to agreeing to do something to fix this major problem, which is damaging New Zealand’s international reputation, the bill finally appears in the House.

However, in the meantime—remember, the Cabinet decision was on 28 July 2010—in 2011 the Green Party got a bit bored waiting for the Government to do anything about it, and started asking a lot of questions about it and raising the issue in the media. We were concerned about the damage that was happening to New Zealand’s international reputation as a result of our very poor company registration process, and we made the offer to the Government at the time that we would support legislation in order to make urgent reforms to company law, reforms that were urgently needed back then in 2011. But the Government still did absolutely nothing. It sat on its hands. It was drafting a bill. There was nothing in front of this Parliament.

And then on 8 February this year finally the EU had enough of New Zealand. The European Union decided that it was time to remove New Zealand from the European Union white list—along with Russia because it was so corrupt—because our laws around company registration are so terrible and so weak, and so many New Zealand companies are being used in international fraud. So on 8 February 2012 New Zealand was removed from the EU white list, and now in July 2012 we finally have the bill before Parliament on which the decision was made nearly 2 years ago. If the Government had followed the Green Party advice in September last year and actually introduced the legislation that we told it to introduce, to tighten up the rules around the registration of companies in New Zealand, New Zealand would not have been removed from the EU white list. If the Government had not had all sorts of other priorities—mining or whatever—and if it had actually focused on making sure that legitimate New Zealand businesses were operating under a proper regulatory framework around the registration of companies, then New Zealand businesses would not now be facing the increased cost that this Government has imposed on them because of New Zealand’s removal from the EU white list. No doubt many other regulatory agencies all around the world are now watching New Zealand companies with distrust, because so many New Zealand companies have been involved in fraud and money-laundering—companies that are registered in New Zealand but, in fact, have overseas controllers.

At that time we told the Government that it needed to change the rules, and the Government did nothing. The Government sat on its hands. As a result, it has now imposed a whole new layer of cost and regulatory burden on New Zealand companies that are trying to operate internationally, because it refused to introduce the rules that were needed back then to tighten up the registration around New Zealand companies. The problem was—and the problem still is until this law gets changed—that basically a person can register a company in New Zealand, but there is no requirement for that person to have a New Zealand - resident administrative agent. What this bill does is begin the process of making sure that the registration of companies in New Zealand meets the bare minimum of good practice internationally. And the fact that the Government has delayed this bill for so long—2 years after Cabinet made the decision—has imposed more costs on New Zealand business as a result of its inaction.

The other part of the bill—aside from requiring a New Zealand - resident administrative agent for companies and limited partnerships—will enhance the Registrar of Companies’ power to regulate companies and limited partnerships, and it will criminalise some breaches of directors’ duties. What this bill does is start to improve the process of registration of New Zealand companies so that it is harder to register hundreds and hundreds of companies in New Zealand, and so that someone cannot just pick any particular residential address they like but have the company controlled from overseas and then used in international criminal activities, which many New Zealand - based companies have been used for.

However, even though the Government has sat on its hands for years, and even though it knew of the problem and was told of the problem—the Green Party told the Government what was going on—it did nothing to fix the problem and so has imposed more costs on New Zealand business. So much for all the Government’s rhetoric about decreasing cost. It does not regulate properly; it adds cost to business. This bill, even now it has come in, is still quite weak. It falls short of best practice. This bill does not require registered companies to obtain Inland Revenue Department numbers. This bill does not address the problems around nominee directors.

Without addressing these problems, it is still an improvement—no question about it—and for that reason we will be supporting this bill. However, it still does not go far enough in terms of international best practice. If we want New Zealand companies to be viewed as credible organisations internationally, we need a regulatory framework in New Zealand that makes sure that we have best practice in New Zealand, and that companies in New Zealand cannot be easily used to engage in international fraud and criminal activity. That is what has been happening in New Zealand.

We have had over 2,000 companies taken off the companies register because they are probably engaged in illegal activities. No doubt it is a greatly larger number than that. Certainly, in his responses to the questions that we put to Simon Power in 2011, he said that it was hard to actually know how many New Zealand companies were engaged in this kind of illegal activity internationally.

When we put these kinds of proposals to the National Party, the National Party says: “Oh, that’s the nanny State.” They go: “Oh, you can’t have proper regulation of companies; that’s the nanny State.” They go: “Oh, you wouldn’t want to do that; it restricts business.” Actually, it is the exact opposite. By having a proper regulatory framework around the registration of companies in New Zealand, we facilitate New Zealand businesses doing their work internationally. So the fact that National has sat on its hands because of its anti-regulatory, knee-jerk reaction to any proper regulatory framework has meant that New Zealand’s international reputation has already been damaged, because so many New Zealand - registered companies have been involved in very large-scale fraud, corruption, and money-laundering. It means that New Zealand has been taken off the EU white list—thank you very much, Mr Foss and Mr Power, for slowing down this process so much that we have been taken off the EU white list, causing more cost for New Zealand companies. It means that it is harder for businesses in New Zealand to do international business. No longer do others look at New Zealand business and go: “Well, New Zealand businesses are the best in the world—high quality, no corruption.” Instead, they go: “Oh, New Zealand businesses have been involved in many very prominent international fraud and criminal money-laundering cases all over the world.” And that is why we have been taken off the EU white list.

So, yes, we will be supporting this bill. It is way too late—it is 2 years too late, possibly more. The Government had ample opportunity to progress this bill before. We offered the political support to get it through the House. We put pressure on the Government, as did others in the media, over a very long period to try to get this law in place. But because the Government took so long, our reputation has been damaged and we have been taken off the EU white list. We urgently need to fix the law around the registration of companies, and I hope that when this bill goes through the Commerce Committee, we will improve it further. And I hope the Government does not drag the chain at the select committee as much as it dragged the chain between now and when Cabinet made the decision—nearly 2 years ago, on 28 July 2010—to fix this thing. Yet tonight is the first time we have seen this bill in front of the House. So when the Government says: “Oh, we’re all pro-business”, it is not really—it is not really. It just has a knee-jerk, anti-regulatory response, and the effect of that sometimes is that it makes it very difficult for businesses to operate internationally, and adds more costs to them. We need a good regulatory framework around the way business operates, so that New Zealand businesses can go into the world and people know that our domestic regulatory framework stops the kind of corruption, money-laundering, and criminal activity that we have seen out of New Zealand - registered companies that are being operated by overseas criminal syndicates. We will be supporting this bill to go to the select committee; we hope it improves. Thank you.

Sat sri akaal and tēnā koe, Mr Speaker. Thank you for the opportunity to speak on the first reading of the Companies and Limited Partnerships Amendment Bill. The Companies and Limited Partnerships Amendment Bill falls under the National-led Government’s priority for this term to build a more competitive and productive economy. This legislation is required because, at the moment, some overseas interests use New Zealand - registered shell companies to undertake criminal activities. The Companies Office has been acting vigilantly and has already removed a number of companies from its register.

The purpose of the bill is to strengthen rules applying to the governance, registration, and reorganisation of companies and limited partnerships in a bid to eliminate this kind of behaviour. Of course, the larger aim is to protect New Zealand’s interest and to ensure it remains a trusted place to conduct business.

The bill will promote investors’ confidence and participation in our capital market. I personally believe that the Minister of Commerce, the Hon Craig Foss, has done very well in maintaining a balance between tackling action that threatens the integrity of our company registration system and maintaining ease of business for New Zealand companies. I congratulate the Minister on this and commend this bill to the House.

I take a call on behalf of New Zealand First in the first reading of the Companies and Limited Partnerships Amendment Bill. I also note that this is the first reading, and we, similarly, have the concerns mentioned by some of the other Opposition parties that this bill has taken 2 years to get to this House for its first reading, while many other bills have been pushed through under urgency by this Government in order to follow its agenda of selling State assets, pushing through social welfare reforms, and other such things. As something that does assist the New Zealand economy, does tighten up the laws in terms of the way companies act onshore and offshore in relation to New Zealand commerce, and has unanimity across this House, across all parties, to support it, it is somewhat concerning that this Government has sat on its hands for 2 years and done very little since the days of the Hon Simon Power taking it to Cabinet back on 28 July 2010.

It is disappointing too that this bill is seen suddenly as being able to be pushed up to the top of the list, while bills that, for instance, a month or so ago were in the name of the Hon John Banks, such as the Trade (Safeguard) Measures Bill and also the Regulatory Reform (Repeals) Bill, which were right at the top of the list and being considered, mysteriously disappeared off the list around about the same time as the inquiry by the police commenced in terms of the mayoral electoral returns for the Auckland mayoral race. So it is somewhat disappointing that this Government chooses to operate in this manner in that suddenly bills disappear off the list that were previously being considered—because of other agenda reasons, it chooses to take them off the list and remove Ministers from being in the firing line or in the debating chamber to respond to such things—while others, because of, obviously, media attention, such as that given to this one in the last week in the National Business Review, suddenly rise to the top.

However, it is at the top and we are very pleased that it has now finally surfaced. It is particularly pleasing that it has surfaced in the 19th birthday year of New Zealand First. How appropriate that it does come to the fore. We will support it as a party, as we did, all those years ago back in 1994, the wine-box inquiry into corruption and incompetence in those days. You can imagine how pleased our party is. It has always been the party that has championed and pushed for investigation into corrupt and incompetent practices in commerce, and we are very pleased to see that this bill has now seen the light of day, 2 years after it first went to Cabinet.

It is disappointing to hear that we have been dropped off the EU white list, along with that other vanguard of good commercial practice, Russia. New Zealand is now linked in the same boat as Russia, having been dropped off the EU list, and it is concerning that our country comes to that point with our very good friends in the European Union. We would hope that this bill can be moved through very quickly so that we can perhaps once again get back on to that auspicious list, to ensure that, as a result, New Zealand is not held in lower regard.

Basically, there are some very good points in this bill in that it does require a New Zealand resident administrative agent to be living in this country. So it will take away the risk where, up until now, companies have been able to register from offshore in New Zealand, and, basically, there is no one residing here. Therefore, as we have heard in the House tonight, activities have been able to occur through “window” companies and shell companies. It is a very good move to close that loophole down. It also means that at least one person must live here who is legally responsible for the entity’s administrative affairs, and therefore there is somebody answerable in this country for what is going on within the particular company or organisation.

The bill also gives the power to warn the public about suspect entities by a note in the register. Again, this is a good move. These enhanced powers of the registrar allow the public to be warned about things in the register. This is a good thing and it alerts unsuspecting people in New Zealand and internationally to, perhaps, some of the goings-on within organisations and companies.

I also like the fact that, in terms of the criminalisation of breaches of certain directors’ duties, the bill does now allow for imprisonment not exceeding 5 years, or a fine not exceeding $200,000. Again, that is a good direction in terms of sending the right message out there that if people are going to break the laws of New Zealand in relation to the Companies and Limited Partnerships Amendment Bill, when it becomes an Act, they could face up to 5 years’ imprisonment as a result.

Also, it is interesting that this bill basically tidies up a lot of other administrative errors in terms of some of the commerce things to do with the Limited Partnerships Act, and other, similar Acts to do with commerce and other commercial Acts. Therefore, really it is very much also an administrative bill to close some of the loopholes, to tidy up some of the red tape around some of the commercial activities, and to ensure that the Companies Office and the registrar’s office are able to act according to these prescribed laws in this bill.

So New Zealand First is happy to support the bill. It has got the support of all the parties across the House that we have heard from tonight, which is very pleasing. We commend the Minister of Commerce, and hope that this bill does not go back down to a lower level on the list. We hope that it is maintained at pace and moved through the Government’s business and Government bills before this House. We hope that it can be expedited very quickly so that the reputation of New Zealand and our standing in the international commercial community can get back to where they were. So New Zealand First supports this bill and commends it to the House.

It is a pleasure and a privilege to rise to speak in favour and support tonight of the Companies and Limited Partnerships Amendment Bill. I am delighted to hear from across the Chamber that there is broad support for this piece of legislation and its introduction. Minister Foss, the Minister of Commerce, and my colleagues who have spoken earlier in the debate have gone through the detail of the legislation, so it is not my intention this evening to make anything other than some overview comments about the importance for New Zealand’s economic and commercial sector that we have faith and confidence in our incorporation laws and our incorporation regime. That is not just important for us domestically; it is also important that internationally our market place has its reputation, which it has guarded over so many years, protected, and that our well-trusted reputation is in fact enhanced by this piece of legislation. So this piece of legislation puts in place a few simple protections to enhance our incorporation laws. It preserves the transparency of, and protects the confidence others have in, our rules and regulatory environment. As I said, it is with great pleasure that I speak tonight in support of this piece of legislation. Thank you.

Tēnā koe, Mr Assistant Speaker. I would like to speak tonight in support of the first reading of the Companies and Limited Partnerships Amendment Bill. As you have heard, Labour is supporting this bill. We are supporting this bill because we understand that New Zealand has an international reputation as a trusted place to do business.

New Zealand has also got an international reputation as being one of the least corrupt countries in the world, and we take that very seriously. Therefore, we do not agree with the Prime Minister, John Key, who yesterday told the media that trade-offs had been made by allowing New Zealand to be the easiest place in the world to set up a company. He said that the changes being made were to preserve the country’s reputation, but in talking about trade-offs—and I will be talking about that in a minute—there are some serious questions, I think, that have to be asked.

Questions have to be asked about just what the Government’s intent is around this legislation, and, when it gets to the select committee, whether or not there will be any attempt to reduce its impact and water it down in any way. I have got a few questions for the Minister of Commerce about that, particularly given what he has said today on this bill. But the first point to make is really a big ups to Simon Power, the previous Minister of Commerce, who had the wherewithal to get this legislation drafted to deal with what is a pretty serious issue.

I just want to point out that in a legal opinion that was given by Bell Gully around this issue, this bill was seen very much as being an important piece of legislation that was developed after so many of these issues came to light, and that the legislation was brought in—I think it was described as being in the dying days of the previous administration—as we came towards the election.

The Ministry of Economic Development, at the time, said that it was thought that this legislation was going to be coming before the House as a matter of urgency. We are now 7 or 8 months down the track, and it is only now appearing before the House. I think you have got to ask yourself why that is. A new Minister was in place, and I would have thought he would put it pretty high on the list of priorities. Either he did not understand its importance or he was just not that bothered about protecting New Zealand’s reputation in the world.

As a result now, we are off the white list. As you have heard tonight, New Zealand has actually been taken off that important white list. It has been described as the prestigious European Union banking and corporate white list. Earlier this year New Zealand was removed—along with Russia—over our weak money-laundering and terrorism financing controls. Being struck off that white list, as we have heard tonight—although I note that the Minister did not actually mention this in his opening remarks to us tonight—means that banks and institutions in the European Union “will not be entitled any more to make simplified research for banks and financial institutions registered in New Zealand”, and that European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

I do acknowledge that one of my colleagues on the Commerce Committee who spoke tonight has mentioned a couple of these instances, but I thought I would mention a couple more, because there have been quite a few of them, as we have heard. Despite the fact that there are some measures in place to ensure that there is more monitoring of this, they have not necessarily gone away.

At the root of this issue, which is what I hope will be discussed in full when the bill comes before the Commerce Committee, is the fact that this is about our reputation. You cannot buy a reputation. You cannot manufacture a reputation. You earn it, and once it is gone, it is a bit hard to win back. So this is important, this legislation. It is important that we are sending a strong signal out there in the international community that we do take this stuff seriously, that we guard jealously our reputation as not only a good place to do business and to set up businesses but a place that you cannot take advantage of, and a place where you cannot set up companies that are essentially rorts and are into money-laundering.

Here we have just a few of them that I thought it might be worth mentioning. The London-based NGO Global Witness uncovered the movement of billions of dollars in suspicious transactions through AsiaUniversalBank in Kyrgyzstan by New Zealand, British, and Bulgarian companies. This was reported in April 2010. Hostas, I think it is called, was named in a 2010 report prepared for the Ukrainian Ministry of Finance, where a Ukrainian company entered into government contracts with the Ukrainian Ministry of Healthcare. It was a company that was registered in Auckland. There was nobody in New Zealand who actually was attached to that company.

Falcona Systems Ltd was allegedly used to gain $150 million in kickbacks for Ukrainian and Latvian officials. Investigators found that it was registered to another address in Albany, Auckland, and it was struck off the companies register in October 2011. Tormex Ltd allegedly washed $680 million through bank account in Riga, Latvia. A multi-national investigation pointed to Russian mafia connections. A company registered in Queen Street—which I think might have been the company that Jonathan Young referred to—SP Trading Ltd, was found to have chartered a Georgian-registered plane to fly embargoed arms. That is the instance that was mentioned earlier.

These are just a few quite serious incidences of this issue, which the Government has been aware of for some time. This bill is part of addressing this issue, but it has taken, as has been pointed out on numerous occasions tonight, 2 years to actually get to this point where it is going through its first reading and going to the select committee. I suppose the point that I am making tonight is that when it gets to the select committee, let us hope that it is actually treated with some importance and actually goes through that process and comes back to the House as soon as possible.

Today I have just read a piece that has come out in the media reporting remarks from the Minister of Commerce around this where he said that there might be some changes at the select committee. Well, that is fair enough. Any bill needs a good bit of scrutiny and a look at how to improve it and make sure that it is actually going to be a good piece of law, because that is what we do on the Commerce Committee. But he said: “There’s a fair bit of opinion around some of the broader details of the Bill … There has been discussion around criteria for directors. That’s the big one.”

This gives me a warning bell, because this may be—and this is what I would like some clarification on—around the introduction of criminal offences for directors who commit a serious breach of their duties. This is where these offences become criminal activities, where they are liable for imprisonment for up to 5 years or fines of up to $200,000. If we are going to take this issue seriously, if we jealously guard our reputation internationally as a good place to do business and as a place that is not corrupt, then we do need to ensure that, internationally, people looking at this country will know that there will be serious sanctions if they do engage in criminal activity and if they think that they can try to use our country for their illegal activities.

Labour supports this bill. I am looking forward to the discussion in the select committee. Thank you.

It is my pleasure to speak on the Companies and Limited Partnerships Amendment Bill. I do not want to trespass too long on the time of the House, other than to say that, ultimately, this is a result of a good thing—that is, the ease of setting up companies in New Zealand, which is something that we have celebrated over an extended period. But human nature being what it is, we have seen over the last few years some problems emerging through criminal activity being undertaken through New Zealand - registered shell companies. We have heard throughout the evening of the problems that this has caused. This bill sets out a very straightforward, systematic, and sensible way to deal with that serious problem for New Zealand, and I commend it to the House. Thank you.

💬 Raymond Huo: Mr Speaker.

Is this a split call, Mr Huo?

💬 Raymond Huo: No, I understand the Greens are not going to take a call.

So you have a 10-minute call. Is this by agreement? Are the Greens happy? Please proceed, you have the call.

Listening to the contributions from members from various political spectra, I believe members will agree with me that in the context of this bill—namely, the Companies and Limited Partnerships Amendment Bill—New Zealand has presented two conflicting images to the world. On one hand, New Zealand has an international reputation as a trusted place to do business. Both the World Bank and the International Finance Corporation have ranked New Zealand the easiest of 183 countries in which to start a business. Transparency International ranks New Zealand the least corrupt country of the 183 surveyed. On the other hand, New Zealand has been subject to domestic and international media attention on overseas interests exploiting New Zealand’s incorporation process by using New Zealand - registered shell companies to undertake illegal activities.

It is saddening to read the Fairfax New Zealand news that New Zealand, together with Russia, has been struck off a prestigious European Union banking and corporate white list. Russia has been struck off the list because of the levels of corruption. Although no reason has formally been announced by the EU, from the reports we understand New Zealand has been struck off over New Zealand’s weak money-laundering and terrorism finance controls. Being struck off the white list means that banks and institutions in the EU “will not be entitled any more to make simplified research for banks and institutions registered in New Zealand”. It also means European institutions can no longer accept and acknowledge customer identification and analysis performed in New Zealand.

In the final days of the 49th Parliament, the outgoing Minister of Commerce, the Hon Simon Power, introduced this bill. This is an omnibus bill that covers a number of proposed reforms seeking to tighten requirements around company registration and company directors to help protect New Zealand company registration processes against criminal activity from overseas jurisdictions and to apply similar measures for limited partnerships. Between then and about the time New Zealand was struck off the EU white list, there was a 6-month or so gap, so time was of the essence.

The bill requires each company registered in New Zealand to have a resident agent if there is no director living in New Zealand or in an approved jurisdiction. Resident agents will be responsible for ensuring companies provide accurate information to the Registrar of Companies, and will be liable if companies breach their record-keeping and filing requirements under the Companies Act.

The bill also gives powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act. This includes the power to flag companies on the register that are under investigation. The bill makes similar changes to the Limited Partnerships Act so that those misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead.

The bill aligns the Companies Act with the Takeovers Code to ensure shareholders understand the effect that changes in company control will have on the value of their shares. The bill enhances the registrar’s investigative and deregistration powers in relation to companies and limited partnerships. Also, the bill introduces criminal offences for directors who commit a serious breach of their duties to act in good faith and in the best interests of the company.

I look forward to the development of this bill, and support those measures introduced, in principle. It is shocking to note that one of the incidents at the centre of the domestic and international media attention involved a New Zealand - registered company with a vacant driveway in Auckland’s Albany as a registered address. It was that registered company that had been one of the key players in the US$1.2 billion money-laundering scandal in central Asia.

New Zealand has an international reputation as a trusted place to do business. We must restore that confidence in the international business community. Thank you.

I am very proud to stand in the first reading of the Companies and Limited Partnerships Amendment Bill. My colleagues have ably given good content on this bill, and I support the Hon Craig Foss in this reading.

The question is that the motion be agreed to. Those who are of that opinion will say Aye, to the contrary No. There are no votes recorded against, so a party vote is not required. I declared on the voices that the motion was agreed to. I shall revert to that. The motion is agreed to.

Bill read a first time.

Bill referred to the Commerce Committee.