Companies (Clarification of Dividend Rules in Companies) Amendment Bill

I move, That the Companies (Clarification of Dividend Rules in Companies) Amendment Bill be now read a first time. I nominate the Primary Production Committee to consider the bill. It is with great pleasure that I rise to introduce the Companies (Clarification of Dividend Rules in Companies) Amendment Bill. I hope that it can receive broad cross-party support that will enable the Primary Production Committee to fully consider the bill.

This small, technical amendment might, at first glance, seem too inconsequential for Parliament’s consideration. It simply amends section 53 of the Companies Act to make it absolutely clear that if a company’s constitution so enables, profits can be divided differently across the same class of share. But, as with all legislation, there is a defining principle at its core. In this instance, it is the principle of freedom of association and, through that association, the freedom to design a commercial company structure in a manner that those freely associated deem appropriate.

This philosophy has played out across many of the businesses that I’ve had associations with throughout my 20-year career in agribusiness, in particular. This bill is about such freedom. It seeks to reaffirm, through the removal of legal uncertainty, that shareholders can, via their company constitution, choose the rules that will apply to their company. It clarifies a paramount shareholder freedom—how to distribute its company’s profits—without lessening the critical balance of protections explicitly outlined in the Companies Act. It does not change the high threshold for constitutional change of 75 percent support of shareholder vote. It does not change the obligations of directors to apply their fiduciary judgment prudently. It does not change the rights and protections of minority shareholders, who remain protected should the company change the constitution. But it does allow shareholders to pay out their profits only to those who are supplying shareholders, if this is the expressed wish of the company and is outlined in the constitution.

This bill amends the Companies Act 1993 to give clarification of dividend rules outlined in sections 36 and 53 of the Act. As currently written, the Companies Act creates some doubt about the ability of a company constitution to provide for dry shares—i.e., shares which do not carry dividend rights in prescribed circumstances. The classic example is shares in a cooperative. Where the holder ceases supplying their cooperative, cooperative companies registered under the Co-operative Companies Act can provide for dry shares, but for companies registered under the Companies Act, there is legislative doubt.

The uncertainty arises because of the interplay between sections 36 and 53 of the Companies Act 1993. Section 36(1) provides the shareholder with “(a) the right to 1 vote on a poll at a meeting of the company on any resolution, … (b) the right to an equal share in dividends authorised by the board: [and] (c) the right to an equal share in the distribution of the surplus assets of the company.” However, subsection (2) provides for these rights to be “negated, altered, or added to by the constitution of the company or in accordance with the terms on which the share is issued”. However, the flexibility provided for in this subsection (2) is then subject to section 53, and section 53(2) prevents the board of a company from authorising “a dividend—(a) in respect of some but not all the shares in a class; or (b) that is of a greater value per share in respect of some shares of a class than it is in respect of other shares of that class—unless the amount of the dividend in respect of a share of that class is in proportion to the amount paid to the company in satisfaction of the liability of the shareholder under the constitution” of that company.

There are different views within the legal profession about the effect of this section 53(2). On one view, it prevents the board exercising a discretion to authorise a dividend in respect of some shares in a class, but not others—typically, the dry share scenario. But it does not prevent the constitution from containing a rule that some holders of shares in a class—for example, non-suppliers—are not entitled to receive dividends on those shares. In those circumstances, the board is not exercising its powers in a way that discriminates between shareholders, but is simply giving effect to the rule in the constitution. However, other experienced lawyers consider that the effect of section 53(2) is that it prevents the constitution from containing provisions of this kind, as that would result in the board authorising dividends in respect of some of the shares—the wet shares—but not other shares in the same class—the dry shares. The former view, in my view, is probably the better view, but the uncertainty is problematic and has caused a number of agribusinesses, in particular, to develop elaborate workarounds to make sure they have the capacity to treat dry shareholding differently in terms of dividends.

This uncertainty can be removed by adding a new subsection (2A) to section 53, to remove doubt about dry share provisions along the following lines: “(2A) To avoid doubt, nothing in subsection (2) prevents the constitution of a company providing that shares in a class do not confer a right to receive dividends in the circumstances specified in the constitution.” This would clarify that the constitution of a company can provide for shares in the same class to carry different entitlements to dividends in different circumstances—in particular, where the holder is no longer a supplier to the company. Such provisions do not raise any concern about discrimination among shareholders by the directors, which is the concern that section 53 is aimed at. Rather, this amendment enables companies and their shareholders to tailor their mutual rights and obligations to give effect to their commercial objectives.

There are good reasons to permit this flexibility in structuring commercial arrangements and, in my view, no good reasons to limit it. Remember that at all times, shareholders are free to exit and enter, and have embedded protections in the Act should the company change their constitution in a manner they do not support. Specifically, the potential for unfair treatment of shareholders by amending a company constitution to include a dry share provision is addressed by the interest group and minority buy-out provisions in the Act. Shareholders who object to the act can vote against it, and if the resolution passes, they are entitled to be bought out at a fair price.

This amendment talks to a key, fundamental principle—namely, that it is the shareholders of a company who should have the discretion on how best to run their company. If a company wishes to act in a cooperative manner and attach different approaches to how they distribute profits, then they should have the freedom to do so.

In my experience of over 20 years in agribusiness, I have engaged with many companies, both large and small, that have desired to treat their shareholders differently, depending on their supply arrangements. They are companies registered under the Companies Act, but wish to act in a cooperative style, specifically in the way they choose to link supply with their profit distribution. Our country is underpinned by these types of businesses, and where we can assist, we should assist in their progression. I believe the Act should enable such diversity of company design. It is a key point of principle and one that I hope this Parliament sees the merit in supporting here this evening. Thank you.

Thank you very much, Madam Deputy Speaker. It is my pleasure to speak to the Companies (Clarification of Dividend Rules in Companies) Amendment Bill. Can I do what we usually do when members’ bills are debated the first time and congratulate the member Todd Muller for having the bill pulled from the ballot. While in his opening remarks he may have said that an issue like this might not necessarily be worthy of the time of the Parliament, he has seen fit to seek some clarification in and around the issue, and, if there is a real risk in and around the conflict between sections 36 and 53 of the Companies Act, then he’s seen fit to bring a bill to the House to clarify that.

Usually, we wait until the end of the first contribution from the Government member to let the member know whether or not the Government will be supporting the bill, but because he is such a humble and good man—Mr Muller—we will be supporting this piece of legislation through to select committee because we do believe that it has some merit but also that there are a number of questions that need to be asked in its passage to possibly becoming an amendment to the Companies Act. It is a technical bill, and I’m going to try and turn some of the speech that Mr Muller made—because it is his bill, he had to refer to the Act itself and, obviously, the concept of dry and wet shares—into plain English for those people who may be up tonight who are interested in this piece of legislation.

💬 Dr Deborah Russell: There’s three of them.

Ha, ha! All three of them—one of them being my mum. Everyone will know the concept of owning shares within a company, but as Mr Müller did mention, and predominantly in agribusiness—

💬 Hon Members: Muller.

Mr Muller, sorry. As he mentioned in his contribution, heavily weighted towards agribusiness cooperatives, the likes of Zespri and Fonterra here in New Zealand, there are different types of shares: a wet share and a dry share.

Now, obviously, if you’re part of a cooperative, you are a supplier to the cooperative—whether it be of milk or kiwifruit, in the instances of Zespri and Fonterra—but if you have been a supplier in the past but then cease to supply the cooperative, your share class can be changed from a wet share, where you would supply and get a dividend if the cooperative were to get a profit. But, if you were not a supplier any more, you would go to a dry share, where you would still own shares in the cooperative but, because you’re not supplying the cooperative any more—

💬 DEPUTY SPEAKER: Very interesting, but I don’t have any shares.

Oh sorry, Madam Deputy Speaker. I’m glad to clarify that too, Madam Chair. But if someone were to formally be a supplier but then not be a supplier but still own those shares, they would, I guess, get the benefit of the increase in the price of those shares, but, because they are not supplying any more, they would not get a dividend from the cooperative itself if it were to return a dividend at the end of the year. So there is a distinction between wet and dry.

The problem, I think, with section 36 is that while it says that classes of shareholders can be treated differently and a constitution of a corporation can say that rights of a shareholder can be negated, over in section 53 of the Companies Act there is a lack of clarification as to whether or not companies can actually treat different classes of shareholders in different ways. Mr Muller’s amendment bill is a simple, I think, one-sentence or two-sentence amendment to subsection 2 of section 53 of the Companies Act to make it specific that a company can amend its constitution—as he mentioned, that has to be done by 75 percent of its shareholders—and that you can have a different classification or payment or treat those different types of shareholders differently.

There are some issues that the officials, when they first had a look at this piece of legislation, wanted to see addressed in the select committee, and I’ve already had this conversation with the member responsible for the bill in terms of what that does to payments that may have already been made. And, while this is not retrospective legislation, there may be some call or some lawyers who will look at previous payments that have been made and the clarification that is going to be made potentially through this legislation and question some payments that have already been made via section 36. So that is one question that I think will need clarification during the select committee stage.

Every so often, a member of the Government will come up with an amendment. I know it’s not going to change the world, but it will, I guess, clarify some of the discrepancies that some of those cooperatives mainly here in New Zealand have had when suppliers are no longer suppliers and whether or not they are entitled to get dividends or not. So, as I say, we are going to support this piece of legislation to the select committee to ensure that if it is a common-sense amendment, it goes through and it gets the scrutiny that it deserves. Again I congratulate Mr Muller for bringing this piece of legislation to the House.

Thank you, Madam Deputy Speaker. I’ve got to say it’s an absolute pleasure to be speaking on this bill, the Companies (Clarification of Dividend Rules in Companies) Amendment Bill, introduced by my good friend and colleague the good member from the Bay of Plenty, who, of course, has spent 20 years in the agricultural sector, in many parts of it. Not only in the dairy industry but in the kiwifruit—in a whole raft of other areas, and I think it’s only right and just that he bring such a good bill to the House. I’d also just like to acknowledge the speaker just standing before, Kris Faafoi, who has noted that the Labour coalition Government is going to support this bill, which I commend as well.

It’s actually a very simple bill, and it’s effectively about changing section 53 of the principal Act, the Companies Act, which states that “To avoid doubt, nothing in subsection (2) prevents the constitution of a company providing that shares in a class do not confer a right to receive dividends in the circumstances specified in the constitution.” So some people will be wondering what that means. I know you all have a firm, steely grasp on these issues, as you do on many things, but for those people who are not quite so financially literate, what this means is that there are many, many businesses that are established under the Companies Act and are in effect companies, but operate as cooperatives. That’s where the issue lies, and this is what Mr Muller’s bill is trying to address.

When you say “Well, there’s not that many cooperatives.”, well, in fact there are raft of them, and if you think of the main one—most people can think of Fonterra as a cooperative—but even in the dairy sector you’ve got Tātua Cooperative Dairy, you’ve got Westland Cooperative Dairy down in the South Island. If you think about the food type of thing, Foodstuffs NZ is the classic. My good colleague over here, Mr Dan Bidois, the good new member from Northcote, of course worked at Foodstuffs until very recently—until he got elected. Then, in the meat industry, we’ve got Silver Fern Farms, Alliance: these are all companies but are operating as cooperatives. Then we’ve got other farming industries such as Farmlands Cooperative Society, which is supplying. Then we’ve got the medical insurance industry—Southern Cross medical insurance. Then, every Saturday, most of you at some stage will be going down—when I say that, Madam Deputy Speaker, I mean all members—to places like Mitre 10. And the last one, which is an interesting one, is the Livestock Improvement Corporation. Many people won’t realise that it is a company, it is a cooperative, but is also listed on the New Zealand stock exchange. It has a market cap of about 85 million. It’s got 11,000 dairy farmers that are members of it.

So what this bill is doing is it creates the opportunity to be able to structure the cooperative’s affairs that meet the practicality of what really goes on. So, many people, whether it’s in a medical insurance arrangement or whatever, might become a member of the cooperative and therefore be entitled to a share and a right to a dividend and a voting right—those three aspects that normally make up a corporate-type arrangement. The thing about the Act at the moment, the Companies Act, is that it’s very unclear—well, it’s a technical bill, but it is unclear to the extent that to differentiate the different types of rights of the shareholder is not actually that clear, particularly under section 36, which people have noted before.

So this bill, which I think is a great bill, creates the opportunity for people to structure their affairs, and in many cases we’re talking about dry and wet shares; where dry shares are people who previously supplied to the cooperative but no longer supply those goods or services but still want to remain with that cooperative. This provides the mechanism to allow those people to remain, to have full rights as a shareholder, full voting rights, but just what they might do with the dividend flows and things like that.

So it’s creative, it’s much more permissive, and it’s much more appropriate, because it does reflect reality. Of course, there’s strong, overwhelming support for this, particularly from the cooperative sector, and I think Zespri, which is probably one of the most well-known of all of these, is one of the strong proponents, and I fully endorse this good bill.

Thank you, Madam Deputy Speaker. I’m very glad we’re supporting this bill to give clarity to the law. I know the Companies Act is an incredibly detailed and complex piece of legislation. I’m not entirely sure that this is the most complex part of the Act or the piece that most needs reform, but, nevertheless, the lawyers seem to have won here—they have managed to convince us that there’s some lack of clarity.

So we do have here in the Act, in section 36, a very clear statement that a share gives an equal right to a dividend as authorised by the board, and then says, in section 36(2), “Subject to section 53, the rights specified [above] may be negated,”. Then we can go to section 53(2), and what does it say? That “The board of a company must not authorise a dividend—(a) in respect of some but not all the shares in a class;”.

Now, I’ve dealt with companies from time to time, in a prior life, and I’ve seen plenty of shares that carry dividends, or don’t, or carry differential dividends, or carry voting rights—preferential shares have different privileges on liquidation, and so on and so forth. One of the great wonders of the practice of law is seeing all of the different frameworks that commercial lawyers, in their dark little corners of the office, can dream up. I see that somehow they’ve managed to cast doubt on this area, and they have persuaded the member Todd Muller that clarification is needed. Well, good on him for standing up for his constituency in the Bay of Plenty, and I know he’s got a lot of really fantastic companies there—Zespri is a classic example, and other cooperative companies—that understandably want to have divisions and classes of shares, and I think that’s a great thing. So, look, if this helps people to structure their transactions, I’m absolutely all for that.

One of the really important things we need to make sure that the Companies Act does is give flexibility for people to enter into the business arrangements that are right for them. The great thing about company law and this Companies Act, which has been around for some two decades or so now, is that it is intended to give that flexibility so that people can enter into all kinds of arrangements through the constitution and can opt out of these default rules—such as the rule that all shares carry an equal dividend—and frame it themselves. So, look, if this bill goes down that road and says to people, “Yes, we just want to make it absolutely clear that you can enter into a transaction that steps out of this presumptive rule.”, that’s a good thing, so I congratulate the member on approaching it in that way.

Of course, these are cooperative companies: companies that use an innovative framework where all of the members are part of the business, like the fertiliser companies—like Ravensdown—and like other companies that enter into these cooperative arrangements. I entirely endorse what they’re doing. The idea of being a common enterprise, a joint enterprise, is great. If this bill helps them along that road—where it isn’t necessarily owned by a foreign shareholder or by someone who’s got all of the capital, but by the people who are actually working in the business—I absolutely endorse it.

I do think in some ways that this is a solution looking for a problem, that the problem here is not one of the larger ones facing the agriculture industry, but I take it from the member that his constituency has said that it needs addressing. In that case, I congratulate him for taking the baton, for taking his chance in the ballot, for using that chance for what he sees as deserving, and for forwarding it in that sense.

So, look, here we have it. This bill will clarify this rule beyond all doubt, and that’s got to be a good thing. So I hope, having clarified this, we won’t need to go searching for lawyers’ opinions, and those dividends will be able to be used on the farm and not on lawyers’ BMWs.

It is a pleasure to get up and speak on behalf of New Zealand First on this Companies (Clarification of Dividend Rules in Companies) Amendment Bill. I love nothing more than trawling through the Companies Act of 1993 and analysing the details of the various provisions, whether it be section 35, 36, or 53. Unfortunately, my colleague “Professor” Fletcher Tabuteau does enjoy that stuff, but it has fallen upon me tonight to progress our position on this. But, of course, this is actually—levity aside—an important matter. It does take out some ambiguity around the provisions, and particularly around dry shares in company constitutions.

Section 36 suggests dry shares can be made; however, section 53 contradicts that. Section 36, as has been said before, entitles those with shares to vote, to receive an equal dividend, and receive distributions of any surplus assets. Section 36(2) contradicts that by allowing companies to negate that within their constitution, and then section 53 prevents the board of a company from authorising a dividend in respect to some but not all the shares in a class. So there is a fair bit of confusion around that.

My interests in this bill actually sparked a bit when I discovered that the true beneficiaries from this will be the co-ops—and what an important model that is for New Zealand, particularly our agricultural sector. I am a huge fan of the cooperative model. On my own farm, I do as much business as I can through the cooperatives. I think it’s incredibly important as small farmers. Well, we’re mainly small businesses; some of them are quite big now, of course. If we can band together on the input side, where we can create critical mass and buying power—and we see that in the likes of Farmlands Co-operative Society, Ballance Agri-Nutrients, Ravensdown, Farmers’ Mutual Group in terms of insurance; all those companies that we can buy our inputs through—we can drive our costs down in our business. Of course, then, on the output side, it gives us the ability to own the value chain beyond the farm gate, to get money back from the market place as well as just at the farm gate. It gives us a degree of power, and it also gives us, importantly, in the likes of the red meat and the dairy sector, the capacity to build capacity for peak periods of production.

So these are very important businesses that sustain our economy, and I understand about 40 percent of New Zealand’s GDP goes through cooperatives in one way or another, and, of course, as Mr Bayly listed before, there is quite a list. Of course, the granddaddy of them all is Fonterra, with its $19 billion turnover. But I do find it slightly ironic that the National Party are here championing a cause that will help the cooperatives, because, of course, they were absolutely nowhere to be seen when Silver Fern Farms, our second-biggest cooperative, was looking for some help. They were everywhere when it was MediaWorks or Rio Tinto, but when our second-biggest exporter—a cooperative, Silver Fern Farms—came knocking on the door for a little bit of assistance while they sorted their act together, they were nowhere to be seen. So we’ve got dividends—well, perhaps we could set up some of these dry share amendments so that dividends won’t be heading off to Shanghai; they’ll be going to Southbridge, Stratford, or Sheffield.

Having said that, this does clarify some ambiguity in a law that does need clearing up. I commend the member Todd Muller for bringing this bill forward. It does provide some clarification for boards, and it does provide some flexibility for companies to adjust their arrangements to suit, particularly with those dry shares, those shareholders that are contributing versus those that aren’t—like me and Silver Fern Farms, where I get a dividend but I will not supply them another stock unit while I’ve got any sense of control. So I do commend this to the select committee, and we will look at the details there. Thank you.

Thank you, Madam Deputy Speaker. Well, you heard it there first. You heard it from the New Zealand First MP—

💬 DEPUTY SPEAKER: I can hear everything.

Excuse me, Madam Deputy Speaker—we heard it here first. We heard that New Zealand First wants to create some sort of dry share so that foreign investors won’t receive a dividend from an investment that they might make in New Zealand. That’s what—in jest, maybe tongue-in-cheek, but it just demonstrates the attitude that comes from the 5 percent party that controls the other 49 percent.

💬 Hon Kris Faafoi: Pretty crucial 5 percent, though, eh?

So that is the policy that comes from New Zealand First, dangerous as it is. Now, I would like to commend Todd Muller, Mr Foifoi. Mr Foifoi, I would like to commend—

💬 Hon Kris Faafoi: Foifoi? He was a league player!

Mr Muller for his—Mr Faafoi—for his luck and good fortune in drawing this bill from the ballot. It is a good bill. It clarifies a number of things—[Interruption]

💬 DEPUTY SPEAKER: Can we just stop this while there is this member on their feet.

Thank you, Madam Deputy Speaker. But I would like to agree with Mr Faafoi when he talked about the language that’s used in, perhaps, the explanatory note and elsewhere talking about “wet” and “dry”. Mr Faafoi eloquently explained the difference, but this does not just apply to dairy farmers. This legislation applies to companies, not just co-ops. So this enables clarification for all companies to determine who receives what dividend across any particular share. Others have already explained the apparent contradiction or confusion between section 36 and section 53(2), so I don’t need to go into the detail other than to say that section 36 is a positive and then 53 is slightly ambiguous and then brings in some negatives, brings in the words unless (a), (b), or (c) applies.

As we know, the Companies Act can have a whole bunch of quite confusing language, and I would encourage the select committee to look at the language that’s used in the proposed amendment. In the amendment, there are some double negatives there already. So I encourage the select committee to look at that to try and make it as simple as possible for the layman to understand.

It is a good clarifying piece of legislation. We’re always going to be looking for improvements in the Income Tax Act because it is so vast, it is so technical, that there will always be opportunities to improve it because of the complex nature of the Act. So I do commend Mr Muller for doing what he’s doing by bringing this member’s bill to the House. I do also appreciate the support—though I’m sure Mr Muller will say so himself—from across the House on this bill. Thank you, Madam Deputy Speaker.

Kia ora, Madam Deputy Speaker. Ngā mihi nui ki a koutou. Kia ora. Ever since the Otago cheese cooperative in 1871, the first in the Southern Hemisphere, cooperatives have been a big and important part of our economy. I understand recent figures are that total revenue of the top 30 cooperatives in New Zealand is $42 billion, so it’s a substantial part. Reading the latest cooperative magazine there’s an article about how they can drive sustainability throughout the economy. It acknowledged the work of Zespri, Fonterra, and the likes, which we’ve heard mentioned in this debate.

I’d like to acknowledge the member who’s had his bill successfully drawn; I’d like to congratulate him. Look, the Green Party’s going to be supporting this bill. We support cooperatives. It’s been enshrined in policy ever since the earliest days—to make it easier to reduce some of those barriers or uncertainties for cooperatives. It’s been a good year for them with the recent bill dealing with the mutuality issue, I think, passing in the last couple of months. But this bill is dealing with the uncertainty around sections 53 and 36 of the Companies Act; around how those dividends are paid out and how it relates to the constitution. Why I think it’s important to clarify it is because we do want to encourage that flexibility in constitutions and dividend payment regimes so those cooperatives can do fantastic, innovative, more flexible approaches to the enterprises. We absolutely support that.

You would have hoped the jurisprudence would have at least resolved some of those uncertainties. It’s apparent that it hasn’t resulted in that, and that’s why we think there’s merit in having the select committee hear the issues and ultimately resolve them.

I won’t speak for long because I’d wager more words have been spoken in this debate in the Hansard than all the words contained in the bill itself. Of course, I wouldn’t be a good Green MP if I didn’t point out this could’ve been addressed over the previous nine years through various mechanisms. But, look, it’s a good day when we’re reducing uncertainty for businesses, supporting cooperatives, and supporting innovation flexibility. That’s why we’re supporting it tonight.

It is with delight and some amount of surprise that I am standing here to speak on this bill.

💬 DEPUTY SPEAKER: You certainly don’t look like Willow-Jean Prime.

Yes. That’s right, Madam Deputy Speaker. I’m astonished that once again this House rises in unison to support an issue that is so important to our regional areas. It is marvellous to see the second example, only just tonight, where we saw this. But I am also astonished that the seven speakers or eight speakers that have been before me have not taken the opportunity to define what a cooperative is, because, of course, this is the key element to this bill. The people watching at home have heard the benefits of this bill to cooperatives, but they might not actually know what a cooperative is. So I’d like to take the opportunity to do this.

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. What a marvellous socialist idea cooperatives are. What a marvellous demonstration of the socialist ideas that the Labour Party was founded upon. Cooperatives, the organisations that this bill seeks to assist, dotted around this country in our rural and regional areas, are demonstrating the values that this side of the House hold dear and demonstrate in our actions in this House every single sitting day. So I say to my colleague on the other side of the House, Todd Muller, congratulations comrade. Well done for getting this bill pulled from the ballot and demonstrating once again that this House takes these issues seriously.

Cooperatives are not just about agriculture, that core of our economy; it is also manufacturing, insurance, and banking. It might interest the House that it also includes other financial services, utilities, education, health, wholesale, and retail.

I am also quite buoyed by the demonstration of good-natured banter across the House. We all agree, but we also want to take the opportunity to just point out little foibles that we see in our colleagues, like my friend Alastair Scott—my colleague and opponent in Wairarapa. He is the man that—we actually get on together reasonably well—had a pot shot at New Zealand First, calling them “the five percent party”, neglecting to remember that his leader is the 10 percent man. It’s interesting that polls are appropriate—

💬 DEPUTY SPEAKER: You don’t have to take the whole five minutes if you don’t have anything to talk about.

Did you know, Madam Deputy Speaker, that the first cooperative was formed in 1871? You may have forgotten that, but it was mentioned just earlier. But what’s interesting is that 50,000 New Zealanders are employed by cooperatives in this country, and one in three New Zealanders are members.

So I am delighted that a man of such experience in this sector, a man that has great respect amongst horticulture and experience with agriculture, has brought this issue to the House today. It is, as my colleagues have mentioned, a technical bill, but it is a very simple bill. It is a bill where the explanatory note is two pages, but the bill is one little amendment to the section here: section 53 amending the bill proposes “To avoid doubt, nothing in subsection (2) prevents the constitution of a company providing that shares in a class do not confer a right to receive dividends in the circumstances specified in the constitution.” I’m glad the author of the bill believes that that removes doubt. I’m sure it does to those who this is appropriate to.

I note that in his press release at the point that this bill was drawn he identified that this bill had the support of the cooperative Business New Zealand and also Zespri—a company he knows well. I think this Government takes a very simple approach, as it did with Mark Patterson’s bill earlier today, the local bill from Gore, and this one today. This is clearly a bill that is influenced by the desires of the industry, and, as such, this Government is very pleased to again congratulate the member for standing up for the industry that he represents and putting forward a solution. We look forward to discussing it at the Primary Production Committee.

Thank you, Madam Deputy Speaker, for the chance to speak on the Companies (Clarification of Dividend Rules in Companies) Amendment Bill.

Reflecting on the contribution, if I may call it that, from the previous speaker, Mr McAnulty, I reflect that it’s unusual to hear the words “cooperative”, “Labour Party”, and “business” in the same sentence, but nevertheless he did manage that. So for that much I pay tribute to him and, indeed, his colleagues for their cooperative approach to cooperatives tonight.

Much has been said already—too much, some might say—in relation to the length of the bill and in relation to the uncertainty that’s inherent in the Companies Act, which it seeks to clarify. But nevertheless it is an important amendment that my colleague Mr Muller is introducing by way of this member’s bill, and I join others on both sides of the House in commending him for that.

Key to the nature of the bill is the concept of dry shares. Dry, of course, can have a couple of different meanings—for example, in relation to this speech I’m giving now, it could mean either amusing or dreary, and I will allow the countless New Zealanders who are listening to this debate tonight to choose between those as they see fit.

However, in the context of shares, dry shares, as explained in the explanatory note of the bill, means shares that do not carry dividend rights in prescribed circumstances. It goes on to say that the classic example is where a non-supplier might have shares; that is to say, is holding shares in the company—in this case, a cooperative, or often a cooperative—but is not supplying the co-operative at that time.

So the need for the bill, as identified by Mr Muller, very astutely, is the fact that there is uncertainty, given that section 36 and section 53 of the Companies Act appear somewhat in contradiction, whereby section 36 provides some flexibility—the default position, as set out in section 36(1)—but goes on to say in section 36(2) that the rights set out as a default can be changed by way of a constitution of a company, whereas section 53, of course, prevents some of that ability, at least on the face of it—hence the need for a determination between the two as to which will prevail in the case of conflict or disagreement.

The phrase within the explanatory note that I think encapsulates the spirit of the bill well is “different views within the legal profession”. When considering the nature of the law, the phrase “different views” should sound alarm bells and so should the phrase “legal profession”. Taken together, it’s quite a lethal combination, and there are danger signs that can be flagged when there are different views from the legal profession—different views between the respective clients of lawyers who might be arguing the point can be expensive in terms of time, energy, uncertainty, and, of course, cost.

So in seeking to remove that uncertainty, the bill has a very noble aim. While it does express some view in the explanatory note—again, on which of the two major interpretations might be preferred—the fact that it notes there is uncertainty, that such uncertainty is problematic, and that it goes on to resolve that quite definitively is a very welcome thing indeed.

I note, in closing, that choice and the ability to control the fate of the company does still rest with the shareholders of that company, because a mechanism is provided—indeed, it is untouched within the Companies Act—whereby the shareholders can determine the fate of the company in respect of this particular matter. They can vote accordingly and nature can take its course in the usual way in that respect.

So I shan’t belabour the point any longer, except to note that, finally, in relation to it being easy to understand, the bill is accessible in the sense that it’s very easy to navigate—indeed, being printed pretty well on one side of an A4 piece of paper, and generously at that, with some space at the top—it would be hard to miss it. Within the Companies Act, it will be easily found too. It’s clearly set out. It’s a helpful addition to our statute book, and I join my colleagues—it seems on all sides of the House and, certainly, this one for which I am able to speak—in commending the work of Mr Muller and supporting it at this stage.

Tēnā koe e Te Māngai o Te Whare. I just want to talk a little bit and follow on from what my esteemed colleague Mr Chris Penk has said. This is a very short bill. I note that the only thing Mr Muller hasn’t done is put it into a larger font size—he could’ve made it a little bit bigger. It does deal with an issue that needs to be dealt with—an issue of clarification. It is so short you might almost think that perhaps it was a trivial bill, except that one would never attribute a trivial bill to a man of Mr Muller’s stature. It is actually an important bill.

💬 Hon Iain Lees-Galloway: Careful. There could be a leadership bid.

Ha, ha! It’s important because it actually affects a large number of entities in our country. My understanding is that there are well over 100 cooperatives in our country, more than that, and they’re actually a very important form of business organisation in this country—dear I say a socialist form of business organisation, where people get together and they decide to operate together, to share the profits together, because by doing so they will, in fact, do better for themselves and better for their communities. So I think it’s important for us to try to clarify this particular law around cooperatives, to make it easier for people to operate them, and to ensure that we don’t end up in a lawyer’s fashion, exemplified tonight by Mr Chris Penk and Dr Duncan Webb, as to the way the lawyers can sort of dig into and into and into an issue and find something to dispute.

Now, in this particular case, this Companies (Clarification of Dividend Rules in Companies) Amendment Bill—what it does is it clarifies an issue that we’re not even sure is going to be an issue. Within cooperatives, there are two sorts of shares, as some of my colleagues have referred to. There are wet shares and there are dry shares. For those of us who are not lawyers, I much prefer those terms “wet” and “dry”—they actually mean something. So a wet share is a share that actually carries a right to a dividend; a dry share does not. Now, that dividend is a share of the profits of the co-op.

The interesting thing—and this is what Mr Muller has picked up in the Companies Act—is that that particular distinction is not especially clear in the Companies Act. It is there—we think it’s there. We think the law is right. But there is just sufficient uncertainty that it is an issue which could be disputed, could be taken to the courts, could go all the way through our legal system, and that does seem to be a waste of time, a waste of intellectual effort, a waste of the courts’ energy, and, more to the point, the co-ops themselves are clear about what they want. They understand that they want some wet and some dry shares. No one is disputing what the members of these companies want. All that we need to clarify is the law, and that is exactly what this bill does.

So what it does is it makes it very clear that members of a company, a co-op, can set up the rules to suit themselves and set up the rules—within, of course, the limitations of our legislation—and makes it clear who gets a dividend and in which circumstances, and it clarifies the law that way. We have a lot of bills in this House that clarify the law, that just sets matters right, that just make things a little bit better, and sometimes you think “Well, why on Earth is the House spending its time doing this? Why don’t we just sort of let it disappear? Why don’t we just wait for, perhaps, a matter to appear before the courts and then we might deal with it?” But the answer is straightforward. For the rule of law to operate effectively, we need the law to be precise, we need it to be clear, and we need it to be defined in advance so that people understand their positions. That is exactly what Mr Muller’s member’s bill does in this case.

So, short as it is; in 12-point font, as it is; amending just a very small number of clauses in the Companies Act, as it does; even though it might seem to be the smallest matter, I assure you, Madam Deputy Speaker, it is not the smallest matter. It is worth the House’s time and attention, and, for that reason, I commend this bill to the House.

Thank you very much, Madam Deputy Speaker. So are we awake, New Zealand? Are we awake? It’s been a very testing hour, hasn’t it, as we’ve navigated through some of the challenges of the Companies Act, particularly for companies who are wanting to establish themselves under the operating framework, if you like, of a cooperative. Can I acknowledge, please, actually with some humility, the feedback that I’ve had as members have spoken on this bill. As I said when I first opened, this is a small technical amendment, but it does have quite a significant import for companies who wish to structure themselves in a way that is more like a cooperative.

The level of support and perspective that has been shared around this issue over the last half hour is very gratifying, particularly from Minister Faafoi. Thank you for your support. I think the issue that the Minister raised around the official’s concern with respect to retrospectivity—I am very sure that we’re going to be able to find a way through that point. My colleague Andrew Bayly, who’s no longer here with us, spoke about the support that this has received from both the Co-operatives Association but also companies like Zespri and others who are not actually cooperatives in the true sense—they are companies under the Companies Act—but wish to be structured as some.

I think some of the distinctions in this bill, perhaps, have been lost. Kieran McAnulty’s fantastic speech around the glory of cooperatives possibly overlooked the fact that this bill isn’t about cooperatives. Actually, it’s about companies who want to act in a more cooperative way. But, in the spirit of the goodwill that has flowed on this particular bill, I’m not going to be too picky.

Thank you for the support. I think we’ve got a fair direction, and I look forward to the conversations with colleagues in the Primary Production Committee. I too, of course, commend this bill to the House. Thank you.

Bill read a first time.

Bill referred to the Primary Production Committee.