Companies (Clarification of Dividend Rules in Companies) Amendment Bill

If I may, I want to commence my remarks in the House this evening on this bill, the Companies (Clarification of Dividend Rules in Companies) Amendment Bill, by commending the member to which this bill is named under, Mr Todd Muller. Mr Muller brought this bill to our select committee, and it has been worked up through the primary production select committee. He identified a niche, as he said, in the companies law, which has caused some issue, and, in particular, for one of our largest horticultural companies Zespri, in particular, in the way that they wanted to structure themselves with regards to their wet and their dry shares.

That was the origin in terms of where the idea for this bill comes from. I want to acknowledge the way that Mr Muller has worked with our side of the House. I too want to acknowledge the advice that he drew on from Mr Goddard QC, who’s spending some time offshore, actually, and made time to provide us with a memorandum, answering our questions. Of particular concern to me was, yes, whilst there had been an issue identified, was there sufficient cause to make amendments to the Companies Act to tidy this piece of law, that had been a matter of academic debate and, as my colleague across the House has said, had caused much consternation in terms of changing structures at various times for companies like Zespri?

We called for submissions in respect of this bill; we received four. One of the driving questions—and I want to acknowledge the work of those that came and advised us from the Ministry for Primary Industries—one of our constant questions to them was “Can you please explain to us the nature and the gravity of how significant this issue is, and for how many companies?”. Because if we are amending the Companies Act, and we’re amending that—well, we’re seeking to clarify the conflict between section 36 and section 53—if we do incorporate some legislative amendment, as is set out in this amendment bill before us, will we be opening a Pandora ’s box? Can we anticipate the unintended consequences? And does the risk justify the means? We’ve been working diligently with the members opposite and across this side of the House. As those discussions have gone on, I guess the issue that we have to balance as a Government is if we make these amendments, if we open up that Pandora’s box, does it justify the cost, does it justify the time, if we were to make such an amendment?

I want to again acknowledge the stewardship of Mr Muller. He has been dignified in the way that he’s worked with us. He has drawn on his personal experience as a senior manager at one of these large companies. They’ve had to deal with this particular issue in practice. He has drawn on experts in the field. They’ve given us their time. So I cannot fault the work of the member in any way, shape, or form. But the challenge for us on this side of the House has been to find the breadth and to understand the nature of this issue beyond the particular, for example, circumstance of Zespri, which was very unique.

What they did there at that time, and the member who has championed this bill will know, is that they found a workaround. This is essentially the conflict. It’s quite hard to find any academic articles, it’s hard to find any case law in respect of just how large this tension is, but there are a couple of quips. For us, we went “Well, how many other companies are really in this position?”, and we put out the call, if you were. We put out that call to companies and members of the public alike and we were not inundated with submissions that would show us that this was, indeed, an issue that required our time and energy and would mean that we were making an ad hoc amendment to this companies bill.

I’m of the view, and I think our side of the House is of the view, that there are issues that have been raised. They have warranted our time, and we considered that warranted our time in going down and understanding really just what this tension was, how costly it was to these companies that had to grapple with finding workarounds where there was a lack of clarity. But I think on this side of the House, because it’s a niche amendment to the companies bill, perhaps it might be more suited to a reform, and we’d be looking at a whole reform of the companies bill, or making substantive amendments, and to work it in with a broader package of reforms. So on this side of the House, we support the member’s intention to try and clarify the laws and the implications and the practical applications, but in this case, this side of the House deems that the time and energy to actually make the amendments to the Companies Act, in this case, don’t warrant the investment of the Government’s resources. But indeed, it doesn’t justify, more importantly, the unknown consequences that might be, that might come, that might flow through, in this particular area. So on those grounds, this side of the House will not be supporting the member’s bill.

Well, this is a wonderful opportunity to stand up and support my colleague Todd Muller for bringing to the House a small bill but a very important bill.

I’m very disappointed to hear from Kiritapu Allan, who sat on the select committee, who from all of the engagement that we’ve had in the primary production select committee gave me the impression that Labour were going to be supporting it. I look forward to Mark Patterson’s speech this evening because all of the communication and body language that I got from Mark Patterson in the select committee was that New Zealand First were going to be supporting this small but very important change to shares and constitutions. I can only but feel and understand that the tentacles of the leader of New Zealand First, the Rt Hon Winston Peters, has decided for some unknown reason that this bill now shouldn’t progress. So we’re going to hear from Mr Patterson in a moment.

We know already that Labour are against. I think Mr Patterson’s going to get up in a couple of moments’ time and say that New Zealand First are against. But what we are hearing is the Greens are supporting. So why on earth would New Zealand First and Labour collude like this and not include their coalition partner for what is a simple, small, but important bill that is going to make a difference to companies to clarify about wet and dry shares getting dividends?

We heard from Queen’s Counsel, we heard from the head of the cooperatives for Business New Zealand, and we heard from Zespri, who were all supporting this bill. So something has happened. Winston Peters’ tentacles have come down for some unknown reason and said, “No, we don’t support this.” So I commend the position of the Greens for supporting the National Party and doing the right thing for cooperatives and clarifying these particular issues to do with shares.

I don’t want to speak too much more because I want to hear from Mark Patterson New Zealand First’s views and why they have changed from the sentiment and the communication that we had in the Primary Production Committee, which is one of the more general select committees where we get on and actually do the business for the New Zealand public. So I’m going to sit down now and I look forward to hearing from Mark Patterson why is it—why is it—that they have suddenly changed their tune and got the Labour Party to roll over, and now they don’t support this very important bill.

Thank you, Mr Speaker. As you can see, I’m not Mr Patterson, but I want to speak and articulate our position for our opposition to this bill. But I want to acknowledge Mr Muller and his leadership in bringing this bill to the House and the wide consultation that he has undertaken up to this point.

What we are dealing with is an issue which, arguably, can already be dealt with under existing law. It was unclear to officials, and, in fact, officials thought it was unnecessary for us to go to this extent to actually put a change in the law to accommodate what, arguably, could be done anyway.

💬 Hon Nathan Guy: No, they didn’t say that.

It is true—it is arguable—because what we are dealing with here is an instance where there is different treatment of a single class of shares. There are wet shares and dry shares in terms of those companies that want to operate under cooperative principles. Now, for any company that is established and that wants to actually operate under those principles, there is all the flexibility in the world for them to do that by way of the constitution, by way of creating different classes of shares, or by way of shareholders’ agreements between shareholders, so there is enough scope within the provisions of the Companies Act, which has always been very flexible in terms of how companies and how shareholders want to make their arrangements.

So there is already a sufficient degree of flexibility within the Act itself, and that was brought home by the officials who were advising on this bill. Sure, there were others that took a different view in terms of the fact that, well, we need to be absolutely explicit and create a separate law in itself for this very unique situation. Again, as I say, any company that establishes itself under cooperative principles today can create the desired scenario under an existing constitution. They don’t need to actually rely on a change in the law—they can do that. They can create different classes of shares. They can create wet shares and dry shares, and they can make the conditions amongst themselves.

What we’re dealing with here is the situation of a significant cooperative exporting and marketing company, Zespri. There’s a very large shareholder base. A lot of those shareholders were the pioneering shareholders that helped grow the business and helped produce and contribute their fruit to make the company what it is today, and a lot of those pioneering shareholders no longer are contributing to the company because they’ve retired, but they still sit on their shares. So what situation we have here is a company which is a multimillion-dollar company which now the directors face the difficult decision of “How can we distribute our profits to our shareholders when a lot of those shareholders no longer actually contribute their kiwifruit to the business?”

So that’s the situation which has been created. Perhaps if the company had foresight and actually made it more explicit that when these pioneering shareholders, if they do no longer supply fruit or grow fruit which they supply to the cooperative—when that happens, they won’t be entitled to dividends. If that was the case when the business was established and that was very explicit and very clear, there would be no need for this piece of legislation. That’s why I say there isn’t a real need for this piece of legislation. It is arguable. I’m pretty sure that directors will be able to make decisions along those lines.

In terms of Zespri, well, you know, they have to look at their total shareholder base, and they are probably in difficult situations. As a select committee, we didn’t actually hear from the potentially affected shareholders. So, you know, with only four submitters, we weren’t able to actually gauge what their thoughts were in terms of having their shareholder rights potentially being overridden by this piece of legislation. So those were the issues.

I’m sure Mr Muller and the directors and the board of Zespri will find a way through this, but it’s really unnecessary for them to put an amendment right into the legislation itself for this very, very narrow conundrum that they find themselves in. But I’m sure they’ll find a way. I understand that they have the Greens’ support. So I look forward to hearing further contributions.

💬 Hon Members: Come on, Mark.

I rise for a much anticipated—I note —contribution on behalf of New Zealand First, on this particular bill. Now, first may I start by commending Mr Muller for bringing this bill forward. He, obviously, believes strongly that there are some anomalies—

💬 Hon Nathan Guy: You believe it too.

—in the law that need to be fixed—

ASSISTANT SPEAKER (Adrian Rurawhe): Please don’t bring me into the debate.

So Mr Muller brought this in in good faith. We did look at it through the Primary Production Committee. But, unfortunately, New Zealand First will not be supporting this bill forward, which in terms of Mr Muller, it has been a bad week, unfortunately. It’s disappointing, I’m sure, for him to be rejected by New Zealand First and Labour, but he has also been rejected by his own leader, and is much more highly regarded on this side of the House than on that side, by all accounts.

But nevertheless we had to address this bill on its merits, and the supposition was that there is a technical conflict between sections 36 and 53 of the Companies Act 1993. Mr Guy, in his contribution, called it “a small but very important amendment.” There is absolutely no evidence whatsoever that this is a very important amendment, and that, ultimately, was where our decision fell. There is no case law to suggest that this is a problem.

The Zespri example that has been given—they found a way through that. There is plenty of precedent here, as Mr Tirikatene pointed out in his contribution. There are already these provisions in place within our cooperative companies. So this, essentially, is a solution looking for a problem.

There was some specialist—and some quite high-powered specialist—opinion that did suggest that we should take this bill: David Goddard QC. But also there were other specialists that refuted that there was a problem. I’ll quote Stephen Laybern who is a member of the Commercial & Business Law Committee at the New Zealand Law Society, and he submitted “it is logical that only if section 53 is an irrevocable rule which cannot be overridden by the constitution … there is a problem that needs fixing.” Section 53 is not an irrevocable rule, so there is no problem to fix.

So we as laypeople sitting on this committee with no precedent to bring forward, no conceivable groundswell of cooperative companies, which are a major part of our economy, coming forward and demanding that we must put this in place because their business model is in peril—none of that came forward. So, essentially, as Kiritapu Allan pointed out in her contribution, if we change the law for the sake of it because we feel that Mr Muller is a nice and well-intentioned member of this Parliament, that, somehow, we should acquiesce when there may be some unintended consequences that have not been canvassed—when the law itself has been proven to be negotiable for those companies that wish to bring in these provisions, the wet and dry shares, there is, essentially, no problem to fix.

So New Zealand First thinks the threshold for changing the law of New Zealand should be quite high, and in this case the bar has not been met, so New Zealand First will not be supporting this bill. Thank you.