Companies Office Registers Funding Validation Bill

I present a legislative statement on the Companies Office Registers Funding Validation Bill.

💬 DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Companies Office Registers Funding Validation Bill be now read a first time.

This bill validates the past collection and use of fees by the New Zealand Companies Office. In a few moments, I’ll say more about the bill and how it supports the Government’s plan to improve the way our Companies Office is funded, but first I would like to explain to the House the background to the Government’s intention to introduce this bill and for it to pass through all stages under urgency. The context is important to understand why the Government is taking decisive steps, and I want to be transparent and open in the House.

Our Companies Office has been a critical part of New Zealand’s society and economy for many years. It’s well-known that the Companies Office maintains a register of companies operating in New Zealand that contains important information about businesses and makes this information accessible to the public. The Companies Register therefore builds trust and confidence in the economy, helping to make New Zealand a transparent, fair, and easy place to do business.

It’s probably less well-known that the Companies Office also has responsibility for maintaining 15 other registers that support economic and community activity in New Zealand. As well as companies, it registers other entities including incorporated societies, retirement villages, and limited partnerships. The Companies Office also maintains lists of licensed auditors and insolvency practitioners, and it maintains registers for disclosure of financial products and security interests over personal property. All of these registers have information that is searchable by the public.

The role of the Companies Office has evolved over time. It’s taken on more and varied responsibilities across our economy and community. At the same time, it has had to evolve to keep up with new and emerging information technology.

During the course of a routine fees review last year by the Companies Office, it came to light that there was a mismatch between the primary legislation governing the Companies Office and the registers and their fees, and the Companies Office actual funding practices. The Government recognises that this is a problem that needs to be resolved. The problem has arisen in circumstances where the primary legislation was based on there being 16 separate registers. However, that doesn’t reflect the reality that the modern Companies Office administers a registry system with 16 different interconnected registers. They’re all housed within what we call the Companies Office and to a varying degree they share infrastructure, technology solutions, staff, know-how, and other resources. Indeed, the same individual is currently the registrar for all of the registers except for the New Zealand Business Number Register. That set-up has in turn made it difficult for the Companies Office to keep the costs of running the registers entirely separate.

Another issue is that some of the smaller registers maintained by the Companies Office have not been recovering enough in fees for those registers to be fully self-funded. So to fill these gaps, the Companies Office has used surplus funds it’s received in fees from the users of other registers to make up shortfalls, not realising that that cross-subsidisation was not consistent with the legislation itself.

For something of a time line, just for the benefit of the House, it’s clear that the funds have been moved between registers since at least the formation of the Ministry of Business, Innovation and Employment in 2012—obviously, decisions were taken then about how things were done—but it seems likely that it’s been occurring for some time far longer. In 1995, the Companies Office started using a memorandum account, and that memorandum account shows surplus and deficits. There’s only one memorandum account for the whole Companies Office, rather than for each register, so any surpluses collected by the Companies Office or any of its registers has been in this memorandum account since 1995. That suggests that the separation of funds register by register intended by Parliament has not been happening since then. Originally, any surpluses showing in the memorandum account were returned to the Crown at the end of each financial year, but in 2011 that practice changed when surpluses began being managed internally. The issue came to light in 2021, when the Companies Office undertook a review of fees of all of its registers at the same time. In doing so, it became apparent that the Companies Office practices did not match with the legislation.

So last year, the Government allocated $3.7 million to alleviate the cross-subsidisation issue in the immediate term, and with this legislation we’re taking the first step to further resolve these issues—that’s with this validation bill. I say that’s only the first step because the Government also plans to introduce another bill to Parliament to allow for the introduction of levies that can be used across the 16 registers that the Companies Office operates: the Companies (Levies) Amendment Bill. That will lead to more appropriate and less siloed funding for the 16 registers and any new registers that are created in the future, so it will give the flexibility to do what makes sense in practice.

Now, it’s possible, obviously, that talking about two distinct bills may be a source of confusion, so, just to be clear, I think it’s helpful for members, to distinguish between the two bills, to remember that the bill before us now, the validation bill, looks backwards. It’s a retrospective bill. It fixes what’s happened in the past. The second bill, by contrast, that is yet to come, the Companies (Levies) Amendment Bill, looks forward and allows for Companies Office users to be charged levies to help pay for the corporate registry system that they share.

I hope to introduce that second bill to the Parliament before too long, and I’ll ask for it to be referred in due course to the Finance and Expenditure Committee for a full select committee process—certainly four months. That will give the public an opportunity to submit on the reforms that we legislate for, so that will be a full process. Companies Office users will be able to participate in that select committee process and also in a consultation in relation to regulations that will then be made under that bill. The consultation document will go through who should pay for the levies, how much the levies should be, and the underlying analysis for those levy proposals.

I’m seeking to take this validation bill through all stages under urgency. That’s for two main reasons. First, it will allow the Companies Office to use its existing surplus funds to cover shortfalls on registers while we put the long-term funding plan in place, and that’s important, otherwise we would have to inject more Crown funding into the Companies Office or immediately raise fees, which, for example, for an incorporated society would mean raising fees immediately by $200, I think—$200? I’m now not certain of that. Several hundred, in any case. Many societies, of course, are not-for-profit entities doing good things in the community, so we don’t want to do that without a full and appropriate process.

The second reason is that if we went through a normal statutory process, we’d leave the Crown open to uncertainty and risk that comes with that, including that some of the past money collected as fees may need to be refunded, and while that’s likely to be extremely modest sums, the cost of administering a complex regime to work out who would be owed what retrospectively, where they live now, who’s responsible for an incorporated society, who was then—you can imagine that the cost of the bureaucracy involved would be likely to be unreasonable and outweigh any benefits that might accrue to individuals. I don’t think people in this House would want that, particularly when nobody has raised any concerns about the way it’s being run currently. That just wouldn’t make sense.

So, to move forward, we’re drawing a line under these possibilities here in urgency and are looking forward to the future with a new, modern, and streamlined funding regime for our Companies Office. So I commend this bill to the House.

The question is the motion be agreed to.

Thank you, Mr Speaker. It’s a pleasure to be talking on the Companies Office Registers Funding Validation Bill. We will be supporting this bill because, as the Minister has quite rightly pointed out, it’s dealing with an issue of inappropriate use of funds and how they’ve been applied across a number of registers, which I’ll talk about in a minute. I do want to acknowledge the Minister for bringing the matter to our attention prior to introducing this bill. So having an understanding about this, I think bipartisan support across the House is an important thing at times, even if it’s a very short notice around when you receive it, but at least gaining an understanding of why we’re doing things like this. And I do want to acknowledge the Minister on that behalf.

This bill, as the Minister quite rightly said, is dealing with an issue across subsidisation undertaken by the Companies Office. Effectively, there’s been amounts that have been charged too much in one or two registers administered by the Companies Act, which has meant that in other registers there have been an underfunding, or an undercharging, of people using those registers. As the Minister said, there are 16 registers that are affected. They are wide-ranging in terms of different registers. There’s the incorporated societies register, the financial service providers register, limited partnerships, disclosure register, auditors register, retirement villages register, friendly societies and credit unions register. So, that’s not an exhaustive list but it’s certainly a number of the registers that have been affected.

So this bill, as the Minister says, does two things. One is it stops the potential of people saying, “Look, you can go to charges previously and it is inappropriate, even though they’re modest amounts.” So we clear the backlog of this and also just make sure that we’ve got an appropriate basis going forward.

In terms of the new bill that the Government’s proposing to bring in, the Companies (Levies) Amendment Bill, which, obviously, we haven’t seen, I’m glad that it’s going to be subject to full scrutiny, because, as the Minister just said, that means that the element of cross-subsidisation between registers will be permitted under the new bill that the Government is proposing to bring in. That’s going to lead to a healthy debate, because the principle generally is that funding and charging should represent the service and no more and, obviously, no less. And what has happened is that hasn’t occurred under this arrangement. The use of the term “memorandum account” is one where, effectively, all the surpluses and losses, whatever, are accounted for in one account. It’s what’s meant by the words “memorandum account”. And to then apply that back up into the Companies Office that administers 16 different registers, that’s going to lead to a healthy conversation and debate, whether in fact that is appropriate, because that starts to cut across principles of charging of Government services.

But this one we will support. It needs to be done quickly and appropriately. Thankfully, there’s not large sums of money involved in it, and I think it addresses an issue that has been longstanding. So, on that basis, I’m happy to see it proceeding through the House today.

Thank you, Mr Speaker. Delighted to take a very short call on the Companies Office Registers Funding Validation Bill. I’d like to acknowledge the Minister, the Hon David Clark—a very busy, hard-working Minister, bringing multiple pieces of legislation to the House; doing an excellent job. I’d like to acknowledge the support of the National Party and echo the words of the previous member. The previous member, Andrew Bayly, spoke about, you know, with bills it’s important that we do work hard to get a consensus across the House. So I’ll be watching with interest in terms of the further speakers, hoping for support.

Simply put, the Companies Office has collected and used money in a way that was not intended by Parliament when it passed the Act. It is clear that this has been occurring at least since the formation of Ministry of Business, Innovation and Employment in 2012, but it is likely to have been occurring for some time longer. I’m very pleased to see the Minister bring this bill to the House in terms of rectifying the situation we have. I commend it to the House. Thank you.

Thank you very much, Mr Speaker, and I rise as the member of Parliament for North Shore and as a member of the National Party in support of the Companies Office Registers Funding Validation Bill. I join with prior speakers to acknowledge the Minister for working proactively with the Opposition in order to have discussions before this bill was brought to the House. That is appreciated and is representative of a good process and, in this case, a bill that is going to deal with some significant issues. National supports this bill, and we’re looking forward to seeing it pass its way through this House.

Thank you, Mr Speaker. This bill could well be called “The Economies of Scale Bill”, because that’s simply what it’s doing.

We have all these different registers, it was envisaged they would all collect their own money, have their own bureaucracy around it, and have their own little jam jars to store it. That wasn’t what occurred and it shouldn’t have been what occurred.

We’ve now got the economy of scale of probably one set of accounts around these, and it just means that now, instead of the extra funding going with each of those different registers, we can now take a common-sense approach and, of course, have the retrospectivity on this to make sure that anyone alerted that might take some mischief or try to place a mischief with will be prevented from doing so.

So a very sensible piece of legislation, good to see the support around the House, and I commend it.

Thank you, Mr Speaker. The ACT Party will be supporting the Companies Office Registers Funding Validation Bill. Thank you, Mr Speaker, for the opportunity to speak on this first reading of this bill. As one might appreciate, this piece of legislation is well outside my normal port of call. That being said, I will endeavour to offer a fair and balanced contribution for those that seek clarity of how this bill will affect them.

The bill, as written, is an omnibus bill, and it will amend 13 Acts to retrospectively validate fees that have been collected under those 13 Acts and that have been and will be applied under any register administered by New Zealand’s Companies Office. This bill, as written, amends those 13 Acts. I could go through the full 13 Acts this bill seeks to amend and quote them verbatim, but as I’m cognisant of time and as I am aware that some of my parliamentarian colleagues will be wishing to share their contributions—equally, perhaps, not as well versed as I in this area, or more—so I’ll keep my comments moderately short. However, for the benefit of some of my colleagues that are like me that may want to be more intimately versed in this legislation, here are some examples that the legislation addresses: the Companies Act 1993, the Financial Markets Conduct Act 2013, the Friendly Societies and Credit Unions Act 1982, and several others.

Over time, the Companies Office has moved towards providing shared services to the registers and has allowed the Companies Office economies of scale in the delivery of registry services and to leverage technological developments, this enabling registry services to be centralised and shared across registers. Over time, these changes have reduced cost to users, but, unfortunately, this has made it increasingly difficult to distinguish between the costs of providing services to each register. Equally, the fees charged for some small registers have not managed to keep up with the cost of operating them. The shortfall was met with a surplus from fee collections for other registers. This practice is not authorised in legislation.

In essence, the bill addresses the Companies Office practice of applying funds collected in fees not in the scope of current legislation and does this by retrospectively validating the Companies Office charging and expenditure practices. The crux of this bill addresses that shortfall and will enable the Companies Office to use the surpluses it has collected to fund anticipated shortfalls on certain registers while a new, unified funding regime is established. In short order, it provides for a lawful basis of funding shortfalls while reforms in the Companies (Levies) Amendment Bill are implemented. The regulatory impact statement produced by the Ministry of Business, Innovation and Employment suggests various options of how best the legislation could be worked through and compared to those counterfactual. After reading through these, the ACT Party found that the option that had streamlined accounting practices—compared to the counterfactual—would avoid additional costs to regulators and regulated groups. It was certainly the most practical way to address the underlying issues needed in the proposed bill. There were some concerns under the current fees-setting provision that the cost of providing a shared service for each register is recovered from fees charged to the users of that register, this because the unit cost of each register depends on the total number of entities registered. Users of an identical shared service can be charged materially different fees for what is fundamentally the same service, this, of course, depending on how many users of the register there actually are.

However, on balance, with full consideration given to the benefits and the potential cost, the ACT Party believes this bill should go through the necessary legislative scrutiny and further debate in this House to iron out any discrepancies or unintended consequences in the bill as currently written. The ACT Party does support this bill, and we look forward to the contribution of other members in the House. Thank you, Mr Speaker.

Tēnā koe, Mr Speaker. Tēnā koutou e te Whare. I’m taking a very short call on behalf of the Green Party. We are supporting this bill. As all the other speakers have already mentioned, the rationale for it—there were some mistakes made in terms of the ways the Companies Office has collected and used money that was not intended by Parliament when it passed the original Act, and this needs to be cleaned up. So the Green Party is going to be supporting this bill.

Kia ora, Mr Speaker. I rise to take a call on the Companies Office Registers Funding Validation Bill. I want to thank the Hon Dr David Clark for bringing another piece of legislation to this House and just working hard to ensure that things are in place, that things are getting sorted—and it’s more than tweaks, but it’s getting things in a better place. As was said earlier by a previous speaker, pieces of legislation like this are just common-sense approaches in terms of what’s going on.

So as others have said, the Companies Office is a registry service, it’s got the 16 different registers, each governed by a separate Act of Parliament. Basically, this piece of legislation enables the funds to be moved between the registers, as at the moment they are not. Pretty much that’s it, in a nutshell. I’m sure as we move the legislation through the second reading, third reading, I’m sure there’ll be far more information that I can share then, but I commend this bill to the House.

Thank you very much, Mr Speaker. The Minister and others have outlined clearly the purpose of the legislation and why it’s needed, including the reason that the passage of it will be so quickly conducted through the House. So I do acknowledge those points and acknowledge, on behalf of National—as others have done already—that we support it.

Only a couple of brief points from me. One is that the effect of the bill is retrospective; often times that’s a red flag for us as lawmakers, where we’re looking back, making something right that was wrong. In this case, it’s worth noting, I think, for the record, this is not a criminal matter. So we’re not retrospectively making something a criminal offence, or even the other way around, and even if it were it would be in the nature of what’s colloquially referred to as a victimless crime. There’s no harm being done here that should not be undone.

The other point was just around the incorrect use of levies. The Minister has outlined why and how that’s the case from quite a technical legal perspective. That’s not uncommon, actually, within our various Government agencies, so I think there’s probably a wider systemic issue here, and it’s something that the Regulations Review Committee takes very close interest in as part of our remit, so we’ll look forward to that next bill coming through and with the fuller process the Minister has highlighted will take place in that.

So those were my particular points that I wanted to make. I emphasise that we continue, on this side of the House, to support the bill, and we’ll do so through further stages today.

Tēnā koe, Mr Speaker. Happy to take a short call.

This is a necessary piece of legislation to be in place, as it acknowledges and rectifies previous and current practice of the Companies Office and makes what has been prior practice permissible moving forward.

We’ve heard already in the House this afternoon that the Companies Office is responsible in this regard for the regulatory, or registrar, functions for 16 Acts—the earliest in 1908; the latest in 2019.

The Minister himself referred to the economic and community development aspects in New Zealand. That’s why it’s important that this is a piece of legislation before the House. I commend it.

Well, thank you, Mr Speaker. I don’t intend to take very long. This is a necessary piece of legislation, I think it’s been said by all. I’d particularly like to acknowledge Chris Penk’s contribution regarding the regs review aspect and view on the bill. I think that really says it all. I’d like to just commend the bill to the House.

Tēnā koe, Mr Speaker. I am delighted to bring in the end of the first reading of the Companies Office Registers Funding Validation Bill, and it is good to do so in a spirit of amity around the House. This is a small but necessary fix for a very important part of our economic life, covering the gamut from the Companies Register to the incorporated societies to the retirement villages to the charitable trusts. It is important that this office continues to work smoothly. This piece of legislation is going to make that possible and I commend it to the House.

Motion agreed to.

Bill read a first time.

Second Reading