Companies (Clarification of Dividend Rules in Companies) Amendment Bill

Thank you, Madam Chair. I just want to rise on behalf of New Zealand First, and, actually, on behalf of our deputy leader, Fletcher Tabuteau, who’s spoken on this bill on a number of occasions and I know has had a lot of engagement with the member who’s put this bill forward, Todd Muller, who has put some serious consideration into this piece of legislation. New Zealand First will be supporting this moving forward, although questions, really, are around the issues of how wide this perceived issue is—and I’ll get to some of those questions a little later on.

The intended issue which the bill is stated to fix is the ambiguity in the Companies Act—and some of the legal profession consider that there is conflict between section 36 and section 53 as to whether a company constitution can be provided for with dry shares and also to return dividends. A small number of cooperative-style companies in the agricultural sector may encounter the conflict as they use both wet and dry shares in the Companies Act, where shareholders are current or former suppliers to the company.

This may, to many back home, seem a little bit tedious in consideration, but the number of cooperatives in New Zealand is significant. They make up quite a large proportion of our export sector, and, as we all well know, our export and primary industry sectors are very important to our economy. So any minor technical ambiguities that we can take in the Chamber today, through this member’s bill, to tidy up, New Zealand First would be certainly happy to take part in that.

Notwithstanding that, I have to also acknowledge the integrity of the member that has put this bill forward, and that carries certain weight when we are looking at the validity and the outcomes that we are trying to resolve with some of the issues.

Some of these companies have generally been able to institute suitable arrangements within the current provisions. However, the need for this bill has not been established by the member. Legal opinion is divided, which has come up in the committee section. We had four submissions to the bill, the legal opinion was divided, as I’ve already mentioned, and “we consider that the current framework does not appear to be a significant impediment to the current commercial operations” is what some of the submitters had said.

Mr Layburn wrote in his submission: “it is logical that only if section 53 is an irrevocable rule which cannot be overridden by the constitution—that there is a problem that [does need to be fixed].” In his expert view, section 53 is not an irrevocable rule. So any of those queries that Mr Layburn has noted, if the member could rise and tidy that up for us that would be most helpful.

This is born out of the fact that the companies, particularly in the rural sector, are already providing for these changes, but we understand in certain circumstances that that might need some further clarity. So we will be supporting this bill through this committee stage, we look forward to it progressing. I just put those questions to the member. Thank you.

Can I start by acknowledging the member, the wonderful Todd Muller, for his work on this bill. Despite the very complex name of the bill, which is the Companies (Clarification of Dividends Rules in Companies) Amendment Bill, it’s a very simple tweak. The tweak is, really, looking around dry and wet shares.

Now, you might ask “What on earth is a dry or a wet share?” Well, we’re not talking about a wet share in a bar here or Copperfields—or a bar in Tauranga, for the previous speaker, Clayton Mitchell—but a wet and a dry share is around a line to supply. So a wet share is where you have a supplier who currently supplies, like a kiwifruit grower, to the co-op, and a dry share is a kiwifruit grower that may have retired five or 10 years ago.

Now, there’s some confusion in the Companies Act around section 36 and section 53. One states, quite clearly, around dry shares, but the other section states the opposite. So this is, really, just simplifying what’s in the Companies Act.

Once again, I just want to acknowledge the member in charge of the bill, Todd Muller. A very sensible MP, he’s doing a wonderful job—especially for the rural sector across New Zealand. With that, National supports the bill.

Thank you, Madam Chair. This is a really interesting bill. I was looking at the fix—

💬 Hon Member: Really?

—it is—and I was reading some of the submissions. I wasn’t on the Primary Production Committee, so this isn’t a situation where I have sat through the submissions at the select committee stage. But I got to read them and I’m really pleased that I got to, and let me tell members opposite why. Just in terms of what this bill is trying to fix, it seems like a reasonably straightforward, technical fix, I guess. There’s a conflict, apparently, between two sections of the Companies Act as it stands.

💬 Hamish Walker: What’s it fixing?

Section 36 and section 53—there you go. I have to say to the member Hamish Walker, who has just resumed his seat, that I was also quite fascinated by wet and dry shares as well, I have to say, and so I looked them up. But anyway, dry shares are shares that are not linked to supply and, therefore, may have no or limited right to dividends. Wet shares, on the other hand, are shares that are aligned to supply and, therefore, have a right to dividends when declared by the board.

So I understand that the fix that is proposed by this bill will actually clarify and give certainty to various sectors as well, and I was just looking at Zespri’s submission to the select committee, bearing in mind, of course, that New Zealand, in fact, has been one of the top exporters of kiwifruit, if not the top exporter, for many years. So it has a huge relevance to us, and it was a pleasure to see that Zespri supports the intent of this bill. They’ve also talked about some of the issues that they have faced that are increasingly important to the industry, and I want to just read this bit for clarity’s sake: “The desire for greater alignment is part of the key industry goal to strengthen grower ownership and control of Zespri, and thereby contribute to a strong and sustainable industry.”

I actually have a question, though, for Todd Muller, the member in the chair, and it’s one related to a select committee that I do sit on, the Foreign Affairs, Defence and Trade Committee. Even though this is a simple fix that gives clarification to the Companies Act as it stands and makes things a bit easier for boards when it comes to decision making, preventing disputes, and helping to facilitate grower and farmer ownership in the primary sector, I’m actually keen to know what the link would be between this and our export sector. What benefit will we see for those within our export industries from this particular bill, and what would then be, I guess, the flow-on effects to the person at the grassroots level?

I think for those who are watching this seriously as well and for those who have come into the debate perhaps a little bit later in the piece and who weren’t on the select committee, it seems to me that this has a link to how well we do in terms of export revenue. I’d actually be quite keen for a little bit of a clarification there, because one of the things we are trying to do on this side of the House is to make trade relevant to people—to the man and the woman on the street—the small to medium sized enterprises, and to those who are involved in our export sector themselves. I think a little bit of clarification there would be really interesting, and so I just wanted to end by thanking the member in the chair. Thank you.

Thank you very much, Madam Chair. I rise to just answer some of the very thoughtful questions that have been put this evening from my—

💬 Kieran McAnulty: Don’t sound so surprised.

—it’s my normal voice—colleagues on both sides of the Chamber. If I could just deal firstly with Kiritapu Allan’s questions, which at the core related to one of the key themes, really, of our conversations around the Primary Production Committee. It was that if we made these changes, we would somehow open a Pandora’s box and create an unforeseen inequity by fixing this particular problem. That’s a very fair point and it was an issue that we grappled with, and that is why I think the final bill that we presented back in its second reading and that we now reflect on here this evening has had subtle provisions that have tightened my initial bill in a way that takes that concern completely off the table.

There is, of course, a very clear clause now which makes it very explicit that should a company constitution seek to have differential dividend rights attached to the same class of shares relating to supply of that company, that is allowed, but all the other protections are assured. In particular, in clause 4, we have new section 53(4), a new addition which specifies and defines what a differential dividend means. It makes it very clear that a board cannot decide in a less than objective manner to treat a particular shareholder differently to another based on anything other than what’s listed in their constitution. It has to be supply-based or not. It can’t be any other particular commercial dispute or any other issue that might widen that power to be differential in terms of the way they treat shareholders in the same class of share. Those protections we have reinforced by making the amendments we have in the bill that’s in front of us this evening.

Clayton Mitchell—again, thank you for your kind comments and acknowledgment that New Zealand First will now support this bill, which is appreciated. At the core of your question was what is the need—why are we here, really? We have talked about this through the process, and I remind the member that—

💬 Greg O’Connor: The answer’s 43.

No, we’re dealing with sections 36 and 53. There is no 43 this time, but maybe in the next bill. But I remind the member that for particular companies—particularly in the area that he comes from in the Bay of Plenty that are agriculture-based—the opportunity to be able to structure their affairs in such a manner that has this distinction in terms of share-backed dividends is valid. The lack of clarity between those two sections had caused a number of companies in the Bay of Plenty but also wider than that in agriculture in New Zealand to have to go to expensive alternative models to be able to reach the same conclusion. So rather than it being clear that they could set up their constitution in such a manner, they had to have different types of classes of shares to achieve the same outcome. So this change, whilst small and whilst technical, for those companies means a lot.

Hamish Walker, thank you for your contribution. I appreciate the support that you bring, not only on this issue but to the wider agriculture debate that we’re having. You’re a remarkable MP for Clutha-Southland—a future star in the making there, ladies and gentlemen.

Finally, Priyanca Radhakrishnan, thank you for your contribution. It’s a shame we didn’t have your sparkling personality and perspective on the Primary Production Committee. Your question related to the link between this and the export sector. Look, ultimately, what we want to do here is to create the conditions for New Zealand businesses to be able to be successful on the world stage, and the extent to which you can create an opportunity for export-orientated businesses to structure themselves in a way that works for them as shareholders, I think, should be embraced. This is part of that story. It’s a small part, admittedly, but it’s a small, technical amendment that enables those companies to be even more successful because there is clarity in terms of how to treat their constitution in this regard. Thank you.

Thank you, Madam Chair, and thank you, Mr Muller, for introducing this bill. There are a few issues I’d like to raise, and I’m wondering first if some lobbyist has perhaps twisted your arm a bit hard in trying to get this bill passed, by the look of you today. But the real question I have is really in terms of the real need for this bill.

It strikes me that there are two principles that underpin the Companies Act, which in some ways David Goddard QC touched on. Of course, he’s now been appointed to the Court of Appeal, so I put considerable weight on his opinion. Whilst he actually did support this bill, he did make it quite clear that his view was that, in fact, the law fell on the side of permitting the dry and wet shares, and he was a drafter of the Companies Act, so he should know.

The primary thing he said was that the drafters of that Act—him, Jack Hodder, and others—always intended to give flexibility in terms of a company constitution, and that where rules about dividends are set in the constitution, it isn’t fair to say that it’s the directors or the board which are discriminating. In light of that, it would strike me that there’s a lot of weight to be put behind that. I’m also curious as to why, if there is uncertainty, we haven’t, essentially, left it to the courts to clarify it. I’m pretty confident to back Justice David Goddard and say that it would fall on the side of being permissive there.

The other kind of underlying principle in the Companies Act which I think arguably answers this question is really about shareholder discrimination and minority shareholder rights. There’s a very strong jurisprudence which requires directors to treat minority shareholders or groups of shareholders equitably and fairly. Now, that’s not touched on by now Justice Goddard, but I think it’s the other thread in the Companies Act which really lends weight to his view that were this matter to come before the courts, it would very much fall down in favour. Of course, there’s the pragmatic argument as well, which is: this is what cooperative companies and, indeed, some other companies do day in, day out. So, in light of that, I’m really curious as to why it was thought to be such an important use of this House’s time, and, indeed, an important use of your valuable ability to put a member’s bill before this House, for a very small, arguably unnecessary tweak which some cooperative companies might have liked.

Now, whilst I can see that now it’s before the House we’d be foolish—or churlish, even—to oppose it, I’m curious as to the reasoning behind it that led to this bill coming before the House. So whilst supportive of it now that it’s here, I’m interested—and perhaps for the record—to know how it is that we got to this point, notwithstanding the opinion of someone of the standing of Justice Goddard that said that this really probably was a problem that didn’t need to be solved. Thank you.

Thank you, Madam Chair. I’d just like to first of all acknowledge the proponent of this bill, a fine member of the National Party caucus, Todd Muller, who has done an excellent job in bringing this bill forward; my good friend here and neighbour, Hamish Walker, who has also supported it in the Primary Production Committee; and all the members of the select committee that have been part of this process.

The bill that we’ve got in front of us may seem quite a minor amendment to the companies legislation that governs many cooperatives in New Zealand, but when we look at the value of those cooperatives going forward, the shares will become immensely important. If we look at the kiwifruit industry for example, the valuation of kiwifruit shares is now very high, and they are an important asset for many farmers. The Fonterra shares also have such a role but have lost that valuation in recent years, but I’m sure it will come back in the future. So when we look at this bill, it actually does have an impact on the future prosperity of many in the farming sector, but it also gives options to those in governance around how to utilise best use of resources, to make sure that the farming sector achieves its purposes and there is that ability going forward.

So when we look at replacement section 53(2), set out in clause 4, that’s the crucial part of this bill. It introduces the requirement that there is now no prevention on the constitution of a company providing for differential dividends in the circumstances stipulated in the constitution. So that gives that ability and clarification to the various boards and organisations that may be cooperative in nature but looking at being able to have a differential share base and dividends for some of those shares in a class. So that’s a very important part of this legislation, and I recommend it to the House. I’m sure it will pass, and with full support, and will be a small but important change in making sure we give more choice and options to those cooperatives that have to deal with shareholders in the future.

Thank you very much, Madam Chair. It’s a delight to be able to speak very briefly on this bill. I just wanted to stand up and congratulate the sponsor of the bill, Todd Muller, for putting forward something that was deeply important to him and the industries that he’s worked in and the companies that he represents, not just in his electorate but across the country as well.

Perhaps people at home might note that there is some hesitation in making speeches about this, despite the number that have been made, because it is a very complex and difficult to understand bill. I think they may have even noticed that in the previous speech from the chair of the Primary Production Committee, which considered this bill. I didn’t think he was going to make a speech; I’m very pleased that he did, and then—

💬 Hamish Walker: A very balanced chair.

He’s actually a woeful chair, Hamish Walker, but nevertheless I appreciate your view.

Look, the point here is that this bill is very technical—so specialised that it received four submissions to the select committee. Now, those that don’t know might see that and think that that is an indication that this bill is not important. But, in fact, that is the exact opposite, because it just goes to show that this bill, specifically what it sets out around sections 36 and 53 of the Companies Act 1993, sets to do something that means a lot to a very specific area and then probably means nothing to anybody else, but that doesn’t take away its legitimacy and it doesn’t take away from its importance.

I do actually have a question that I would like to be answered, if I may. We’re talking around how—you’ve got clause 4, “Section 53 amended”. You’ve got “Replace section 53(2) with:”—and then it follows on. Essentially, it outlines that “The board of a company must not authorise a differential dividend unless”—and then it goes on in (a) and (b) to outline the conditions in which it can do that. The question that I have is more of a philosophical question, really, and it is a genuine one, is that: why do we need to stipulate within this what a cooperative can do within its own constitution when members of a cooperative dictate or have a say in who is on the board and what their constitution says? So I would like, just purely out of interest, to get the member’s views on that particular question, because I think that might give those at home that are watching or listening at home a bit of context as to why this is so important and why we’re actually talking about this.

You know, I do want to just finish briefly with saying that the sponsor, Todd Muller—he’s had a hard run. He’s got a broken hand, and, you know—I don’t know if it is broken. It was in a sling; it’s just sore. He’s got a crook hand and he’s been tossed about within the spokespersonship, but we on this side of the House like him. Some on that side of the House like him, but all of us over here like him. So I do want to congratulate him for getting it this far.

There was some confusion throughout the process. We as a party took the view at one point that: what is the point in spending taxpayers’ money on the process of passing a bill which doesn’t seem to have that much interest? Then we said, “Well, look, if the taxpayer is willing to pay David Bennett’s salary, then we should be willing to put money into something as valuable as this.” So we’ve changed our view and we think that this does no harm, and therefore why should we oppose it?

If I may start at the end with responding to Kieran McAnulty’s comments, I had hoped for a reasonably long and successful career in this place. Being endorsed by you has just ended it, but thank you none the less.

In terms of your comment, actually—in all seriousness—that cooperative companies don’t need this, it talks again to your opening point around the confusion that still exists, possibly even with yourself, that this doesn’t relate just to companies who are structured under the Co-operative Companies Act; this relates to companies who want to be registered under the Companies Act but want to structure their constitution in a cooperative manner. This has been at the core of this bill right from the start. Those companies who wish to do that have a tension in between the two sections: section 36 of the principal Act, suggesting that they can have their constitution structured in a way that can differentiate in terms of the dividends for those who have share-backed supply, versus, obviously, the provisions of section 53, which, read in a particular way, suggests you can’t.

So this, admittedly, very small and technical amendment clears up that legal ambiguity, which I know from personal experience amongst a number of companies in the kiwifruit and avocado sector in the Bay of Plenty, in particular, has been a challenge, because a number of those companies want to be structured under the Companies Act but want to have cooperative principles in their constitution. We’re constantly being told by lawyers about this unsurity and lack of clarity around the extent to which they can do that. This clears it up, and, I think, small as it may be, is a valid and important point of clarification.

If I could also go back to Duncan Webb’s comments when he quoted from Justice David Goddard QC and said, as a key submitter to this legislation or proposed bill, that he had hoped that there would be already baked in the interpretation of the Companies Act the clarity that I was seeking. He asked where did the genesis of this bill came from. As I have said, it’s come from my experience in agribusiness in the Bay of Plenty, but what I will clarify is that David Goddard was a key supporter of this bill. He worked with me to clarify the legislation. Indeed, it has his signature all over it because he was the original author of the Companies Act, along with Jack Hodder. It’s this particular point that has always irritated David Goddard, that there seems to be confusion within the legal fraternity over the primacy of section 36 over section 53. So to Duncan Webb’s question around why, well, one of the key whys was David Goddard’s contribution to me around the merits of clarifying this very fine technical point.

So I want to acknowledge David Goddard for his good work. I would also like to acknowledge the Hon Chris Finlayson, who was also very supportive of this approach, and, indeed, the support that I received from the Ministry for Primary Industries and the Ministry of Business, Innovation and Employment, and, indeed, the primary industries select committee, superbly chaired by my friend and colleague David Bennett.

💬 Kieran McAnulty: You don’t mean that.

I totally mean that.

And actually it’s a committee that even though we have certain personalities that can make the time seem to take longer, overall, we get on well, and we tend to cut to the chase with appropriate rural focus.

So thank you, from my perspective, that seems reasonably concluded.

Clauses 1 to 4 agreed to.

House resumed.

The Chairperson reported the End of Life Choice Bill with amendment and the Companies (Clarification of Dividend Rules in Companies) Amendment Bill without amendment.

Report adopted.