Companies and Limited Partnerships Amendment Bill

I move, That the Companies and Limited Partnerships Amendment Bill be now read a second time. I would like to thank the Commerce Committee for its timely consideration of this bill. The committee considered 13 written submissions and heard from eight submitters. The bill brings together three strands of policy, along with many other recent reforms in the financial markets sphere, which aim to increase confidence and ensure that New Zealand remains a trusted place to do business. These are crucial objectives that we must promote in order to achieve long-term growth of our economy.

The bill proposes amendments to the Companies Act 1993 and the Limited Partnerships Act 2008, which will strengthen the rules applying to governance, registration, and reconstruction of companies and the registration of limited partnerships. New Zealand continues to be the No. 1 place for starting a business in the World Bank’s Doing Business index of the world economies. It is unfortunate that that same situation of trust, which supports the ease of doing business in New Zealand, is to a few undesirable individuals also, sadly, viewed as the opportunity to easily register and operate New Zealand companies under the cloak of secrecy.

The genesis of this bill was a response by my predecessor to the use of a New Zealand registered company to facilitate international arms trading. The ease of registration and the use of shell companies to undertake criminal activity is damaging to New Zealand’s international reputation. It is in the public’s interest to know who is behind any company or limited partnership they are dealing with. Likewise, enforcement agencies need effective tools to monitor the market. A key aim of the bill is to increase the transparency of companies and limited partnerships to an appropriate level, but to a level that will not impede the ease of doing business for the vast majority of companies that are legitimate.

I would like to comment on some of the most significant changes in the Commerce Committee’s report on these provisions. In relation to registration some submitters raised concerns that the measures in the bill as introduced, and to deal with shell companies, were not strong enough and were easily able to be circumvented. The Commerce Committee has now recommended that every company and limited partnership must have an identifiable individual who is the point of contact in New Zealand and that this person must be a director of that company or a director of a company in a country where New Zealand has reciprocal arrangements for the enforcement of criminal sanctions. I support this amendment.

Most companies already have a resident director. At most, 4,200 companies of the over 550,000 companies registered will need to adjust their circumstances, and there are a range of options available for them to do so. Those companies that this measure intends to target could have used the previous resident agent option as a loophole to prevent transparency and accountability. In addition, the Commerce Committee recommended requiring the date and place of birth of those running companies and limited partnerships, and the disclosure of a company’s ultimate holding company if it has one. Again, this will increase transparency, with minimal additional compliance costs for companies.

I am pleased to note that the committee has also brought forward the commencement date for the new registration requirements to 6 months after the Act receives the Royal assent rather than 12 months. This will put the provisions in place sooner but still with sufficient time for any affected companies and limited partnerships to adjust their circumstances as required.

I have taken on board the Commerce Committee’s support of a power for the Registrar of Companies to require information about the true owners and ultimate controllers of companies and limited partnerships. This is an important amendment that will further assist New Zealand in meeting the Financial Action Task Force recommendations about the transparency of legal persons.

I have introduced Supplementary Order Paper 249, which picks up this recommendation. The Supplementary Order Paper firstly sets out the purpose the registrar must have regard to before exercising either of two new powers for the purpose of the enforcement of specific laws relating to detection, investigation, and prosecution of serious crimes including money-laundering and the financing of terrorism.

The first power is that the registrar can ask about beneficial interests in shares of a company and the circumstances that give rise to those interests. This is called a control interest in the Supplementary Order Paper. Several new sections define the concept of a control interest and where it applies and whom it applies to. Secondly, the registrar has the power to require a director to disclose control information about a company. This includes directions or instructions given to the directors or the board by that person or any management or administrative powers delegated by that person.

Both of these powers are recursive, and the information provided can in turn be followed up the chain of control and ownership. The registrar can specify deadlines in the form of information and whether the information needs to be verified. Finally, the registrar can share this information with named Government agencies or their overseas counterparts. New offences for failing to comply are provided with a maximum fine of $10,000.

These changes will also be applied to limited partnerships with slight modifications to take into account the different structure of a limited partnership. Many submitters commented on the provisions in the bill that deal with breaches of two director’s duties. The Commerce Committee recommended only minor changes but also further consideration of the drafting to ensure the provisions would not have a chilling effect on legitimate business risk taking. Although the bill never intended to do this, I have taken the committee’s recommendations on board and officials have consulted further with submitters in an effort to tune the provisions so that they more clearly capture only behaviour that crosses the appropriate criminal threshold.

The Supplementary Order Paper that I have introduced contains these redrafted offences. The good-faith offence has been amended to clarify the behaviour intended to be caught and to set out the defences, as are available, for the existing civil offence. The offence of reckless trading has been removed as a stand-alone offence, and has been included as a new offence under section 380 of the Companies Act. An important feature of this new offence is that if affected creditors agree, companies that are close to insolvency can enter into arrangements with their creditors to save the company, without the directors facing the risk of prosecution. The new provisions will more directly capture blameworthy behaviour related explicitly to breaches of directors’ duties, and will more closely align New Zealand’s company law with other countries, including Australia.

The offences introduce a concept of serious loss. This is intended to encompass a loss that would be more than material to the creditors involved. Creating offences for serious breaches of directors’ duties will deter behaviour that is harmful to markets and will sharpen the focus of directors on decision making, compliance, and good governance. Competent directors will never need to worry about these provisions. This, in turn, will increase investor confidence in the financial markets, and strengthen New Zealand’s reputation for honesty, integrity, and transparency.

The last part of the select committee’s report deals with amalgamations and arrangements for code companies. The bill will require all arrangements and long-form amalgamations that affect the voting rights of a code company to follow a modified court process. This process will mean that code companies will need to seek greater participation from—and in particular—small minority shareholders, when considering undertaking these transactions.

This new process is internationally consistent, and will promote increased confidence by investors in capital markets. The Takeovers Panel will be empowered to regulate these transactions by way of issuing a “no objection” statement for the consideration of the court if it is of the opinion that the arrangements will not adversely affect shareholders. The select committee has also taken the opportunity to align the definition of a “director” across the Takeovers Act and the Takeovers Code, to include reference to limited partnerships as well as companies. I support these amendments. The Supplementary Order Paper that I have introduced makes further minor amendments to these reconstruction provisions.

It is important that the governance of companies, the registration of companies and limited partnerships, and the reconstruction of code companies work together in a consistent manner to promote New Zealand and to ensure that New Zealand remains a trusted place to do business. I am confident that these reforms will not only do this but also impose the necessary costs on legitimate businesses. I commend this bill to the House.

The Companies and Limited Partnerships Amendment Bill is the daily bread of the House. It is the kind of work that needs to be done and needs to be progressed to ensure that the systems we have in place in this country are fair and are seen to be fair. It goes along with the good governance principles of transparency, of information, of lines of accountability, and of clear sanctions and rewards—those things that make for good management practices.

There is no doubt that we need this kind of legislation. New Zealand’s reputation has been at risk recently, with increasing media attention around the issue of potential tax havens, and around the way in which some of our company structures have been used—often by malicious overseas players—to hide things that should not be hidden. So at the heart of this bill is a desire, I believe, to progress issues of honesty, transparency, and fairness. From my perspective, I would say that these are important things for New Zealand’s international reputation—the fact that we get these things right matters when New Zealand turns up at the international trade table and wants to argue that it should have a place there. New Zealand’s reputation as a good and proper place to do business matters in that international context.

So what does this bill do? Well, in terms of transparency, it gives new powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act. We ask ourselves: what is the alternative? The alternative is that the Registrar of Companies does not have powers to investigate and deal with non-compliance with the Companies Act—it does not make sense, so of course we want to support this kind of measure. This measure includes the power to flag companies on the register that are under investigation currently, thereby signalling the registrar’s intention and signalling that he or she has suspicions. We would hope that that power is used appropriately, and we have got no reason to suspect, at this stage, that it might not be.

In terms of consequences for breaches, this legislation allows the removal of companies from the register if they provide inaccurate information or persistently fail to comply with the Act. There can be no disagreement with that across the House, I do not think. Companies that fail to comply with the Act, clearly, ought to be facing consequences. The registrar will also be able to ban the directors of such companies from taking part in the management of any company for up to 5 years.

In order to avoid other unintended consequences—when one tightens up the law in one area, suddenly an opportunity for someone who is mischievous might appear in another—the bill will make similar changes to the Limited Partnerships Act, so that those misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead. Further, in terms of transparency, and in the interests of better information, the bill will better align the Companies Act with the Takeovers Code to ensure shareholders understand the effects that changes in company control will have on the value of their shares. Again, there is little to disagree with here.

Then there is the further consequence of introducing 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 expect that there will be nobody in the House who will want to disagree with that, either. When we see criminal offences by directors who commit serious breaches—they have a duty to act in good faith—nobody would want to see them getting away with that. Directors who commit offences of a serious nature will be liable for imprisonment of up to 5 years or for fines of up to $200,000. These consequences, this transparency, and this provision for avoiding further unintended consequences is all something that the Labour Party wants to support, so we will be supporting this bill from here, as it stands.

As Mr Foss has said, New Zealand has always had a reputation, an international reputation, as a trusted place to do business. As I said in my opening statement, this is something we need to defend heartily. The World Bank and the International Finance Corporation have ranked New Zealand the easiest of 183 countries in which to start a business. We in the Labour Party have concerns about this reputation being undermined. We note from the recent International Institute for Management Development competitiveness survey that New Zealand went down from 15th place in 2009 to 24th place today. So it appears that New Zealand’s competitiveness in the business sphere is dropping, and, interestingly—and in line with the policies put forward by this side of the House—research and development was recognised as a driver of that poorer ranking. That is a concern.

There are things in the business environment that severely concern the Labour Party. We on this side of the House are concerned about small business, and about the fact that it is getting harder and harder for those hard-working New Zealanders to get ahead. They put everything into a business, often mortgaging against their house in order to start a new business and introduce their new idea. They take risks themselves and this Government is introducing additional compliance costs. It is making New Zealand a less competitive place to do business, relatively. Recently, it put on to businesses the cost of retrieving child support for overdue payments. It has put on additional compliance in respect of collecting information, and in respect of cleaners and paper boys in the Budget before last.

This is a Government that does not seem to be terribly interested in small business generally, but at least in this piece of legislation it is trying to preserve our reputation as a trusted place to do business, and that is why we on this side of the House will be supporting it. This international—and local—media attention so far has focused on overseas interests exploiting New Zealand’s incorporation process by using New Zealand - registered shell companies to undertake illegal activities. The Government has been aware of this issue for some time—how could it not be; it has been in the media—and this bill, it seems, is finally part of addressing this issue.

It is unfortunate, I have to say, that the Minister of Commerce has been dragging his feet on this matter. Day by day our reputation is in jeopardy as further incidents come to light over time. Former Minister of Commerce Simon Power was, in fact, the one who originally introduced this bill to Parliament, and yet it has languished at the bottom of the Order Paper for its first reading for some time and only now is it proceeding through its second reading and through the House. So our concern from this side of the House is for the time it is taking for this bill to pass through the House.

We will also know, if I can take a minute, in light of the fact that it is Māori Language Week, to note te ōhanga—excuse my Te Reo; I am going to start that again—te ōhanga ripoata koretake rawa i ngā tau e 50 [the worst economic record in 50 years]. This Government has the worst economic record of any Government in the last 50 years, and so there are wider issues that we think need to be addressed. We think that issues such as pro-growth tax policy ought to be brought in. We think that universal savings ought to be brought in. We think that affordable housing is a necessity. John Key says that Kiwis are not paying too much for their power. He says that the power companies are on the right side of this argument.

The ASSISTANT SPEAKER (Lindsay Tisch): Order! This is a second reading speech.

These wider issues do affect New Zealand’s reputation as a place to do business, and that cuts to the heart of this bill. We know that these policies, and particularly the power policy, if I may, do introduce an element of competitiveness into business—a 5 to 7 percent reduction in costs for small business will make a serious impact on small business in New Zealand, and that is Labour policy. Labour wishes to bring in New Zealand Power, which will reduce the cost for small business.

💬 Jonathan Young: I raise a point of order, Mr Speaker. The speaker’s time must be up. [Interruption] Stick to the context.

The ASSISTANT SPEAKER (Lindsay Tisch): That is not a point of order. I have indicated to the member that we are on a second reading speech and this is about a report back from a select committee. It is not about introducing new material. Dr David Clark, 50 seconds remaining.

Thank you, Mr Speaker, and I do need all of those 50 seconds, because the issue of New Zealand’s reputation is what I am getting to—its reputation as a place to do business—and I am sure that speaker will get his chance to put the case for New Zealand having a good reputation. We will not argue that that is not important, but he will struggle to defend the economic record of his Government, which genuinely is the worst of any Government in the last 50 years in this country.

So despite the damage being done—the Minister of Commerce has dragged his feet—we in the Labour Party are glad to see this bill going through the House. We will support this bill, because we value New Zealand’s reputation as a place to do business, as a good place to do business, as a fair and trusted place to do business. It is important for our country going forward, and so we thank the Minister for the efforts he is now making to progress this through the House.

Well, just in reply to the previous speaker, David Clark, a good 48 to 50 percent of New Zealanders think that the economic record of this Government is pretty good.

💬 Dr David Clark: I raise a point of order, Mr Speaker. Surely the member’s time is nearly up.

The ASSISTANT SPEAKER (Lindsay Tisch): That is a debatable point, but I am going to give it to Jonathan Young.

Did you say that was a debatable point? Coming to the Companies and Limited Partnerships Amendment Bill, it is a bill that went through a very thorough select committee process and received a tremendous amount of comment and interaction, particularly from directors in the country. This bill will strengthen the rules that apply to the governance, registration, and reconstruction of companies, and it also adds criminalisation of serious breaches of certain directors’ duties. We know that getting the balance right is very important, because this country does have a good reputation of ease of doing business, but sometimes that ease of doing business lets people through who do dishonest business and can tarnish this country’s reputation. So getting the balance right is important.

Many submitters raised concerns about the bill having a chilling effect on legitimate business risk-taking and this was something that the Commerce Committee members from both sides of the House paid particular attention to. One thing that we do want to see is the entrepreneurial aspects of business encouraged. At the same time, we want to not see lawbreaking take place, which puts New Zealand incomes in unnecessary jeopardy and also we want to see our country safe from the antagonism and attacks from overseas that happen on occasion.

We know that in Mr Brian Gaynor’s New Zealand Herald column on anti - money-laundering, he said: “In 2010 the Financial Intelligence Unit of the NZ Police estimated that approximately $1.5 billion was laundered through the country every year.” That is a huge amount; it shocked me to read of that amount. So we know that definitely we need to see some strengthening and some protections around that sort of behaviour. The column continues: “For example, Geoffrey Taylor, a Queensland resident, registered over 1,000 New Zealand shell companies, many through Vanuatu. In December 2009 one of these companies, SP Trading, leased a plane that was caught transporting 35 tonnes of weapons and explosives from North Korea to Iran.” And that was based out of here in New Zealand. We would be horrified to think that this sort of activity takes place through the shell companies set up here in this country. So what this bill is to do is clamp down on that and bring certain controls in order to protect New Zealand.

As I said, it is important to find the appropriate balance. One of the areas that the committee worked on was this area of registration, because this bill brings together three strands of policy to strengthen the rules applying to registration as well as governance in the reconstruction of companies. So, when it comes to registration, we require a director who lives in New Zealand to ensure that they are identifiable, with a substantive connection with the company, who can be questioned about the activities of the company and who can in certain circumstances be held to account. The option of appointing an agent who lives in New Zealand was intended to provide an alternative with lower compliance costs for overseas-based New Zealand companies, but we considered that such agents would be of limited help to enforcement agencies. And in many cases, they would not be accountable for the actions of the company. The Commerce Committee recommended that the requirements for an agent living in New Zealand be omitted and that a New Zealand - based director or a director who lives in Australia be the requirement, as it was considered that resident agents risk becoming also criminally liable for actions of the company or its directors over which the agent had little or no control. So working through some of these issues and trying to find the place where these pieces of legislation would work was something that the committee did.

There are 4,200 registered companies out of a large total of over half a million companies that do not already have a compliant director. Of these, 1,200 were deemed high-risk by the registrar. So this bill will come into enactment, and what we will see is that there will be a small group of high-risk companies that the registrar—who I understand is already working in these particular areas—will bring compliance to, and that will be a good thing, as we see this bill come to pass and bring some certainty and some protection to our companies, and also bring accountability to directors. Thank you.

Here we are in the dead of the afternoon with the Leader of the House having thrown the House into urgency to debate the Companies and Limited Partnerships Amendment Bill. Somehow it seems to me emblematic of the sense of drift and listlessness of the Government that this is the best that it could throw up in order to justify this period of urgency.

There is nothing wrong with this bill. Labour supports the bill. It will provide limited steps forward to help improve the transparency and the integrity of commercial markets, and we think that that is a good thing. I think all New Zealanders would think that that is a good thing, and we commend the Government for doing that. But here we are, throwing the House into urgency to debate a bill that is relatively routine and on which the Commerce Committee has done a relatively good job to tidy up at the edges.

So what does this bill do? This bill gives new powers to the Registrar of Companies to investigate and deal with non-compliance under the Companies Act. It includes the power to flag companies on the register that are under investigation. It allows the removal of companies from the register if they provide inaccurate information or persistently fail to comply with the Act. It gives the registrar the power to ban directors of such companies from taking part in the management of any company for up to 5 years. It makes changes that are of a similar nature to the Limited Partnerships Act, so that those misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead, which is very important because limited partnerships were exceptional structures that were allowed to deal particularly with professional services firms’ challenges, and were not seen as an alternative to the regular company structure.

The bill better aligns the Companies Act and the Takeovers Code to ensure shareholders understand the effects that changes in company control will have on the value of their shares—Allied Nationwide Finance springs to mind—and, quite important, it 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, and more on the detail in a minute. But I think it is very important for us to reflect that New Zealand does already have an international reputation as a trusted place to do business. I think we all celebrate that. We are all proud of the rule of law.

The World Bank and the International Finance Corporation have ranked New Zealand No. 1 as the easiest place in the world to do business. That is both a good thing and a challenging thought. The good thing is, of course, we want business to be able to flourish, because it provides jobs and it provides incomes. It is a bad thing in the sense that if we are already No. 1 for the ease of doing business, then what is holding the New Zealand economy back—because it cannot get out of first gear at the moment—cannot be the fact that we are over-regulated, because it is already the easiest place in the world to do business. It cannot be a deregulation problem. I see the Minister of Conservation over there. He wants to gut the Department of Conservation because it gets in the way of commerce. Cutting the budget, cutting the number of rangers—anybody would think we were No. 183 out of 183 countries in terms of the ease of doing business, not No. 1.

So if this is already the easiest place in the world to get a business started, why is the Government on a further deregulation crusade, laying waste to the Resource Management Act, trampling over local democracy with the Housing Accords and Special Housing Areas Bill, making it illegal to protest against oil companies—because you could go to jail for exercising your democratic rights—and ensuring that if there are any little legal snags in the way of the surveillance agencies undertaking their work, no problem, we will just change the law to make it all legal? The Labour Opposition, although it supports the bill, is concerned at some of the subtext that lies around this. We are already an easy place in the world to do business. This bill actually strengthens some of the requirements on companies in terms of integrity and transparency, and strengthens the duties of directors, and we think that that is appropriate. We think that it is a good thing. We commend the Government for doing that.

Just turning for a second to the arrangements, amalgamations, and compromises of code companies, under the current law companies that are subject to the Takeovers Code can use the provisions of the Companies Act 1993 relating to schemes of arrangements, amalgamations, and compromises to effect mergers with or acquisitions of other companies. Those provisions are being utilised by code companies to avoid the provisions of the Takeovers Code, which protects shareholders in respect of transactions that result in a change of control to those companies. The bill provides a number of changes to ensure that shareholders of code companies will not be disadvantaged by changes to the company being effected under the Companies Act.

I wish to turn briefly to the criminalisation of breaches of certain directors’ duties. The recent finance company collapses—and members opposite would not have any firsthand knowledge of that at all, would they? None at all, no, none at all, and the Minister would not have any firsthand knowledge of those issues, I am sure. The recent finance company collapses in New Zealand have highlighted weaknesses in corporate governance and investor protection under New Zealand’s corporate law, and the names are already legion: Bridgecorp, Hanover Finance, and the granddaddy of them all, South Canterbury Finance.

The bill, in new section 138A in clause 4, provides for offences in relation to serious breaches of the following duties: “section 131 (duty of directors to act in good faith and in best interests of company)”; and, in relation to section 135, the duty not to agree to or cause or allow company business to be carried out in a manner that is likely to create a substantial risk of serious loss to the company’s creditors. Well, thank goodness! Here we are in 2013 passing a law that actually should have been there a little earlier, because we all know that there is a generation of new poor: the senior poor. They are New Zealanders who worked hard, played by the rules, saved hard, built up a bit of a nest egg, put it in finance companies because they were told by some celebrity that it was as safe as houses with a return just a little better than a bank, and then in hindsight we found out on their behalf that actually the business models that a lot of those finance companies were based on could never have worked. They were a one-way bet. They were securitised on equities and other leveraged instruments, so that if markets kept rising, they were fine, but the moment that the underlying investment turned southwards, the business model was—to use a technical financial term—stuffed, and the investors were out of pocket. The directors often knowingly carried on with business models that could not have succeeded, and, in some cases that are a matter of court record now, knowingly misled investors to disguise those problems until it was too late.

I do want to mention South Canterbury Finance. I grew up in South Canterbury. It has always been kind of close to my heart. That was the biggest disaster on this Government’s watch—$1.7 billion of gross cost, and $1.2 billion of net cost. That is about as much as the Government is flogging off in Mighty River Power. That is the power company, for those watching, whose shares are now worth less than they were when the Government privatised them, so that those investors have taken a minor bath as well.

What is really tragic for those viewing here is that, of course, the taxpayer could have been indemnified to a maximum loss of $500 million instead of the $1.2 billion it actually cost them, because the Hon Craig Foss’ predecessor, Mr Power, and Mr English and Mr Key decided, in their wisdom, to veto the recapitalisation deal that South Canterbury Finance could have effected and—

💬 Hon Dr Nick Smith: Nobody believes this rubbish.

Oh, yes, they do. It is all well documented. You talk to the brokers—

💬 Hon Dr Nick Smith: No—trying to rewrite history.

No, no. If you go and talk to the brokers, you will understand the full extent of the Government’s failure. That failure has cost the taxpayer $700 million—give or take $10 million, or $20 million, perhaps—because the Government allowed this finance company to trade on, and even renewed its licence. It issued further prospectuses and it took more investors’ money while the Government watched it and waved it through.

💬 Peseta Sam Lotu-Iiga: I raise a point of order, Mr Speaker. He is clearly going outside the scope of this bill and talking about another bill that had been passed—

The ASSISTANT SPEAKER (Lindsay Tisch): I am listening very carefully, and his time is nearly up.

Sad but true, time is nearly up. So let me conclude by saying thus: South Canterbury Finance could have been saved with a recapitalisation deal that limited the taxpayer’s exposure; it was not. Instead, the Crown wore the full cost. The strengthened disciplines in this bill would have addressed some of the issues that we saw writ large in the South Canterbury Finance case. This is a useful little bill. It is a shame that the Government has thrown the House into urgency to get it through. The Commerce Committee has done a good job on it. We support the contents of the bill. We need to ensure that New Zealand’s reputation—

I am sorry to interrupt the honourable member; his time has expired. I call Julie Anne Genter.

💬 Peseta Sam Lotu-Iiga: Sorry, Mr Assistant Speaker.

The ASSISTANT SPEAKER (Lindsay Tisch): Is this a point of order?

💬 Peseta Sam Lotu-Iiga: No, I am taking a call.

The ASSISTANT SPEAKER (Lindsay Tisch): No, I have called Julie Anne Genter.

E te Kaihautū o te Whare, tēnā koe. E ngā mana, e ngā reo, e ngā mātāwaka e rarau mai nei, tēnā koutou katoa. Tēnā koe, Mr Assistant Speaker.

[Mr Assistant Speaker of the House, greetings to you. To the authorities, languages, and ethnicities settled here, salutations to you all. Thank you, Mr Assistant Speaker.]

I rise to speak on behalf of the Green Party on the second reading of the Companies and Limited Partnerships Amendment Bill. I would like to start by discussing some of the broader issues of companies and company regulation in our current, globalised economy, and then I will speak to the specifics in the bill before us.

The Green Party is very interested in tools that we can use to get a clean, green economy that works for all New Zealanders, not just the few, not just the mates of the National Government. Our global reputation as a clean, green, and fair place to live and do business is essential to this end, and the Green Party believes that it is an important responsibility of government to make sure that the reality backs up and enhances our global reputation. This John Key - led National Government is doing just about everything it can to ensure that New Zealand does not live up to its global image as a clean, green, and fair place to do business, and the Green Party—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! I must remind the member that when we are on a second reading, speeches must be related to the bill. You can comment on things related to the bill, but you cannot make the substantive matter of your speech other than what is in the second reading. There are a number of Speakers’ rulings. I refer you to Speakers’ ruling 110/6 and Speaker’s ruling 112/2. I ask the member to come back to the contents of the bill.

Thank you, Mr Assistant Speaker. I was getting to the contents of the bill, which ultimately is a consequence of this Government’s failure to manage the economy well. This Government knew about the problems related to company registrations in New Zealand and the large number of New Zealand - registered companies that were engaged in international, illegal, fraudulent activity—money-laundering—3 years ago, and it has taken 3 years for the second reading of this bill to come before the House. It took over 2 years for this bill to get its first reading before the House. I think that it is an example of the Government’s failure to manage the economy well and its failure to put in place important regulatory frameworks that would protect those New Zealand businesses that want to do the right thing.

Most business people and most citizens are honest and want to do the right thing, but those who want to make an honest living and want to do business without ripping off people or the natural environment are disadvantaged by a lack of Government regulation that levels the playing field. They are disadvantaged in a number of ways. First of all, they can be easily undercut by competitors that cut costs by cutting corners; or, in the case of the problem addressed by this bill, New Zealand businesses that trade overseas have had a layer of compliance cost and regulation foisted on to them by this Government’s failure to act on fraudulent and irresponsible companies for 3 years. This amendment bill finally addresses a serious problem that the Government has been extremely slow to act on, which is the large number of New Zealand - registered companies that have been engaged in large-scale tax-laundering, money-laundering, and fraud internationally.

In 2011 and again in 2012 my colleague Dr Russel Norman asked questions and called media attention precisely on this issue, because the Government was taking so long to act. It had not prioritised the issue. It was back in July 2010 that Simon Power, a former Minister of Commerce, got Cabinet agreement to tighten up the rules and deal with the serious problem of money-laundering. We are now in July 2013. Why did this bill, which is not even as tough as international best practice would have it be, take 3 years to get to its second reading before the House?

We are happy to see the minor moves towards tightening things up that are proposed in this bill. The criminalisation of serious breaches of certain directors’ duties is well overdue. We would like to see the same sort of tough-on-criminals stance that this Government likes to talk about all the time applied to white-collar criminals and company directors who have not been living up to their responsibilities.

The requirement to have a director who lives in New Zealand has actually been watered down in the bill as it has come back to the House from the Commerce Committee. We did think that it was probably appropriate to at least have an agent who was in New Zealand, to ensure that we had some identifiable individual who had some sort of substantive connection with the company, who could be questioned about the activities of the company, and who could, in certain circumstances, be held to account. Unfortunately, that requirement was dropped during the select committee process.

There is a question about whether or not the Government is actually living up to its responsibility to put in place the boundaries that will enable honest, clean, green businesses to thrive here in New Zealand when it is listening primarily to company directors. Is this Government sufficiently independent to put in place a serious regulatory regime that is going to enable those businesses that are doing the right thing to continue doing the right thing?

Today in the House we have heard a lot from the Government, from the Minister, about the need for balance. We hear the word “balance” used quite a lot, but we do not see a lot of actual balance. We see a lot of preferential treatment for some big companies. Actually, it strikes me that the National Government is kind of like a parent who gives in to every demand of an already spoilt child when it talks about being pro-business. Instead of putting in place the boundaries that will enable companies to thrive and enable new companies to be formed, and instead of creating a truly competitive environment, it tends to privilege the existing big businesses like Skycity, like its mates.

So it is not actually a pro-business environment that is being facilitated by this bill; it is a kind of knee-jerk, anti-regulation approach, which does not recognise the important role, in the wake of the global financial crisis, that the Government has to play in ensuring that consumers and investors have the appropriate information to make decisions. As the global financial crisis proved, the neo-liberal consensus of the 1980s and 1990s—that the least-regulated economy was the one that functioned best—is not the case.

As our economy becomes ever more complicated, complex, and globalised, that asymmetry of information makes it easier for companies to make a quick buck and for international organisations with nefarious activities to set up shop and get some sort of registration in New Zealand, which they can then use to ends that actually undermine the reputation of New Zealand business internationally.

The Green Party will be supporting this bill, even though we regret that it does not require registered companies to obtain Inland Revenue Department numbers, it does not address the problems around nominee directors, it has dropped the requirement for an appointed agent to be resident in New Zealand, and, ultimately, it does not go very far. We are quite happy to support it because finally, after 3 years, we are seeing some action on this important problem, which is a threat to our reputation globally. Thank you.

It is a pleasure to speak on the second reading of the Companies and Limited Partnerships Amendment Bill. I am glad that the last speaker, Julie Anne Genter, has stated that the Green Party is prepared to support this bill, because the Green Party has become known in this country for opposing anything related to growth, to jobs, to opportunities, and to promoting the prosperity of our families and our communities. So thank you to the Green Party for once in this House during this term supporting a bill that is promoting jobs and opportunities.

What does this bill do? Well, as all the other speakers have stated, it requires each company registered in New Zealand to have an identifiable individual who is the point of contact in New Zealand. Transparency and accountability have been the catchcry of this Government, and this bill supports the Business Growth Agenda that we have put on the table as part of our long-term plan to bring this country out of recession and put it forward in terms of prosperity and in terms of our desire to live the Kiwi life—the good Kiwi life—that we have become accustomed to. This bill also gives new powers to the Registrar of Companies to investigate and deal with non-compliance under the Companies Act. It will allow the removal of companies from the register if they provide inaccurate information or persistently fail to comply with this legislation. It really is about providing to the registrar tools to get after those companies that do not comply with the accountability and transparency provisions within this bill.

This bill does not do everything. In response to some of the concerns around the transparency of companies, the Companies Office has established the registries integrity and enforcement team, which in the short time it has been in operation has seen the removal from the register of over 6,000 companies—those that were not doing anything and those that had been covertly in operation and not transparent with their operations.

The Commerce Committee received 13 written submissions, and we heard eight of those submissions. In response, the select committee has said companies must have a director who lives in New Zealand, or who lives in and is a director of a company in New Zealand. We have required the provision of date and place of birth information of company directors, as well as requiring the name and details information of any company that ultimately controls a New Zealand company to be disclosed to the registrar. Supplementary Order Paper 249 allows the Registrar of Companies to bring about more transparency.

Again, I support this bill, because what it does is bring more confidence and trust into the financial markets and more confidence and trust into the operations of the Registrar of Companies, and it brings prosperity to this country. I support this bill.

I call the honourable member Andrew Williams.

💬 Hon Trevor Mallard: So do we.

The ASSISTANT SPEAKER (H V Ross Robertson): I am pleased about that, Mr Mallard.

I take a call on behalf of New Zealand First on the Companies and Limited Partnerships Amendment Bill. Can I say that we are disappointed that the first reading of this bill was on 24 July 2012 and that we are now in July 2013, with this debate being done under urgency. One would wonder why it has taken 12 months for the bill to be back in the House, when 12 months ago—and I am reading Hansard from 12 months ago here—all parties were basically in agreement with the bill and saw this as being a requirement that should not be held up by the Parliament.

The whole process, including the select committee process, has been very slow. That is somewhat disappointing, because we also heard a year ago that, as a result of New Zealand not taking action in these areas, we had been dropped off the European Union white list. The white list is a list the European Union keeps, basically to ensure that those countries on it keep up a certain level of corporate governance oversight. New Zealand was dropped off that white list.

We were warned a year ago that this bill had already taken 2 years from first sight in Cabinet to come to the House. As a result, that did affect our standing with the European Union. It is most disappointing that now, 12 months on, we are looking at the second reading, and we still have some way to go. In actual fact, the only good thing out of this would be to get the bill through in its entirety so that corporates operating in this country and also international corporates operating here are under stricter controls.

We do note that the bill as reported from the Commerce Committee includes the recommendation to drop the requirement for a company to have a resident agent living in New Zealand, although a director resident in New Zealand is required. We do wonder whether that is the right way to go. We feel that it still leaves loopholes and avenues for certain operators to, perhaps, flout the law. However, certainly the requirement for a company to have a director resident in New Zealand does go some way in that regard.

There have been activities with window companies and shell companies operating here, and certainly as a result of that New Zealand has, perhaps, been taken for a bit of a ride on occasions, and that has affected our integrity in terms of the way we operate here. We certainly do not want to be seen as some sort of cowboy market for unscrupulous operators from offshore.

The bill gives the ability for the public to be warned about suspect entities by way of a note in the Companies Register. That, again, is a good thing. The public can be warned about anything that is, perhaps, of concern, and a red flag can be raised in terms of some of the activities of an entity that might be operating here. In that regard, in terms of criminalisation for breaches of certain directors’ duties, this bill allows for imprisonment for a term not exceeding 5 years, or a fine not exceeding $200,000. That sends the right message that if you are going to operate within this country, you could face a significant term of imprisonment if you break the laws in this regard.

This bill basically tidies up a lot of administrative errors in terms of some of the commerce matters under the Limited Partnerships Act and other similar Acts to do with commerce and commercial acts. It is a positive move. New Zealand First has said before that we will support good policy that helps to tighten up the laws in this country. We have always been the vanguard and the champion of good legislation that ensures that New Zealand operates at the highest level in terms of corporate integrity and that our Companies Act is at the highest level of company standards.

New Zealand has a good reputation in terms of corruption. I think we are something like No. 2, after Finland, in terms of a world ranking for perceived corruption in terms of both government and companies. It is a good thing that we keep that standard. We want to maintain the highest level. This bill certainly goes a long way to tidying up many areas and tightening up a lot of the loopholes. Therefore, New Zealand First will certainly continue to support the bill, as we did 12 months ago, but, again, we urge the Government not to just sit on its hands with this for another 6 to 12 months. Every month that goes by—and the Minister would take cognisance of this—leaves a potential loophole for unscrupulous activities to take place in this country. The sooner we can close those loopholes, the better and the safer it is for our country, our sovereignty, and the people of this country.

Sat sri akaal. Thank you for the opportunity to speak on the Companies and Limited Partnerships Amendment Bill. The Companies and Limited Partnerships Amendment Bill proposes significant changes to both the Companies Act 1993 and the Limited Partnerships Act 2008 to strengthen the rules applying to the governance and registration of companies and the registrations of limited partnerships. Of course, the larger aim is to protect New Zealand’s interests and ensure that it remains a trusted place to conduct business. The bill will promote investors’ confidence and participation in our capital market.

The Government is introducing measures to tighten the requirements around companies’ registration and resident directors, such as ensuring that for every company and limited partnership there is at least one person who lives in New Zealand who is legally responsible for the entity and administration. This resident agent will be responsible for providing the Companies Office with accurate information. In the case accurate information is not provided, then the agent stands liable for breaching the record-keeping and filing requirements under the Companies Act.

This bill empowers the Registrar of Companies with investigative authority in order to deal with non-compliance with the Companies Act. The bill also introduces criminal offences for directors who commit a serious breach of their duties so as to lead to risk of significant losses to the company’s creditors. Directors who commit such offences are liable for imprisonment of up to 5 years and a fine of up to $200,000. The registrar will be granted enhanced investigative and removal powers to take action where there is any concern that a company or a limited partnership is not being used for a legitimate business purpose. It is not surprising that such a law is being enacted by the National Government, because it believes in providing such confidence to the financial sector. I commend this bill to the House.

We rise to support this bill, the Companies and Limited Partnerships Amendment Bill, and I intend to take the entire 10 minutes in traversing why this bill should be supported, unlike the speaker who has just resumed his seat. For those of you who may have wondered, that member was Kanwaljit Singh Bakshi, an obscure backbencher from the National Party. He did not explain why this bill has been languishing, yet he and a host of other speakers have accentuated that the bill represents us defending and maintaining, in the eyes of international investigators and international regulators, our high-quality reputation in terms of transparency.

I am the first to agree that those of us who have had some experience in business should treasure the reputation we have—and confirmed by the World Bank—that we are one of the easiest, if not the easiest, of countries in which to start a business. Indeed, last year, as I listened to a Canterbury Earthquake Recovery Authority presentation about people going to Christchurch, it was evident that Christchurch was having visitors from the Middle East, Asia, North America, and Europe, and one of the people at the authority told me that what they could not get over was that as these international analysts and investors came into New Zealand to look for opportunities in and around Christchurch, they marvelled at the ease in which you could start a business in New Zealand.

I think that is something we should treasure. I do not think that there is much disunity between the two major parties on that question, and I would like to think that it is something we continue to uphold. It is disappointing to see nefarious interests, perhaps tied up with the drug moneys, perhaps tied up with moving around ill-gotten gains etc., in and out of New Zealand. An example of that is the case of an American promoter of a Ponzi scheme who is about to face 15 to 25 years of jail. That person exploited a loophole and was able to contribute in a degrading way to the erosion of our commercial reputation. That needs to be stamped out.

I would like it said that at a broad and base level I am in agreeance, I think, with the majority of the members of the House. Ease of business is something that we should celebrate. Transparency is an ongoing hassle. I know a bit about transparency, having suffered an Auditor-General report into an immigration decision I made. So I have been at the sharp end of what is expected of a public official in respect of transparency and adherence to process. That is why we do support this particular bill.

But, as is the wont of Opposition politicians, there are aspects we can find that could be remedied, not the least of which is why the bill has languished at the bottom of the Order Paper for so long. I am not suggesting that it is reflective of the pecking order that exists on that side of the House and the rather diminished status of Craig Foss. Craig Foss came into politics when I came in. He holds the seat of Tukituki, which, as I have told you in earlier times, means “to beat”. I actually have got quite a lot of time for Craig Foss, but I do think that his stewardship of this particular bill is perhaps reflective of the ebbing fortunes that Craig Foss is suffering, and we need look no further than the languishing nature of the economy, investors, punters, and garden-variety Kiwis in Hawke’s Bay.

I would like to think that Mr Foss dedicates a small degree of his precious time to improving the fortunes in that area, because they are bleak. If you have any doubt, just look at the information that we amassed and the glorious number of new members when the newest parliamentarian from that part of the motu, from Heretaunga via Ikaroa-Rāwhiti, came to the House and unveiled the fact that there is a great deal of pain and a great deal of squandered talent and missed opportunities. Really, like other parts of provincial New Zealand, that area is the economic orphan child of the current Government.

I am sure that the Minister responsible for this bill is not totally at fault in that regard. The other part of the fault is probably with Mr Tremain, but, unfortunately, that would take me somewhat beyond the guts, or the purview, of this bill. But it should be said that on this side of the House we think it is good to give a prod now and again to the responsible Ministers to remind them that it is essential that they remain not aloof but directly engaged in promoting pieces of legislation of this nature.

This bill, amongst other things, enables regulators to flag companies that could be under investigation. There could be a host of reasons as to why that might happen. In the context of improved trans-Tasman business relations, and as investment opportunities grow over time—when this side of the House gets over to the other side I am sure they will grow exponentially—I think it is important that people have a high level of confidence that an institution they might be buying into, an institution they might be forming a relationship with, is regulated in such a way that there are limited opportunities for mischief-makers or people who might use companies to ruin the prospects of shareholders.

The bill also extends this level of vigilance to the Limited Partnerships Act through a host of changes, so that folk who are of a mind to misuse our companies do not also move into infecting that particular regime. It also seeks to better align the Companies Act with the Takeovers Code, and it ensures that shareholders understand the effect that changes in company control will have on the value of their shares.

So I only hope that the owners of Mighty River Power are apprised of what lies in front of that company. Anyone who owns a company, or who is a shareholder in a company, needs to maintain vigilance as to the statutory or regulatory framework within which a company is operating, and that is one company that is going to have to learn to live with a new norm, and that norm is the changes, the policy reforms, and the moderation and improvements that we will be bringing to the power sector. In that sense, shareholders need to be confident that when they invest in these vessels, when they invest in a company, they are shareholders. But when the citizens of the nation require or demand an improvement in the behaviour of a company, the interests of shareholders have to be measured against the interests of the citizenry.

In a democracy we by and large rely on citizens to make conclusive decisions about the distribution or the exercise of power. We rely on shareholders to drive directors and the executive to generate wealth. There is a clear distinction between the interests of the citizenry and the interests of shareholders. This is designed to give more confidence to the interests of shareholders. But be under no doubt that any company operating in the area of the power sector needs to bear in mind that this party is there to ensure that consumers and the broader citizenry do not have their fortunes held to ransom by rapacious, ill-informed, or dangerously driven executives hoping to continue to grow their own personal wealth by dint of their remuneration, at the cost of growing and gouging cost behaviour from such companies.

That is slightly different from the range of duties that a director has to observe. They are well established in terms of good practice and good law, but this is designed to enable the Registrar of Companies, formerly, in popular parlance, known as the Companies Office, to root out bad apples and ensure that companies being exploited or abused by overseas interests—and from to time there will, potentially, be New Zealand interests that fall into that trap, although I dare say the ardour for bending companies’ rules etc. has been brought to heel with the large number of people facing jail time or time being virtually incarcerated in their houses. That is an improvement that is reflective of the greater awareness, the resources amongst those regulators who have those punitive powers.

We support this bill. Naturally, we do not completely support the faltering stewardship that lies behind the bill, but being parliamentarians upholding the qualities of democracy and the stature of the House, on this occasion we will support the bill. Thank you very much.

It is a pleasure to take a call on the second reading of the Companies and Limited Partnerships Amendment Bill. I would like to acknowledge the Minister of Commerce, Craig Foss, because he brought a very important bill to this House. We have all seen as a country the amount of suffering and hurt that have been caused to Kiwis and Kiwi families through the poor and sometimes criminal behaviour of company directors. So this is a very, very important bill.

I would like to refer to just one of the provisions in this bill. It is a provision that requires each company registered in New Zealand to have an identifiable individual who is the one point of contact in New Zealand, and that this person must be a director of the company or a director of a company in a country where New Zealand has a reciprocal arrangement for the enforcement of criminal sanctions. What this means is that if you do get a company director or directors who behave poorly, who behave criminally, actually, there is nowhere to hide. I think that this is a very, very good and a very, very important provision in this bill. It is my pleasure to commend this bill to the House.

Thank you. I just advise members that this is a split call. I call the honourable member Clare Curran.

In the second reading of this bill, the Companies and Limited Partnerships Amendment Bill, I would like to just start off by saying that on 27 June 2012—so that is 27 June last year—an article appeared on interest.co.nz that said that “New Zealand’s removal from the White List means EU financial institutions and banks could undertake additional measures to ensure customers (including companies) from New Zealand are who they say they are,”. New Zealand got dumped from that list a year ago, and that dumping came amidst growing publicity around New Zealand - registered companies being linked to crime overseas. There was a report by the Organized Crime and Corruption Reporting Project on how Tormex Systems Ltd, which is a New Zealand - registered company, allegedly laundered $680 million through a Latvian bank account. But this was just one of many examples of the entities that were exploiting New Zealand’s simple company registration regime. I could go on to list more, but I will not.

The issue was that the question of whether there was a case for criminalising directors’ statutory duties first arose in the Ministry of Economic Development—as it was known then—2010 securities law review discussion paper, and it was later approved by Cabinet in 2011 as part of its policy decisions on securities law reforms. There were two Cabinet papers, as I understand it, that related to this from 2011. It is now 2013. It took 18 months for a piece of legislation that was identified as being so important, that had New Zealand struck off a white list, to appear in the House for the first time—for the first time. I think its first reading was on 24 July last year, and then it has taken another year for it to get to the second reading—another whole year.

When you think about the fact that we were struck off this list, and it was seen as part of our international reputation as being a good place to do business, as being an easy place to do business, but also as being a sound place to do business, you would think that that would be a piece of legislation that this Government would treat as being important and urgent. Instead, we have many other pieces of legislation that suit the Government’s agenda that get rushed though this House under urgency, including something as important as this bill, which had broad support in the Commerce Committee. There were serious discussions amongst all of the members involved, but, ultimately, good work was done to produce a piece of legislation that is sound. No doubt it is not perfect, but it is sound. Good work was done in order to do that, but it has taken another year to get to this point.

I want to talk about a couple of points in this legislation that particularly stood out for me, sitting on the Commerce Committee, and I would also like to take the opportunity to thank the officials for the work they have done and the good, sound way in which the analysis was provided to the committee. This bill seeks to do a number of things, but I will talk about a couple of them. One is the introduction of the criminal sanctions, which is to be done in two ways, really. Some of the existing conduct by directors that is not currently subject to criminal sanctions but is sufficiently blameworthy to warrant criminal punishment is seen as being one of the areas that needed attention. We also considered the new provisions in the bill that would allow, in certain circumstances, certain contact that was already subject to criminal sanctions to be prosecuted more directly. So there were new criminal sanctions and there were existing criminal sanctions that would perhaps have stronger criminal sanctions attached to them.

The committee did take care, though, to ensure that directors and advisers in companies would not be inadvertently criminalised through this legislation, and there was a lot of discussion on this issue. We went backwards and forwards on that. It is important to note in this House that this side of the House does not want to produce legislation before this House that creates a chilling effect on innovation and on companies being able to do what they do best. But what we do need to do is provide the sanctions that prevent and punish the behaviours that we do not want to produce and the behaviours for which New Zealand found itself struck off that white list in the European Union and for which we should feel ashamed, in particular, that we did not actually act faster on this piece of legislation.

Just on that point, it is a criminal offence for directors who commit a serious breach of their duty to act in good faith and in the best interests of the company and to not carry on their business in a way that risks serious loss to the company’s creditors. Directors who commit those offences will now be liable, as I am sure you have heard today, for a term of imprisonment of up to 5 years or a fine of up to $200,000. We listened carefully to the submissions on this. We heard that there were a number of submitters who were reluctant to increase those penalties and who expressed concern about that, but, ultimately, I think the committee came down on the right side on this issue. We had to show that we took this issue seriously, and that there would be serious penalties for directors who were not acting in good faith.

Linked absolutely with this is the requirement for directors to ensure that there is a director of the company—which I know other speakers have spoken about—who lives in New Zealand. We thought, absolutely, that we had to address this issue because of the shelf companies that were being established in New Zealand, where there was no person associated with them and they were effectively being used as money-laundering organisations. We have to have legislation in place that addresses that issue. We also had to ensure that there could be balance achieved by requiring a company to have either a director who lived in New Zealand or a director who is a director of a company with which New Zealand has reciprocal arrangements for the enforcement of low-level criminal fines. Again, there was a lot of discussion on that point, as well. The purpose of requiring a director who lives in New Zealand was to ensure that there was going to be an identifiable person, somebody who actually existed, not somebody who potentially existed or where there was just an address with no actual company behind it—an identifiable individual with a substantive connection with the company, who could be questioned about the activities at that company and who could, in certain circumstances, be held to account.

That was the important test that we in the select committee agreed upon. There was a lot of discussion, and we also noted that, again, there were a lot of submissions that raised concerns about that particular point. But in the end the committee came down on the side of the advice that we were given, which was that we disagreed that a resident director would not be effective in preventing the misuse of New Zealand’s company registration system. Of the companies that were identified as being involved in money-laundering, fraud, and tax evasion in overseas jurisdictions, the vast majority do not, or did not, have a New Zealand - resident director. I think that is the important point here, and that is the point in one of the key parts of this legislation. It is to ensure that if there is a company operating in this country, there has to be somebody, a person, who is associated with it. The information that we received was that this was not going to create an enormous financial burden for companies, because less than 1 percent of New Zealand - registered companies do not have a director who lives in either New Zealand or Australia. So we support this bill and look forward to further discussion in the Committee stage.

Debate interrupted.