Companies and Limited Partnerships Amendment Bill

I will pick up from where we left off last time. Mr Parker had raised a few questions and I will just quickly address those. Someone else raised a question about the size of Supplementary Order Paper 465 and I pointed out that Supplementary Order Paper 465 is not quite just a stand-alone Supplementary Order Paper; it is a revision-tracked version of the Companies and Limited Partnerships Amendment Bill, including the Supplementary Order Paper. So essentially Supplementary Order Paper 465 is the new bill. I think one member was trying to measure it by weight or something, somewhat naively. Mr Parker was asking about section 135 of the Companies Act. He was concerned about that last time. I pointed out that the criminalisation in section 135 has in fact been removed and that was the part he picked up on. But, of course, that was a stand-alone offence and it has now been included as a new offence under section 380 of the Companies Act. The serious misconduct that will be caught is the director dishonestly incurring debt for a company when their company is insolvent or the director knew the company would become insolvent.

That kind of goes to the crux of the only issue really. The Commerce Committee in its own commentary was wrestling with how to deal with the level or the measurement of criminality of directors’ behaviour and how it should be described and captured. As you can see in that Supplementary Order Paper, we have landed in, I think, a relatively good space. Regardless of whatever definitions came about, of course there were questions such as: what if a company was facing difficulty and then some reckless trading issues started to arise because directors were making decisions on a company’s circumstances where on one interpretation they could have been behaving recklessly and therefore facing some criminal issues, or, in fact they were behaving as their shareholders would have expected and trying to make decisions to trade or build their way out of whatever the circumstances were? And, of course, there is a distinction on a balance or a measurement of the risk involved when a director, directors, or a board are making such decisions regardless of how the company got into the position that it may have found itself in. So there was a lot of discussion, and, as I say, that is where Supplementary Order Paper 465 has landed. We really landed in a place where looking at dishonest actions with intent is the area that the criminality side of things here addresses.

As another speaker spoke about last time, an issue is the expression of potential effect on the entrepreneurship or the willingness of directors to be directors, full stop. That was a fair comment. Again, the committee, I think, did a really good job in grappling with that amongst the other issues it dealt with. All parties, from whatever side of the spectrum, could actually see the issues that the committee was trying to deal with. I am confident that we have come to a place of balance even though we have almost come full circle about good faith now into bad faith and what that means for a company’s circumstances under this new Companies and Limited Partnerships Amendment Bill. I am very comfortable and again I thank the Commerce Committee for the hard work it did dealing with some pretty complex issues.

I do note that in previous readings this bill has passed unanimously, I think, across the House, and that is fantastic. It is a credit to the select committee’s work. It is also a credit to the ongoing consultation and ownership that these commerce bills and now Acts have. I asked that officials engage with the various sectors so there was strong ownership of the bills once they landed and turned into Acts. It might take a bit longer to get that process through, but when it lands across the House we tend to have pretty good support.

I will speak to Part 1 of the Companies and Limited Partnerships Amendment Bill. Can I first of all thank the Minister in the chair, the Minister of Commerce, for taking a call to respond to some of the issues that were raised by my colleagues—

💬 Hon Member: He responded quite well.

Yes, he did respond quite well, actually, to be fair, to my colleagues David Parker and Dr David Clark, by first of all acknowledging that the rather large Supplementary Order Paper 465 that layers over Part 1 is not in fact the big document that was claimed earlier, but is worked into the new revision-tracked version of the bill. We do acknowledge that, Minister.

Also there was the point that David Parker, the deputy leader of the Labour Party, raised around trying to get the balance right between companies and directors who look to take action in what you would call desperate times for some firms, where they have to consider whether their actions may be considered either reckless or actions that are needed to take a company or a partnership that is in a precarious position back into a safe position. He also talked about where the line may be drawn in terms of the willingness of those directors to take some action that they may deem necessary but which they may think may not be the wisest move if that action may be seen as a criminal action under the law as it was first drafted. Thank you very much, Minister, for taking the opportunity to answer some of those questions.

But, as I mentioned first—

💬 Hon Simon Bridges: Don’t worry, Kris. Remember what I said last night. You’ll be all right. You’ll be here after the election.

Thank you for that. But, as I mentioned first, there is a rather significant Supplementary Order Paper that layers over Part 1 of this bill. Although I was not on the Commerce Committee, I think that because of the way that the bill was presented back to the House before Supplementary Order Paper 465 was added to this bill in its current form, the select committee and the officials who were dealing with this bill did find themselves in a bit of a conundrum. They thought there were still issues about getting the balance right in terms of being specific about the criminality that may be acted and making sure that there was some, in layman’s terms, wriggle room there for directors to make sure that they could take action that they saw fit if they were in dire straits with that firm. I think that in the commentary on the bill the select committee did point that out.

If I can take the opportunity just to quote from the commentary on the bill where the Commerce Committee says: “However, we are aware that the bill could be perceived by directors and their advisers to criminalise legitimate business risk-taking behaviour. We have therefore sought an appropriate balance between encouraging positive entrepreneurial behaviour and imposing clear and effective sanctions on behaviour that crosses a criminal threshold.” But the commentary went on to say that the committee does not recommend any changes other than minor drafting and would support “further consideration of the drafting of these new offences to ensure that the provisions are expressed in a way that provides clear guidance to directors and does not have a chilling effect on legitimate business ...”.

So I think what you have got here is a strange position where the Commerce Committee identified that there was a problem, which was that it thought the legislation had to be much more specific in terms of what the criminal actions might have been, but it could not offer up a remedy for that conundrum that it found itself in, which I guess meant that Supplementary Order Paper 465 had to come into play. We have looked at Supplementary Order Paper 465. I understand that we believe that it does strike the right balance to make sure we are very specific about the criminal behaviour that can be outlined, as the Minister said, around intent where there could be actions taken by directors and where there could be criminal behaviour, and, the other side of the equation, where drastic action needs to be taken by directors to ensure that a company can stay afloat.

This bill does have the support of the Labour Party. We know that New Zealand has a very good reputation in terms of the ability of people to come here and do business, but we also know that lately there have been instances that have gained not just local media attention but also global media attention, where people have taken it upon themselves to exploit the good reputation that New Zealand has by using shell companies to take advantage of the legislation that we have, and taking advantage of our good name. So we do believe that this piece of legislation is necessary to make sure that that reputation stays intact.

But we do know that this legislation has been on the Order Paper for some time. I believe it was introduced in about 2012—halfway through that year—so 2 years later we have got a piece of legislation that has had the support of this House, to quite a strong degree, being put forward. It does beef up the rules around the Companies Act, and gives more powers to the registrar, which has had the full support of this side of the House for some time. So we question why it has taken so long to get to the stage where it is now, where it progresses to the final stages of becoming legislation.

It may be the fact that we are very unlikely to see any controversial legislation come through this House now because we have seen one member of the House, former ACT leader John Banks, have to resign. What we may get is a lot of what you may call rather mundane legislation that the Government may have to start putting through this House because it simply does not have the numbers to get anything controversial through any more. So what you might be seeing is a Government petering out over the next 2½ months here in the House, and simply not being able to implement its far-right agenda because Mr Banks is no longer here. That is upsetting, I guess, for the Government members, but good for us on this side of the House, because we have seen the kind of legislation that has been passed with the support of Mr Banks, which has concerned the sale of quite a number of our State-owned assets and also a controversial move to introduce what the Government members over on that side call partnership schools, but that are quite well-known as charter schools on this side of the Chamber.

One other part of the legislation that we do support is the increase of penalties for any directors who undertake criminal behaviour, which is specifically laid out in Part 1. Those increases see a maximum imprisonment sentence of 5 years, I believe, and also a maximum fine of $200,000 for each offence that occurs. I think that does send a pretty strong message to anyone who is either here in New Zealand or overseas that if they are caught contravening this legislation, a pretty harsh penalty will be imposed upon them.

Just going back to be specific about Part 1, I think it is clause 4 that introduces a rather large new section 138A into the Companies Act, which gives quite new powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act. This includes, I understand, the power to flag companies on the register that are under investigation. That is a new power, and it is a good power given to the registrar because of some of the concerns that I have mentioned before around overseas interests that are coming here to use New Zealand companies as shell companies, to basically act illegally under that shell company.

It will also allow the removal of companies from the register if they provide inaccurate information or persistently fail to comply with the Act. I guess that we hope that the Registrar of Companies is given the resources to be able to monitor that quite closely. I think that if you have got well-resourced people—again, probably from overseas—who are taking advantage of that loophole, you want to make sure that you are able to monitor that quite closely. Also, the registrar will be able to ban directors of those companies from taking part in the management of any company for up to 5 years. I think it goes without saying that anyone who gets themselves involved with that kind of behaviour is not the kind of person we want to be a company director here in New Zealand.

We do support this bill. It does contain some good measures to ensure that when doing business in New Zealand, the reputation of New Zealand is upheld. We do have some concerns, as I have said, around the timing of the bill—the fact that it has taken so long, and also the fact that it is here now, so late in the piece, and why it is here. It is quite clearly because John Banks is no longer here.

Why has it taken so long for the Companies and Limited Partnerships Amendment Bill, to come back to the Committee? It is not an unreasonable question. Why has it taken so long? I have just gone today and looked back at the last time it was that I spoke on this bill, which was in July last year—July last year—in the second reading. Before that, it took 18 months to actually get to the House and then another year to get through the Commerce Committee. So why has it taken so long for this piece of legislation to come back to the House for the Committee stage? The next question is: how long is it going to take for it to get to the third reading and for it to actually get through? Is that going to happen, or is that going to take another year? This is a really important question and I think that everybody who is watching or listening on the radio to this debate tonight should actually be asking themselves this question.

I do not know how many times I have stood in this Chamber and said basically these same things. Why is it taking so long for legislation that is around managing and ensuring accountability for the corporate raiders in this country—for the white-collar criminals to be actually held accountable? Why is it that it is taking so long for the legislation that holds them accountable to get through this Parliament under that Government over on that side of the Chamber? Why? I would like to know whether it is a deliberate strategy, because we are seeing an awful lot of other legislation that is going through the House that is actually impacting on working people and people who are the most vulnerable in our society and making their lives harder under this Government. But when it comes to those who are responsible for white-collar crime, it takes for ever—for ever—to get legislation passed through the House.

That is a really important difference between the National Government and the other side, which is the Labour Party, which actually cares about the lives of ordinary working people who might invest their life-savings into a company, where they think that they will take some shares in a company, and what happens is that they get ripped off by the corporate raiders, who are supported by the National Government. They get ripped off and it takes for ever—for ever—for any legislation to get passed, and for them to have their rights protected or feel as if this Government is actually on their side. This Government is not on their side. This Government is on the side of the corporates. This Government is on the side of monopolies. This Government does not support the ordinary working person, and does not support the ordinary battling person, whether they are a small-business person or a person who is really just trying to make their way—even a person who has got good ideas and is trying to get a good company up.

💬 Hon Simon Bridges: Oh, Mega.

Excuse me? That is what I would like to hear from the Minister sitting in the chair, Craig Foss, because I do not know how many times I have stood in this Chamber as a member of the Commerce Committee who has sat and heard submissions on this bill. We have heard, through the financial reforms that have come through in the last few years, people before the select committee who were crying, who have lost their life-savings, and who have been extremely badly affected.

Inch by inch by inch we have seen legislation eventually coming before the House, taking years—simply years. If there was urgency, why would a bill like this not be considered to be an important bill? Why would this bill not be considered a bill that could merit being passed through the House really quickly? Well, because it is not a priority. That was my first point: why has it taken so long? I would be really interested to hear the Minister of Commerce’s explanation for that, because there is no explanation. If there is, it would be really good to hear what it was.

The second point that I want to make tonight around this piece of legislation is the work—[Interruption] I know that the members on the other side of the Chamber are feeling a bit embarrassed about that because, actually, there is nothing they can say, really, to dispute the fact. The fact stands that it took 18 months to even get the legislation before the Commerce Committee, then it took at least another year once it had got out of the select committee to get before the House. No doubt it will take a long time to actually pass it into law.

The introduction of criminal sanctions for the very serious breaches of existing duties of directors—that is my second point. I do want to comment on the important work that the select committee did on this because it was important work. There was an important balance, as the Minister said when he got up. I do appreciate the fact that the Minister did get up. This Minister, despite the fact that he does take a long time to get legislation through the House, does not resile from standing up and taking a call. I do want to give him credit for that because he does not resile from doing that. Unlike other Ministers in this Chamber who just sit there like dummies and do not say a word, this Minister actually does have the guts to get up, take a call, and try to provide explanations on issues.

💬 Sue Moroney: That’s you, Simon.

Yes, there is at least one of those Ministers sitting in the Chamber tonight. With regard to the work that was done on the criminal sanctions and the importance of creating that balance so that it was not seen to be punishing risk-taking innovative behaviour, members on this side of the Chamber are right behind the engine room of our country in terms of economic development, which is small business. That is where your innovation comes from, that is where we are going to see the greatest ideas, and what are we doing? We are actually backing small business. That Government over there actually backs crony monopolists and the big companies that are its mates. In terms of small business, which is where innovation comes from in this country, that Government is not behind it. It is really important that we do not put barriers in its way in terms of innovation.

It is also very important that there is accountability. When it comes to the impact of corporate behaviour on investors—particularly on the small investors, who get really badly done over—it is really important that we have criminal sanctions. White-collar crime should be treated with much more seriousness in our country than it is. So on this side of politics, on this side of the Parliament of New Zealand, we believe that it is all about intent—dishonesty with intent. If it is dishonesty with intent, then it should absolutely be penalised. That is a basic principle. It is a basic principle of law, it is a basic principle on which this country is founded, and it is a basic principle of Labour values, and that is extremely important. After the work that was done in the select committee—I want to thank my fellow members of the select committee and the officials who participated—on this part of the law, we have found that balance, and we should be proud of ourselves for that.

My conundrum is: why has it taken so long? Why? Please, Minister, get up and tell us what it was that was so important that it had to be passed under urgency that might actually impact on the lowest-paid people and the more vulnerable people in our country. Why is it that we are not saying that white-collar crime is not OK? It is absolutely not OK in this country, and we are going to not only put laws through this Parliament but say that they are important, urgent laws. We are going to do it quickly and we are going to ensure that they are sorted.

I move, That the question be now put.

I rise to speak on Part 1. It is a delight to actually stand to speak in favour of the Companies and Limited Partnerships Amendment Bill. It is a positive contribution to make in this House, and we from this side of the Chamber do not always get to commend the Government for making a good step forward. It happens rarely, but it is great that here we are, debating a piece of legislation that takes the country forward through criminalising breaches of directors’ duties. None of this detracts from what Clare Curran said. Why has it taken so long? The fundamental point she made in her speech is worth repeating. But here we are, passing a bill that will help to level the playing field. It is the dishonest practice—

💬 Sue Moroney: I raise a point of order, Mr Chairperson. I am reluctant to actually stop my colleague while he is in the middle of his contribution on this bill, but I know it is after the dinner break and I am not sure—

The CHAIRPERSON (Eric Roy): Order! If the member is making a point of order, she should make the point of order and not comment on dinner or any other reason. Points of order should be made tersely.

💬 Sue Moroney: Well, my very terse point of order is that I can barely hear my colleague speak, and there are members opposite who have moved their seats in order to try to barrack at speakers on this bill. I do not know what they took in during the dinner break—

The CHAIRPERSON (Eric Roy): Order! Now I have cautioned the member and the member has deliberately—so I am going to require an apology to the Chair before I do anything else.

💬 Sue Moroney: I apologise to the Chair.

The CHAIRPERSON (Eric Roy): Thank you—

💬 Hon Todd McClay: Speaking to the point of order—

The CHAIRPERSON (Eric Roy): No, I am not taking any more, and the barracking was too much, so the point of order is upheld.

Thank you, Mr Chair. As I was saying, I was congratulating the Government on its good behaviour and, unfortunately, those members have let themselves down, as your point of order has rightly ruled.

But here is the Government dealing with the criminalisation of breaches of certain directors’ duties and actually making a law that helps to level the playing field a little bit, step by precious step. It is true that this bill has taken many years to get to this point in Parliament, but here it is, describing what penalties should apply for bad faith where directors knowingly act in a way that results in serious loss to a company through the incurring of debt, through fraudulent, dishonest behaviour, and so on.

We know that this kind of legislation is incredibly important in our democracy. If we wish to have a functioning democracy where businesses can flourish and where people who work hard and have talent can get ahead, then we do need a level playing field. We need a set of useful regulation because it is certainly true that where there is good regulation, our markets can prosper and make good decisions, and where there is poor regulation or a lack of oversight, very poor outcomes can come into play.

We are lucky that we continue to enjoy a reputation broadly in New Zealand as a country that has a transparent and robust democracy. We have a long and proud history of democracy. Of course, those things are under threat all the time and we must be wary, and it is very good that the court has found the honourable member—or formerly honourable member—John Banks guilty, because we have seen an important judicial process take place and we have a robust judicial system that can actually say when something is wrong.

There are other things that do not get across that line. There are decisions made in this House that we might find ethically repugnant that end up making life more difficult for many people, and we can all think of our own examples of those. But here we are, debating a positive piece of legislation—a piece of legislation that will actually improve the lot overall of New Zealand and improve the health and the atmosphere in which our institutions, our businesses, can flourish.

There are, of course, many other things that do not find their way into Part 1 of the bill, or into the bill at all—other things that would help to make our environment flourish. I mention in passing pro-growth tax reform, the kind of research and development tax credits that Labour would like to see introduced, and a capital gains tax that would see money move away from the speculative housing sector into the productive sector and would actually increase exports.

We would like to see a growing economy. This Government seems reluctant to grow the economy where that will put at risk the interests of the wealthiest few. We know that the interests of the 1 percent that are at the very top are growing all the time, that we have the largest gap between rich and poor that we have ever had, that the majority of New Zealand citizens are going backwards, that median wages have dropped in real terms under this Government’s watch, and that there is no doubt that this is the Government with the worst economic record in 50 years. So it is, therefore, a pleasure to get up and support at least one piece of legislation that makes a small step in the right direction, which has taken a long time to get here, but we certainly welcome it on this side of the Chamber.

We do want a more positive New Zealand—one where New Zealand families can hope to own a company one day, to build up from perhaps owing a small business, starting themselves out, saving, working hard, registering a company, and all of these things. Clause 7A in Part 1 of the bill covers the nature of an application for registration of a company.

I move, That the question be now put.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 465 in the name of the Hon Craig Foss to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Amendments to Limited Partnerships Act 2008