Business Payment Practices Bill

Members, we come now to the Business Payment Practices Bill. We start this debate on Part 1.

Point of order, Mr Chairperson. I seek leave for all provisions to be taken as one question.

Is there any objection? There is objection. Part 1: this is the debate on clauses 3 to 7, and the Schedule, “Preliminary provisions”.

Thank you very much, Mr Chair, for the unexpected pleasure of this call.

Hon Mark Mitchell: It’s a good decision though.

CHRIS PENK: Yes it is a good—well, I don’t know if it’s a good decision, we’ll soon find out.

I wonder if we can perhaps commence by seeking that the Minister explain the rationale behind Part 1 of the bill, and in particular how the policy aims that are set out in the explanatory note will be achieved by those provisions.

Mr Penk.

Thank you very much, Mr Chair. If I can just build on that theme that I’ve been developing so clearly when I finished my first contribution, I would perhaps also ask that the Minister please address just what the rationale was for the cut-off date in determining the size of the businesses in terms of that revenue—whether it’s, obviously, the $33 million mark in terms of revenue and the $10 million mark in terms of third-party expenditure. No doubt those have been worked out for some very particular reason that the Minister is aware of and I’m not, and it might well be that this was discussed and debated at the Economic Development, Science and Innovation Committee. That was a conversation to which I was, alas, not privy. Well, that’s not to say that I wasn’t able to be or not allowed to—that word “privy” being of course connected with “privilege” and other such relevant concepts. It’s a concept we’ve heard a bit about lately, actually.

But anyway, I don’t wish to dwell on that because suffice to say that if that discussion is taking place at select committee and the value of this committee of the whole House stage is to sort of allow the Minister to explain how those have been arrived at, then that’s useful for the record, particularly if there’s interpretation of the legislation in the courts or if there is a push to change the law in the future. And it might be that that takes place by way of changing the thresholds, because of course when you have in primary legislation certain dollar figures, then they need to be changed in primary legislation unless there’s some sort of regulation-making power mechanism whereby that could be changed.

So to sort of understand as a starting point what we’re putting in this primary legislation along those lines would be a helpful contribution, and I request that the Minister would make that for the committee.

Thank you, Mr Chair, and to the Minister. Looking at Part 1 and the purpose of the bill—I spoke on this at the earlier stages—I’m interested to see about improving transparency and business-to-business practices, and what other options the Minister or the ministry considered. I appreciate it may have been before she became the responsible Minister in this area, but is this the only mechanism that was considered? Also, around why the Minister thought this would be the best way of enabling members of the public and entities to have access to information about these business-to-business practices—and what advice she sought and received from her officials around why this would help them make more informed choices and improve choices. Thank you.

Thank you very much, Mr Chair. I feel very much on a roll, and so—

CHAIRPERSON (Greg O’Connor): Just reminding both members that we are on Part 1 of the bill.

CHRIS PENK: Thank you, Mr Chair. That’s helpful guidance. If you could also let us know which bill we’re debating, that would also probably be to my benefit.

Chlöe Swarbrick: You’re giving it away.

CHRIS PENK: Oh, I think the game is already given away, Ms Swarbrick. But, anyway, we’ll see how long we can carry on the deception.

CHAIRPERSON (Greg O’Connor): Is that a challenge?

CHRIS PENK: I wouldn’t wish you to take that too seriously, Mr Chair. Why start now?

So just looking at the interpretation clause, clause 5—within Part 1, you’ll be pleased to know, of the Business Payment Practices Bill—I see that the definition of “director” is pretty extensive. That’s helpful because it might be that we’re talking about a company or an overseas company, in which case we want what’s generally referred to as a director—being a certain position in relation to those entities—and in relation to a partnership, a partner, or a general partner of a limited partnership, and so forth.

But I am quite intrigued by paragraph (f)—the sixth sub-definition, as it must be—whereby a director means “in relation to any other person, that person.” So I suspect there’s some deep and meaningful reason for that definition, which looks some combination of circular and otherwise opaque. I don’t know, an opaque circle, I guess, but it just doesn’t make much sense to me. I suspect for others reading the bill, they would experience the same level of opacity. So I wonder if the Minister can shed some light and other mixed metaphors on what is meant by that definition or that included definition of a director in relation to any other person, namely, “that person.”

While she’s at it—and I sense she’s very nearly ready to answer this question or perhaps one of these other very searching inquiries that Sam Uffindell and I have made so far—in terms of “entity”, there are quite a few different kinds of entities that are included. So in the same way as the director definition is as quite full, so too is that of “entity”.

So matching those different definitions for possible definitions for director, we’ve got a company, a corporation sole, a trust, the partnership, etc. But I wonder if the Minister and her advisers contemplated, at any point, a generic kind of description of entity such as a legal person, because I think that would probably cover all of these. She could have had, for example—or her predecessor, in introducing the bill could have said—a legal person which includes but not is not limited to, you know, and then go ahead and list all the ones that are indeed listed from (a) to (g). So that’s enough for now. I look forward to the Minister’s response.

Thank you very much, Mr Chair, and thank you to members for those enlightening questions regarding the Business Payment Practices Bill. First of all, I’d just quickly like to thank the Economic Development, Science and Innovation Committee for their work on the bill. There were a number of changes made at select committee from members on both sides of the House, and I think some good changes were made.

Look, in general, I’ll try and clump the questions. Timely payment is crucial for the financial health of any business, and especially New Zealand small businesses. It can be the difference between making a pay round or not when payments are not made. I’ve heard from many small businesses that delays in receiving payments are really hurting their cash flow, and that increases stress and it also inhibits their business growth. Xero does some really good research in this space, and I would probably mention too that they view that larger companies in New Zealand use smaller businesses as a credit facility, and this is unacceptable. That is the main underlying policy, sort of, framework, if you want, that underpins this bill; that we want that transparency available so that smaller businesses who do survive from week to week at times have that ability to choose who they wish to do business with.

So the bill requires entities with more than $33 million in revenue, and, as the addition at select committee, $10 million in third party expenditure to disclose information about their payment practices twice a year. And just to point out too that the Government needs to lead by example, and so the bill will apply to Government entities just as much as the private sector.

The key point I got from those questions was in relation to why the $33 million, and what constitutes sort of a large firm, why set the threshold at that point? Large firms are defined as all entities with greater than $33 million annual revenue. The revenue threshold is based on criteria for businesses considered to be large. According to the Financial Reporting Act 2013, the expenditure threshold ensures that the regime doesn’t apply to firms that don’t really have much purchasing power in the marketplace. This allows businesses to easily self-identify and applies to all corporate firms, and so it’s likely to capture market participants that dominate the industry. I’ll just point out that the Australian threshold is higher, I do acknowledge that. I think that reflects the fact that the businesses in Australia are bigger than those in New Zealand. If our threshold was set the same as Australia, we would capture in the vicinity around about 600 businesses, which would sort of undermine the whole purpose of the bill.

Thanks, Mr Chair. I just want to pick up on that commentary from the Minister on the bill, and she made the assertion around larger business being at fault. But, secondly—and probably the more important substantive issue which comes to the whole purpose of this bill—she made an anecdotal comment about a lot of smaller businesses suffering from late payment. What evidence has she actually seen to support the introduction of this bill? Because every business will say if they didn’t get paid on time, that will affect their cash flow, and that is as obvious as night follows day, or day follows night.

Chlöe Swarbrick: Part 2, Part 2!

ANDREW BAYLY: This is in reference to what she, the Minister, said, Chlöe Swarbrick. So what actual evidence—because the Minister raised this issue—has she got that says by putting in place an arrangement such as laid down in this bill, actually achieves the outcomes that she’s desiring to achieve with this bill? She also mentioned in her speech about Australia, and she will be a very much aware, no doubt, that Australia put in place this arrangement two years ago and they’re now reviewing it—because, in cases, they’ve found out that even after putting in arrangements similar to what is proposed in this bill, the outcome has actually led to slower payments from large businesses to smaller businesses in Australia. And that is why they’re doing a formal review of it, because they are now starting to wonder whether in fact this is actually the right way to go about achieving a better outcome. But we’ve slavishly picked up their—what appears to be an overseas example, being two years out of date, and shoved it in at the very moment when they’re reviewing how it started to work, and by reference also she’s quoted—

CHAIRPERSON (Greg O’Connor): Mr Bayly, you may have missed the fact we actually only on Part 1 here, so the ability to make wide-ranging speeches is rather limited. So please confine your comments to Part 1. I accept that you’re actually reflecting on the Minister’s comments. However, you have gone too wide—back to Part 1 please.

ANDREW BAYLY: OK. Thank you, Mr Chair. Well, I just hope the Minister will respond to that.

OK, on a very specific point, my good colleague Mr Penk has been talking about entities. One of the big things that concerned us about this arrangement is that under “entity means”, clause 5(d), the incorporation, or the capture is probably a better word, of “a society or branch of a society registered through deemed to be registered under the Friendly Societies and Credit Unions Act 1982”. Can the Minister just tell me why it was deemed so necessary that we want to capture friendly societies under this bill? Because if we’re talking about normal trading arrangements, and that’s what the Economic Development, Science and Innovation Committee actually focused on, because that was meant to be the intent of it, why on earth should a society or branch of a friendly society be captured? It would be very useful if I could have the Minister’s response on that.

Thank you, Madam Chair. Very specifically, in Part 1, I just want to acknowledge the excellent contribution of my colleague Andrew Bayly, who has come roaring in—always appreciated—and also Chris Penk, who is about to leave the Chamber and asked many probing questions. I will continue with that, and put a question to the Minister around the definition of “overseas company” in Part 1. I note that they’ve been doing some tracked changes on this document and have crossed through, after “overseas company”, the words “has the same meaning as in section 5(1) of the Financial Reporting Act 2013”. I’m curious as to why that was crossed out and replaced with “means a body corporate carrying on business in New Zealand that is incorporated outside New Zealand”, and also curious in the definitions as to why we have decided to define the word “large”—generally, quite a straightforward word to understand. I do see it over here in clause 9 and I’m assuming it’s related to companies that have in excess, was it $33 million, from memory. Interestingly, though, in clause 9, the $33 million has not been included in the definition, I’m curious as to whether it would be appropriate if that was included in there. Thank you, Madam Chair. Thank you, Minister.

Thank you, Madam Chair. I’m just giving the Minister a little bit of time to, hopefully, respond to both my question and my good colleague’s question just then. This definition of “carrying on a business” that Mr Uffindell talks about—it’d be useful if the Minister could just perhaps elucidate what that means, because at a committee level we were concerned that we didn’t inadvertently capture businesses that wouldn’t normally be regarded as being trading entities in New Zealand. So perhaps the Minister can just help the committee in terms of defining what that means, and what her understanding of that term “carrying on business in New Zealand”, and whether that applies to a trading enterprise or non-trading enterprise, offshore subsidiary, a branch, etc. It’d be very helpful if she could help us with that.

Thank you, Madam Chair. I wasn’t expecting to get that call, but there we go. We just wanted to test a little bit further. We note that there are infringement fees associated with that, and we know that there’s been a lot of talk about infringement bills—it’s easy to infringe, and poor businesses are taking more hits, more infringements—but I’m curious there as to better understand what an infringement fee means. It hasn’t been that deeply specified; hasn’t been defined very clearly. If I read from Part 1, “infringement fee, in relation to an infringement offence, means the infringement fee for the offence specified in the regulations.” So I’m assuming there, Minister, that to get the infringement fee, you would then have to go from that to the regulation and look up what the specific fee is—

Chlöe Swarbrick: That’s what it says.

SAM UFFINDELL: Thank you for that excellent point there, Ms Swarbrick. I appreciate that—I was coming to a come-to-Jesus moment myself, there, but I just wanted the Minister to clarify it. It could have also been useful—I’m wondering if the Minister’s staff behind there ever considered a schedule which would have made it quite easy to have in there. I’m not sure how many infringement notices there are, but for future reference, that could be quite handy and then you could have it all in the one space. And I’m wondering too whether that is something that the Minister or the ministry had thought about or might even consider. It’s something you could note down there, Minister, something to be included in the final piece of legislation. Thank you.

I’m just wanting to give the Minister every opportunity to stand up so I will yield at the earliest opportunity. Still looking at it—OK, well, let’s carry on. I note a reference to the definitions in the interpretation clause; the reference to the payment threshold test—and this is quite a genuine point. In the Minister’s Supplementary Order Paper (SOP) 363, I see that she has proposed, in clause 10 (1B)—I know this is the next part, but I think it’s relevant to this, what I’m about to say—

CHAIRPERSON (Hon Jacqui Dean): Order! Order! SOP 363?

ANDREW BAYLY: Yes.

CHAIRPERSON (Hon Jacqui Dean): I’m not sure that’s in Part 1.

ANDREW BAYLY: I must have an old version.

CHAIRPERSON (Hon Jacqui Dean): Hang on.

ANDREW BAYLY: But we have got a—have I got the correct number?

Hon Member: Have you got the older version there?

ANDREW BAYLY: Maybe not.

Hon Member: That’s been updated.

Chlöe Swarbrick: Do you want to sit down and I help you?

ANDREW BAYLY: Do you want to stand up and give a contribution?

Chlöe Swarbrick: Or I’ll stand up.

CHAIRPERSON (Hon Jacqui Dean): Order! I’m just trying to clarify things for the committee. So the member was referring to clause 10?

ANDREW BAYLY: Yes, but it’s 363, isn’t it.

Member: It’s in under the SOP.

ANDREW BAYLY: Yes, as I said—and the reason, as I was quite careful to say, in clause 10 in SOP 363, we’ve got this proposed change to talk about both “invoice” and “payment”, and I am now wondering whether, in fact, coming back into Part 1 on which we were focused, where we talk about a “payment threshold test” in 8A—and I’m looking at officials here—whether we might in fact actually also be thinking about both invoice and payment thresholds because there is a difference that is deliberately introduced in the SOP, and I’m wondering whether in fact we should now replicate that in the definitional part of Part 1 of this bill. It would be interesting to see whether the officials have a view on that. In the meantime you might have the opportunity to respond to some of our other questions.

Thank you, Madam Chair. So there’s a number of points being made. The question around the meaning of carrying on business; that is set out in the Companies Act 1993. So, for the purpose of that Part, reference to an overseas company carrying on business in New Zealand includes a reference to the overseas company it lists under provisions (a) and (b) 10 different specific areas that can be found in the Companies Act. So that’s laid out, that question, in relation to the meaning of “carrying on business”. It specifies there—I’m not going to read it out; it would take ages—so it’s specified already in legislation.

In terms of the next question. The one you just mentioned now was the Government Supplementary Order Paper (SOP) clarifies the wording of clause 10(2)—I’m not sure that is in Part 1, but I will answer it. I think we should probably be doing the bill as a whole, but never mind. To make it clear that if reporting entities need to report on how many invoices they pay late, they should also be able to set disputed invoices aside from this count, and so that’s what clause 10(2) of the SOP does—it enables them to be reported on separately—and the proposed wording change will remove the uncertainty as to the legal interpretation of this clause, but it doesn’t change its purpose.

The other point that I think the member made was it also enables a definition of “invoice” to be included in the regulations. Businesses did tell us that they want a clear definition of “invoice” to be included so that they would be sure what is in and what is effectively out. That definition may well need to adapt and change over time, and therefore the best way forward would be to put that in the regulations. The provision will sit in clause 10, which requires payment practice information to be defined within those regulations.

I did have another point that I had out. It may have been—no, I’ve lost it, sorry, there was a lot in there.

Just before I take the next call, just to clarify for the member that clause 10 is in Part 2 so the member can—and any member in fact can prosecute that but when we get to Part 2. So, Chlöe Swarbrick.

Obviously, this is an incredibly narrow part of the legislation, and I can hear the enthusiasm from members, particularly of the Opposition, to contextualise this part within other parts of the legislation. So with your guidance, Madam Chair, and for the sake of the efficacy and coherence of the debate in the Chamber tonight, I’m wondering if perhaps we could test again for consensus. I seek leave to see the debate taken as one part.

Does the member wish to take a point of order and seek leave?

Point of order, Madam Chair. I seek leave for this debate on this bill to be taken as one part.

Leave has been sought for that purpose. Is there any objection. There is.

OK. Thank you, Madam Chair. Unfortunately, the Minister got the wrong end of the stick. Let me put it another way: where we talk about payment threshold test, given her Supplementary Order Paper (SOP) 363, I wonder if, in fact, that should also read “invoice or payment threshold test”; that was my point, whether the definition needed to change in Part 1.

CHAIRPERSON (Hon Jacqui Dean): Order! Order! Which clause is the member speaking to?

ANDREW BAYLY: Part 1.

CHAIRPERSON (Hon Jacqui Dean): Which clause in SOP 363 is the member speaking to?

ANDREW BAYLY: I’m talking to clause 10(1), but because of that, it gives rise to a definitional issue—

CHAIRPERSON (Hon Jacqui Dean): Order! Order! The member is speaking to Part 1 of this bill.

ANDREW BAYLY: OK. As long as I can come back to it—yup.

I move, That the question be now put.

Motion agreed to.

Part 1 agreed to.

Part 2 Obligations, register, and Registrar