Trustee (Public Trust) Amendment Bill

I move, That the Trustee (Public Trust) Amendment Bill be now read a second time. Since the House is in urgency, I do not wish to take too much time, but there have been some issues raised by members opposite and I think that they deserve to be answered. For a start, I do not know why Ms Curran asked whether or not I was rushing the Trustee (Public Trust) Amendment Bill through for some reason. Well, yes, the reason is very much is that I want to save the Public Trust, actually. I am not going to stand by, and I do not think Parliament wants us to stand by, and let it be basically the taxpayer having to pay absolutely millions of dollars out to fund the Public Trust to take on public responsibilities around trusteeships when this was never ever intended.

The question was asked tonight why this was not done before. Well, actually, in the 114 years that the provision has been in the law for the Public Trust to be a trustee of last resort—in 114 years—nobody has ever before sought to make the Public Trust the trustee of last resort for a corporate trustee failure. That is why. It has never been done before. Nobody ever thought this could be done, and certainly in Parliament no Minister of Justice thought that—in fact, that is why. As for the situation of why now, it is actually because the advice is we cannot risk it. We cannot risk it.

The case that has brought this to a head is the Capital + Merchant Finance case, which is actually due to be heard in the High Court on 6 June. Of course, this bill does not purport to apply to that case. I think that would be unfair. It has been in the court for some time. But the advice that I have been given is that we cannot risk it. Of course, what has really happened in this case as well, which may not have been disclosed by me yet in the first reading, is that the receivers of Capital + Merchant Finance have sought to bring in and to hold to account the corporate trustees. That has therefore allowed the corporate trustees to say that actually, strictly according to law, and rightly, they have a conflict of interest, and therefore cannot retain the trusteeship of Capital + Merchant Finance. So the action from the receivers—and I am not criticising them for it, they are entitled to do that under the law—is something we have never seen before, actually, in 114 years—so even longer, Mr Assistant Speaker, than you have been at this place.

💬 Chris Hipkins: Only just.

Only just, says Mr Hipkins. In addition, there have been some questions raised about—and I would say too that the Perpetual Trust, which is clearly not that perpetual after this behaviour, has 22 other failed finance companies that it is currently corporate trustee for. We are looking, in that case, at 22 companies, and there are actually 60 failed finance companies that this could well apply to across the board, including those 22. So this is not a risk that I as the Minister of Justice believe is one that we can take, to sit back and wait to see whether this test case that is before the court is successful. It might be; it might not be. I cannot risk it, and I do not think the Public Trust can risk it.

An issue has been raised, I think particularly by the Green member who spoke, as to whether or not this matter could be dealt with in some other way, whether or not we could have a select committee process. Because of the nature of what we are talking about, proceedings could be filed pretty quickly, particularly by a company or lawyers who are currently before the court right now on a similar matter. So I am not really prepared to allow this to go on.

We could possibly, as Mr Mallard suggested, take some moves, saying it could go to a select committee and then come back and then have the effect of it backdated. I think whatever we do in this matter we would be subject to criticism, be it either of a retrospective nature or the fact that we are moving to have this through in urgency. Whatever we do, we are going to be criticised, but I am not prepared to stand back and let this happen, and do nothing about it and then say “Woe is me!”.

But in addition to that we also have—and this is, I think, the saver for those who are so worried about process—the Financial Markets Conduct Bill, which is currently before Parliament. That bill is expected to be enacted in a few months’ time, but it does not come into force until 1 April 2014. The Supplementary Order Paper to the Financial Markets Conduct Bill will provide a longer-term solution by permitting the Financial Markets Authority, or the FMA, to appoint a replacement trustee from amongst all available licensed trustees, so that the Public Trust is treated equitably, and to require an indemnity from the resigning trustee as a precondition of the appointment. This provides the longer-term solution.

I make no bones about it: this is a stop-gap measure, but it is one that we need to have in force. When the Financial Markets Conduct Bill comes through and takes effect from April next year, should it be passed by this Parliament, then that will in fact supersede what we are doing this evening.

I would also like to take the opportunity just briefly to thank all parties for their support for this bill. I understand it is a very difficult situation, but I am sure everyone here understands this is something that needs to happen. It is not the ideal situation but, frankly, we have not been served up an ideal set of facts, so thank you everybody. I know everyone has some concerns about some aspects in terms of process, but I hope that you understand and respect the fact that there is the Financial Markets Conduct Bill and that will, in fact, take over from this provision. I commend this bill to the House.

I appreciate the opportunity to take another call on the Trustee (Public Trust) Amendment Bill. I want to take issue with some of the points made by the Hon Judith Collins in her last address and simply say that I am afraid that what was news in Ms Collins’ presentation was that the application by Perpetual Trust to the High Court has been in court for some time, because that undermines the case for urgency. We know that the application is there, we know that it has been prompted by the challenge that Perpetual Trust faces from the receivers, and that is entirely appropriate. Hopefully, that piece of litigation will be a trendsetter, because for far too long we have had trustees of finance companies who have been quite happy to clip the ticket and earn their fees, but when everything turns to custard, they are nowhere to be seen. So I congratulate the receiver, certainly, on challenging the trustees, because, hopefully, it is litigation like that that will start to lift the standard of those trustees.

But that litigation, as the Minister of Justice has said, has been on foot for some time. So why has her ministry, or why has she, not taken action before now? Suddenly we are presented with this impending crisis, because we are 4 weeks out from the actual trial and the application being heard in the High Court. Why has not action been taken before now? I think the fact that that application and those proceedings have been on foot for some time illustrates the point that we are making that urgency is not justified. Those proceedings have been on foot for some time in relation to a trustee company that is the trustee for 22 other failed companies about which no proceedings have been issued. So where is the urgency? There is only one case, and had this legislation proceeded in the proper way, with a date in it from which its jurisdiction would take effect, then we would have had the benefit of a proper process, proper scrutiny, and, most important, the input of those in the sector—those experts, the professionals who are routinely dealing with this—so that we could fully understand the risks. Even the Ministry of Justice, in its regulatory impact statement, cannot tell us what the full risks are. It has not had time. It has not had time to engage with the professionals, it has not had time to talk to others, so we simply do not know.

The Minister is entitled to credit for taking an approach on the issue that is, at least from our point of view, a good approach. It is fair, it is proper, and it mitigates the risk for the Public Trust and therefore for the public purse and the public interest. It seeks to impose the cost where it properly belongs, and that is on the periphery of the finance sector. That is quite correct; that is proper. But our job, when we stand here, and the Crown’s job, when Government members sit over there, is to protect the public purse to the best extent. Our job as a Parliament is to protect the public interest to the best extent. But we cannot properly do that until we hear from those who have an interest in this legislation—those who have a stake in it.

That is the reason we have the sorts of processes and procedures that we do. That is the reason we claim to be democratic when we have select committees and we have input. Even in truncated select committee processes, where we might invite just a select few who the parties can agree might have something useful to say over a couple of weeks—even a truncated select committee process would be of some benefit and of some help to us. But that is not what we have got. We have got panic reaction, knee-jerk reaction, and the claim that the floodgates will open when there is no evidence of that happening at all—and when there are other means to mitigate the floodgate argument—but we are rushed into a panic action and we have no means of knowing whether what we are doing is proper or fair, or whether, indeed, we have taken account of all the risks.

This is the problem. This is the problem that we face and that is the reason why, notwithstanding that we support the policy of the bill and we will support it, we do not wish to let it go by without putting firmly and squarely on the record our concern and our objection to the process that is being followed. It is simply unnecessary—it is simply unnecessary. We do not want to be faced with this again when there is some other unforeseen litigation happening in that sector and a Minister gets panicked and the whole House is thrown into urgency and rushed into this, and we do not have the benefit of full and proper and considered scrutiny, which is our job, which is our duty as public servants to the nation. We have considerable anxiety about that and we received no assurance in the words of the Minister and the explanations, such as she has given, that this is necessary because of present circumstances.

The circumstances, as we see them, are not as drastic as she makes out. There is one case, one piece of litigation, which has been on foot for some time, against a company that is the trustee for 22 other failed finance companies; no evidence or indication that there are 22 other proceedings in the wings, or, indeed, have been filed; and no indication that of the other 38 failed finance companies and their trustees there is litigation pending in relation to them. So we do not buy the argument that this is time for panic. To the contrary, even if this is a stopgap measure, even if we still have the Financial Markets Conduct Bill to come, this is not a reason not to give proper and due consideration to the full circumstances and the full issues surrounding this bill and what it is trying to address. It is important that we get that on the record.

Perhaps this can be a plea, a public plea to this Minister—and, frankly, unfortunately, and regrettably, most that she touches tends to turn to custard—to let us not be put in this position again. It is not good for Parliament and its standing and the public respect—or the respect that the public ought to have of it, although, of course, that has been sorely tested because of members on that side of the House in the last couple of days anyway. Let us not be put in the position where we are compelled because of the power of the Government of the day to have to rush through legislation without full consideration of its implications and ramifications. That is our issue. Perpetual Trust is the only trustee company facing litigation. It is in relation to one failed finance company—a finance company clearly well-known to the Minister because she knows at least one of its directors, because she keeps appointing him to things. But no other trustee company appears to be caught up in the same net, so we do not see the need for urgency and we think that considering this under urgency, all stages within a matter of hours, is a highly improper use of that procedure, of this House, of the members of this House, and of the reputation of this House to act properly and democratically.

It is a pleasure to speak in the second reading of the Trustee (Public Trust) Amendment Bill. There is a need for urgency for this bill, and the urgency that is required is to protect the public purse from flagrant abuse by negligent trustees who absolve themselves from their responsibilities financial and try to shaft those responsibilities on to the long-suffering and hard-working taxpayer. So there is a need for urgency. This is simply a prudent measure taken on behalf of a careful, thoughtful, and understanding Minister who has taken the initiative.

I can just hear the Labour Party now moaning, whinging, and bleating if this bill had not been taken under urgency and we had a queue of trustees absolving themselves of their responsibilities and thrusting themselves upon the long-suffering taxpayer. It would be the Labour members then who would be whinging and moaning mercilessly about a lack of active foresight on the part of the Minister of Justice.

I am very pleased that she has taken an opportunity to fix this loophole, because the rule allowing the High Court to appoint the Public Trust as a replacement trustee was originally enacted to ensure that family trusts did not fail for lack of a trustee. It was never intended to operate in a commercial situation of the sort that we are seeing before the courts right now. A failed finance company using section 46 of the Trustee Act to save itself was not the intention of that section. If used, it enables securities trustees to walk away from their financial obligations and responsibilities, and that is just not on, on behalf of the New Zealand taxpayer.

So it is a great pleasure to support this bill, to give it my strongest commendation and recommendation to the House, and also to thank the Minister for her very good and thoughtful foresight in this matter. It is very deserving of the urgency that we are according it this evening. I commend it to the House.

I rise to take just a short call on the second reading of the Trustee (Public Trust) Amendment Bill.

I guess what I would like to respond to are comments that were just made by the Minister of Justice, the Hon Judith Collins, and the member Scott Simpson, who was previously speaking. Obviously the Green Party very much supports the policy direction set by this bill to protect the Public Trust in the case of the abuse of the loophole that exists in what is admittedly a very old piece of legislation. However, I do not feel that we have heard enough about why the urgency is necessary in this particular week, why we were not able to find out about the bill a little bit more in advance, and why the regulatory impact statement lists four limitations—I think there were three or four limitations—on the ability to assess what all the options were and all the different impacts of those options to address the problem that is at hand. So although I thank the Minister for her explanation, the Green Party still has reservations about the process of urgency being used and about the incompleteness of the assessment of options.

The Minister has stated that it is just a stopgap measure, and I appreciate that. I think we can understand that it is necessary to have a stopgap measure until the Financial Markets Conduct Bill passes into law. It will be interesting also. One of the recommendations of the regulatory impact statement is a longer-term review of the appropriateness of the role of a trustee of last resort, and we will be looking with some curiosity and interest at the Law Commission’s review of the Trustee Act 1956, which is referred to in the regulatory impact statement.

So, just to reiterate, the Green Party supports the bill and understands that there is definitely a need for a stopgap measure, but we merely question the process and we wish there had been a little bit more transparency. We hope that this bill does indeed achieve its aims and that other longer-term potential loopholes are able to be addressed as well. Thank you.

Bill read a second time.

In Committee