Trustee (Public Trust) Amendment Bill

I move, That the Trustee (Public Trust) Amendment Bill be now read a third time. This bill has gone through the House under urgency, and it is urgent. This bill provides a quick interim solution to a potential floodgate of expenses for the Public Trust and to the public purse if securities trustees walk away from their responsibilities.

Without this amendment, the Public Trust faces a potentially significant financial burden. Capital + Merchant Finance is unlikely to be able to pay Public Trust fees and expenses, so the Public Trust is likely to have to meet the cost itself. However, there are currently 60 finance companies in liquidation, receivership, or moratorium, and if even a fraction of the trustees of those companies attempt to hand their roles to the Public Trust, the cost could be enormous—and, of course, that is not only the case should they be successful; even litigation has its expense, and the Public Trust is not able to continue to fund this.

It is not only the financial burden. The Public Trust faces damages to its reputation and its brand. It would be responsible for communicating with thousands of dissatisfied investors. They may not appreciate the distinction between a retiring trustee and the Public Trust as replacement trustee. By law we require the Public Trust to be a competitive business, and yet our current law, without amendment, is putting the Public Trust at an unfair disadvantage.

This is all because of one small rule—the trustee of last resort rule. Section 46 of the Trustee Act allows the High Court to appoint the Public Trust as replacement trustee for any trustee who wishes to retire or resign. The Public Trust has a statutory duty to accept the appointment. The rule does not require the retiring trustee to find other replacement trustees first by indemnifying their fees and expenses that the trust or the company being supervised cannot pay. This bill will rectify this. It will require a retiring trustee to make efforts to find another replacement trustee, and to pay the replacement trustee’s reasonable fees and expenses.

The Public Trust can still be appointed as a last resort trustee. I think that is a very important point. If this happens, the resigning trustee will meet Public Trust’s reasonable fees and expenses as the trustee for the trust in question if the trust or the company being supervised cannot cover them. The bill will only apply to licensed trustee appointments for products regulated by the Securities Act. It will not apply to family trusts. This is only a short-term solution, but it will fix the problem right now. The Financial Markets Conduct Bill will provide a longer-term solution. This bill applies prospectively. It does not affect the Capital + Merchant Finance case; Public Trust will bear this burden.

The Government does not want to undermine business confidence in the law by changing the rules midstream and without notice. Instead, the bill will change the rules into the future. It will stop the risk of significant burden being imposed on the Public Trust and it will be doing so in the nick of time, and for that I very much thank this House. I commend this bill to the House.

Kia ora. I rise to once again pledge the Labour Party’s support for the bill, the Trustee (Public Trust) Amendment Bill, but to also express our continuing concerns about it. The Minister of Justice says that there are 60 failed finance companies now that are known and recognised. Twenty-two of them had Perpetual Trust as their securities trustee, Perpetual Trust being the trustee company that is presently before the High Court seeking to have Public Trust appointed as the trustee because of the conflict of interest that Perpetual Trust now has as a defendant in litigation by the receivers of Capital + Merchant Finance, for which it was the trustee. If we can get our heads around that string of relationships, life would be a lot easier.

But the reality is that there is only one application before the court to appoint Public Trust as a securities trustee, and that is the application by Perpetual Trust in relation to Capital + Merchant Finance. None of the 22 other finance companies also having Perpetual Trust as their trustee has any application, and none of the other 38 of the 60 failed finance companies has any application before the court. So let us not overstate the risks and therefore justify urgency, when urgency may not be justified.

Putting aside the aspect of urgency, we do accept that, as a matter of good public policy, protecting Public Trust in relation to these applications is a good idea. Trustee companies are the very ones that are quite happy to clip the ticket and watch the lucre rolling in during the good times, and then when it gets too hard, when the finance companies are up against it, when the borrowers they have lent money to fail to repay their loans, and when the depositors are demanding their capital back, they are the first ones to try to get off the scene and absolve themselves of responsibility. If they find, as a little trick, they can now get Public Trust to step in, and therefore the public purse and the State to step in, and protect or shore up the failed private sector—which the private sector is notoriously good at doing—then I agree with the Minister that they will no doubt try to do so. But at this point in time, given all the facts about litigation by Perpetual Trust, we see no impending sign of that. Introducing this Trustee (Public Trust) Amendment Bill with a specified date, so that we could go through a proper process, take advice, talk to the professionals in the field, and understand the true impact of what we are doing and the risk associated with it, would be much more preferable.

I would like to think that, if the Minister or any member of this executive is in the same situation in the future, when it comes to a choice between seeking the urgent attention of this House and looking for the alternatives that provide the sort of protection that could be given by specification of a date in this bill and allowing a proper process, the executive and any Minister will always err on the side of a more open and fulsome process. That must be a driving principle when it comes to the management of legislation through this House. No matter how quickly it needs to pass, no matter the issue, and no matter the perceptions about the magnitude and the significance of the issue, we must be assured and the public of New Zealand must be assured that the executive does not take for granted the time of this House, our goodwill, and our ability to provide proper and decent scrutiny of important legislation such as this.

We understand the public policy and we hope that that will be translated into a more progressive view about regulation and intervention in the finance markets. The truth is that they have for a long time been the cowboys of our economy, and many of them still remain so. They were allowed to get away with it. We had the financial collapse in 2008. The risks that this bill is addressing have been known since then, but we are still plunged into urgency to address that issue. We simply should not be put in that position. This is a bill, funnily enough, about last resort. It is appointing a trustee of last resort. Well, when it comes to last resort, urgency in this House should be an option of last resort for those who have the responsibility for managing legislation through it. We have to place that on record. That remains a very clear and unequivocal objection that we have, that this House should be treated in that way on matters such as this.

The risks that this bill is trying to manage and deal with can be mitigated in other processes that this House typically employs and could have employed in this particular case. We understand the issue about not wanting to expose Public Trust to having to pick up the tab for failing finance companies. The reality is that the very application that is on foot in the High Court presently will not be covered by this bill, so Capital + Merchant Finance once again will find itself off the hook, Perpetual Trust will find itself off the hook, and Public Trust will, no doubt, be put to expense and inconvenience in picking up this role if, indeed, it is appointed by the court as the trustee for Capital + Merchant Finance. That is a cost that will be borne. That one has escaped the net. The public purse will be affected. We have not acted fast enough to prevent that from happening. But there is no evidence of any other proceedings on foot or that could be on foot. The regulatory impact statement acknowledges that it is inadequate, but it also does not advert to any other proceedings on foot. So we simply do not accept that there is that level of risk there.

We just want to make the message very clear. We understand the importance of this. We understand the importance of having good regulation around the finance markets. The last Minister of Justice shepherded through legislation in part to achieve that. This Minister of Justice is managing through the Financial Markets Conduct Bill. That will make a difference too. But the question remains whether this particular bill, being dealt with under urgency, is a matter that needs to be dealt with as urgently and as precipitously as it is being dealt with at the moment. That is what we object to. Good parliamentarians should always object to being put upon by the executive in this sort of way. Perhaps backbench members of the party opposite, the party in Government, will, as good and honourable parliamentarians, express the view that they also do not wish to be treated in that sort of way. Urgency, I repeat, ought to be a procedure of last resort, and not a matter of first resort, as it appears to be in this particular bill.

We will support the bill. We support the underlying policy in the bill. But let us not again be put in the position of dealing with these issues when we have not had the benefit of hearing from others in the sector apart from Perpetual Trust, even the receivers of the various finance companies, others in the finance sector, and, indeed, trustees who have been put in the position of being a trustee of a finance company, on the implications for them. We have not had the benefit of their insights and their experience. That is a dangerous position for us to be in. So we underscore that clearly, we highlight it with the biggest highlighters, and we underscore it with red ink. Please ensure that this House and every member in it is not again put in this position, because it is not good for Parliament, it is not good for parliamentarianism, and it is not good for New Zealand.

Kia orana. I rise to take a call in this third reading of the Trustee (Public Trust) Amendment Bill. I want to acknowledge the previous speaker, Mr Little. He talked about the honourable backbenchers being in a sense cognisant of their responsibility to be prudent and wise when enacting the political mechanism of urgency. I do agree that it is important that we do this as a matter of last resort. I think we have been cognisant of that. The Minister of Justice has, and has acted prudently and wisely. The reason why we know it is the right thing is that, despite all the talk about concern, at the end of the day there is still support, and the support is right across all parties because there is greater gain to be had than there is risk. I think that is what we are talking about. We have traversed all the key issues around closing the loophole. We have talked about the provisions of the legislation that will protect the public purse. We have also talked about the importance of the concerns from the regulatory impact statement not being such that they have warranted a vehement response or opposition from the parties opposite. Instead, they have noted their concerns but, most important, they will support this bill.

There is much less to be said now. I simply say that we see this as an important bill. I want to acknowledge, firstly, the Minister, who in her wisdom sought to ensure that this would go through in urgency. It is the right move. It is the right thing to do. The New Zealand public will not be upset about this; in fact, they will see this as the right step for us to take. We commend this bill to the House. It is the right thing to do for New Zealand. Thank you.

I am happy to take a brief call in this debate under urgency on the Trustee (Public Trust) Amendment Bill, in what has been a relatively civilised and dignified debate so far. This being urgency, I object to that, so I thought I would make a brief contribution to this particular debate.

I want to pick up on a comment that the Minister of Justice made in her speech when she talked about finance company directors jumping ship and not being held accountable when the companies collapse. That is certainly the public perception, and in many cases people have lost significant amounts of their money—[Interruption] It might have been someone else in the debate, so I might be attributing that comment to the wrong person. OK, it was Andrew Little. I accept that.

💬 Andrew Little: Andrew Little, Judith Collins—it’s an easy mistake to make.

That is right. But, actually, it does stick in the public’s throat. When people invest their money with finance companies, the directors are quite happy to accept that money while the going is good, and then when the proverbial hits the fan, those people take the money and run. They disappear. The people who have lost their savings are left with nothing, while there seem to be very few consequences for the people who have ultimately presided over that failure. That does really stick in the throats of the people at home who are investing in those companies.

It is not just the finance companies that frustrate people in that area, either; it is regular companies that frustrate people. For example, when a construction company collapses and the directors jump ship immediately before it collapses, and the subbies lose access to their tools and lose all of the payments that they are due—the directors have jumped ship and abandoned them right before that company collapses—that really sticks in people’s throats as well. What is the National Government’s approach to that? Well, it has done absolutely nothing about that. It does not really seem to care about that—

💬 Andrew Little: Half of the directors are members.

—because half of the directors are National members. In fact, the National Party’s approach to that is to appoint those directors to State-owned enterprise boards in preparation for the privatisation of those State-owned enterprises. One of the worst examples, of course, is the former Prime Minister Jenny Shipley, who when Mainzeal Property and Construction collapsed, literally hours before it went under, jumped ship. She was quite happy to take the directors’ fee when the going was good, quite happy to have the status of being a director of a big construction company, but the minute the proverbial hit the fan, or actually before the proverbial hit the fan—right before—she jumped ship. She did not want to know about it. She took the money and ran. That is the sort of thing that really, really annoys the New Zealand public.

Actually, it is more serious than that. When people take on these responsibilities, that is exactly what they are doing—they are taking on responsibilities. Finance companies, regular companies—it does not matter which they are; if people take on a responsibility and they are willing to accept the directors’ fees, then they should accept the accountability that goes with that. They should not be jumping ship when the going gets tough, because that is just fundamentally wrong. Too often that has happened recently. Finance companies have been the worst example. Mainzeal is another example that has been a shocker. It is happening across the board. The people at the top of the pile, the people who are getting those directors’ fees, should be held accountable and they should accept some responsibility for that.

The Labour Party is supporting this bill through all stages today with some reluctance, because although we understand the problem and we see the need to plug the gap, and we do not want to see exploited this particular loophole that has been established, we are very uncomfortable about the notion that a bill will be put through all stages in Parliament under urgency. I do not think that in the time I have been in Parliament, 4½ years now, I have attended a select committee for any bills—I have sat through some pretty turgid bills, including some Statutes Amendment bills and the like, which are very technical bills and generally pretty dry—where there has not been something useful that has come out of that process, whether it is a very minor technical amendment or some other clarification. There can, in fact, always be improvements made to a bill through the select committee process.

I guess the clincher for me, though, in agreeing that the Labour Party should support this bill through all stages, is that it is very much a short-term measure and it is going to be replaced by another bill that will go through the proper process in a very short order of time—although, having said that, Gerry Brownlee is still in charge of the House, so we do not quite know. There are no guarantees that anything will progress particularly fast while Gerry Brownlee is in charge, but we live in hope. We live in hope that through the gerrymandering process something useful might finally come out at the other end. The Labour Party is supporting this legislation with some reluctance, but we do agree that the loophole should be plugged.

I rise to take a short call on the third reading of the Trustee (Public Trust) Amendment Bill. The Green Party will be supporting this bill. Under current law, as we have heard, a retiring trustee may make an application to the courts, under section 46 of the Trustee Act, to have the Public Trust undertake the trust in their place. This very old law was originally designed to protect the interests of beneficiaries and the continuity of their family trusts. This legislation is before us today because of other cases in front of the courts, in which the trustee of a failed finance company, Perpetual Trust, has declared that he has a conflict of interest and has applied to the court to have the Public Trust appointed as the trust of last resort. This would incur some financial liabilities for the Public Trust for a problem that was not its problem in the first place.

The legislation is very short and simple. It adds a few new tests to help ensure that the Public Trust does not bear any financial burden of acting as a trustee for a failing investment for a failed finance company, of which we know there are very, very many. There are already 60, so we could see more litigation of this type incurring financial liabilities for the Public Trust. The changes in this bill say that the court may only appoint the Public Trust as a replacement trustee if the resigning trustee has made reasonable endeavours to appoint a replacement trustee, and the resigning trustee indemnifies the Public Trust for reasonable fees and expenses, and provides security for that indemnity. The Green Party looked at the proposed legislation and thought that although we have concerns about the process, because we saw this draft legislation only on Tuesday evening and I saw the regulatory impact statement only today, actually this is quite a reasonable test that should be considered by the courts. This stopgap measure could prevent, potentially, the floodgates opening up for other failed finance companies to apply to the court to have the Public Trust take on their trusteeships.

The Green Party is very happy to see the Government acting in the interests of the Public Trust and taxpayers, to protect them from financial liabilities caused by failed finance companies. We think that is actually quite a different move, a different direction, for this Government, which up until now has not really proposed legislation that would protect the taxpayer. In effect, it seems to systematically prefer to protect the interests of monopoly private interests. For example, earlier today we had the Committee stage of the Land Transport Management Amendment Bill, where we have seen changes to the regulations for public transport that will actually entrench the dominance of existing bus operators, and the Government has declined to alter the transitional measures in that particular legislation in a way that would actually save taxpayers’ money, save regional councils ratepayers’ money, and result in lower bus operating costs. Presumably, it has done this because it is really on the side of the shareholders of the private bus companies, not on the side of the ratepayers and the taxpayers who deserve to get good value for money.

Similarly, there are changes in that legislation that will open up the possibility of going to the private sector to finance some very dodgy motorway projects like Transmission Gully, which essentially means that we get the same projects but we pay an extra $2 billion. So instead of paying $1 billion for a project that is worth about $500 million in benefits, we will get to pay $3.4 billion—that is, future New Zealand taxpayers will pay $3.4 billion for a project that is worth $500 million, so that the private overseas banks financing the company have a nice solid and safe investment over a 25-year period and they can earn 10 to 12 percent returns.

It is an unusual step for this Government, and I commend the Minister of Justice for looking after the Public Trust and trying to put in place a stopgap measure, even though it will not affect the case that is currently before the court, if the court does decide to appoint the Public Trust as the replacement trustee of last resort for Capital + Merchant Finance. There will be costs incurred, and this legislation will do nothing to protect the Public Trust from this particular case, but we do hope it will protect the Public Trust in future cases. Thank you very much.

Bill read a third time.