Business Payment Practices Bill

Members, we come now to Part 2. This is the debate on clauses 8 to 24: obligations, register, and registrar. The question is that Part 2 stand part.

Maybe I’ll have another opportunity. So, with the indulgence of Madam Chair—thank you very much—Supplementary Order Paper 363 introduces the concept of “or payments” after “invoices”. So if you stand back and think about it—and this is a serious issue. I just wondered whether we’ve missed something in the drafting. You have an invoice, and then you have payments related to those invoices. So the Minister chose to include “or payments” in clause 10(1B), and I’m just wondering whether, in fact, that means we’ve now got this overlapping sort of definition or separate definition, because invoices total payments. There’s no difference in terms of the monetary amount. One precedes the other one, and you issue the invoice and it subsequently gets paid.

I’m just wondering whether, in fact, as a result of that, maybe there is a requirement to change the definition in Part 1 to reflect that they are used interchangeably, those two terms, and whether we need to build that into the bill. That was my point, and so I’m looking at the officials in terms of the drafting, at the back here.

OK, Madam Chair. Whilst—

CHAIRPERSON (Hon Jacqui Dean): Can I just remind the committee that I’ve done this earlier today, though I think it will be helpful. In a committee stage, if a member wants to seek a call, they’ve got to stand up and seek it, because if there’s a silence and a vacuum, I can only assume that the committee has finished with that part of the bill and begin to deliberate.

ANDREW BAYLY: Thank you, Madam Chair.

CHAIRPERSON (Hon Jacqui Dean): Oh, you’re so welcome.

ANDREW BAYLY: I’m just hoping that two other people are going to contribute, like “Ms Swarbrook”—“Smallbrook”.

Chlöe Swarbrick: Swarbrick—Swarbrick.

ANDREW BAYLY: Swarbrick—very good. I want to return now to clause 9C. This concerns the issue of subsidiaries. “If an entity to which section 8 applies has 1 or more subsidiaries, a disclosure must—(a) contain the payment practices information for the disclosure period—(i) for—(A) the entity and each subsidiary; or (B) the group as a whole;”. So this gives rise to where, as long as a subsidiary meets the threshold of $33 million, or $10 million in trade payments—if I can use that term—it must disclose its payment terms. Then a group must disclose its payment terms, and, obviously, it will if it’s got at least one subsidiary that meets the threshold of $33 million.

Can I just ask the Minister why did she think it was necessary for each and every subsidiary and then the group to disclose it, because the sum parts of the subsidiaries—if we are trying to identify entities that are slow-paying, then the entity figure will be a mathematical calculation of all the sum of its subsidiaries. So why was it also necessary to have the group if that was so chosen that we should do both the group and the subsidiaries?

Thank you, Madam Chair. Looking at clause 9D, around certain subsidiaries making disclosures, I’m just wondering what advice the Minister has sought around whether that is going to add any additional complexity or paperwork. I’m assuming it would. And perhaps it would have made sense for the parent company, in so far as the parent company is domiciled in New Zealand, to be making all of the reports on behalf of all of the companies that fall under them. I mean, you take a company out there—they’re part of a wider organisation that meets the large company threshold that’s cared for by this bill—they’ve got a lot of subsidiaries throughout the country, and then they are all reporting independently; whether it would have made more sense just to have that all from the parent, and what consideration the Minister’s officials put to that. And also, what consideration was given to the impositions that this would have, not only on businesses out there in the business-to-business space but also on the relevant Government agencies who are having to collate and consider that information? Thank you.

Thank you, Madam Chair. So in relation to clause 9A, payment threshold, payment is in fact wider than invoice, and some payments will not actually involve an invoice, so there’s no need to expressly refer to invoice in that payment threshold test—they’re already included.

In clause 10 of Part 2, it sets out the meaning of “payment practices information”. In fact, that will be set out in far more detail in those regulations. The point of that is that this is necessary because the regime would almost certainly need to be updated over time. Clause 10 does set out some important parameters, and I think this gets to the heart of it: that part invoices—for example, instalments—are each to be treated as separate invoices. Some payments do not need to be reported on. So things like salaries, wages, taxes, fees, rent, utilities charges, and even local body fees—they would not be needing to be reported on. So that’s the difference there.

It also sets out that any count of late invoices need not include invoices in dispute, and these are to be treated separately because, in fact, if there is potentially a dispute that the goods or the service wasn’t supplied in time, it’s hard to find fault in that specific case and therefore the payment may not actually be late.

I do understand that the Economic Development, Science and Innovation Committee wanted this provision because they didn’t think that the “reporting entity” should need to include invoices that are in dispute, and count of late invoices, because that wouldn’t be fair.

In relation to subsidiaries that are wrapped up in the wider entities report, subsidiaries are in the wider entities report unless they meet the threshold of their own account—so unless they reached that $33 million, or, secondly, if they choose to.

And I think there was one other point that I wanted to raise. The bill as introduced would have captured entities that have a large revenue but make very few payments to third parties. So this this is the point around why to include a payment threshold. So this would include firms like consultancies and even software developers. These firms, they don’t have a lot of purchasing power in the New Zealand economy, but they also don’t buy much in from third-party suppliers. They’re not the type of large purchasers that the bill seeks to target, and it’s for that reason that the select committee recommended including a payment threshold in the bill. That would mean that the regime only applies to entities with third-party expenditure of $10 million or more. So that additional requirement was a recommendation from the select committee and has now been adopted as part of the legislation.

Thank you, Madam Chair. Thank you, Minister, for that response; it was helpful. In her Supplementary Order Paper (SOP) 363—again, I’m just referring to clause 10(1B), right at the end, under clause 10(1B)(f), she said, any “goods or services” and inserted the new words “or types of transactions” specified by the regulations. It might be useful just to understand what she means by her SOP in terms of types of transactions.

The second point: the Minister referred earlier to a definition of “invoice”. This is now included under her SOP as clause 10(1C), “Regulations may define an invoice for the purposes of this section”. So I suppose my question is: why are we defining “invoice” by way of regulation? Presumably in tax it’s a fairly clear definition of what an invoice is, under tax law, under companies law. So I realise it was a Supplementary Order Paper that this change is being inserted in, but I don’t know why we couldn’t just put it in the bill itself and remove any lack of clarity what the definition of an invoice is.

So, again, I’m looking at officials. Why have you gone down this route of using regulations? Because, for many people, relying on a Minister to pass regulations is not a very good thing if you’re wanting clarity and you’re going to have to put this in place quickly.

Well, thank you very much, Madam Chair. It’s a pleasure to be able to ask a few questions in regards to the Business Payment Practices Bill. And I want to go to clause 19, actually, of Part 2 of this bill, which is in regards to the business payment practices register. And clause 19 is in regards to the purpose of that register. In particular, 19(b) which outlines the purpose, is to help them make informed choices about whether to engage with those entities. And I guess what that—well, my questions in regards to that point are as follows: in section 2.4 of the departmental disclosure statement, it acknowledges that the Ministry of Business, Innovation and Employment (MBIE) has liaised with the Australian officials. I’m interested, in particular, around whether this aspect around the register, and having that register in the list of the entities on that register, actually was substantiated in regards to consumers or those wanting more information actually being able to look out for those businesses and make more informed decisions or not. So was that MBIE that substantiate the benefit of 19(b)?

The other aspect in regards to that is related to clause 20, which sits—surprising for those watching at home—after 19 in regards to the hierarchy of the clause numbers. It talks about 20(c), which is “its registered address”. And my question in regards to this is if, say, hypothetically one was looking on the register and looking out for a business and, say, for example, you lived in Cambridge in the Waikato—choose a place in the world—

Andrew Bayly: Pukekohe.

SIMON WATTS: Pukekohe. You could say Pukekohe. Let’s use an example of a business, and let’s say you’re in Cambridge, Mr Bayly, and you’re looking up a business, and its registered address is in Pukekohe but it’s actually operating in Cambridge. Is that is going to actually enable 19(b), which is to help make them inform choices? Because if you can’t necessarily locate the business that you’re after—you know, there’s a lot of businesses called similar names; so that’s not really the aspect—how are we going to get around that, and why was there not consideration in regards to the contents of the register actually including its physical address versus its registered address? The registered address obviously can be, in some circumstances, quite different. And, I guess more broadly in regards to that, I’m thinking about organisations that have multiple entities within the same group, and they’re all called the same thing, and they’re all in different towns, but they all do operate individualised payment processes, because they’re owneroperator businesses operating under the same name and maybe under the same registered address, but they have a different location. So you sort of get a sense, potentially, of the confusion that may arise through someone trying to get information on whether their business is actually one that they want to—as the legislation says—engage with those entities or not.

So those are the two questions I’ve got in regards to those aspects of the clause. And if it wasn’t the Australians, I think it was noted in the regulatory impact statement in regards to this bill. It did say that they did do a bit of a horizon scan—I’m looking at page 27 of that—in both the UK and the EU. Again, just from officials, was there any other substantiation, actually, that this register in any other jurisdictions in the world does actually lead to outcomes where people are able to make more informed decisions? Thank you, Minister.

Thank you, Madam Chair. Good to follow on from the excellent contribution there from my colleague Simon Watts. He talked about clauses 19 and 20. I’d just like to ask a quick question for the Minister around clause 19, because I remember speaking about this at the last stage. It’s noted here in clause 19 “The purpose of the register is to enable members of the public and entities—(a) to access information about certain business-to-business payment practices … and (b) to help them make informed choices”. And I note that the information has to be submitted twice a year—so every six months—and the intention there is for that to be about allowing informed decisions and choices. But I’d just like to test that a little bit, because that’s not necessarily real-time data because it may be 5½ months down the track and then how useful is the register in that instance?

What consideration was given to what other options are out there? Did they actually go out to businesses and say, “Hey, look, we’ve got this idea for”—I’ll get the actual name—“a business payment practices register, and twice a year it’ll be updated. It’ll be an excellent source. You can go in there and it’ll allow you to make informed choices.”? And if they did do that, what was the feedback from businesses? I mean, just from my limited knowledge and experience, I would hazard a guess that businesses would have come back and said, “You’re lumping us with this big admin burden and I’m not actually sure it is going to give us informed choices because it is potentially going to be 5½ months down the track.”, which is what—

Andrew Bayly: That’s what the Australians found.

SAM UFFINDELL: —thank you, Mr Bayly—they have found in Australia. And also there are other very cheap means in which you can do company profile searches and credit check searches, and I’m just wanting to weigh up what consideration was given around that, if any. Thank you.

Yeah, I’m just hoping the Minister’s going to respond to those two excellent contributions. Just continuing the contribution from Mr Watts, he identified the various identifying information. What’s unclear in the bill is if you were to seek information, albeit maybe 5½ months old, as Mr Uffindell has identified, will it be possible to get the information if you perhaps might only have a couple of these items? What are the criteria? Because it doesn’t say you have to have all or just one or whatever. For businesses who don’t want to, who are slow payers, they may be deliberate in the way that they’re describing themselves. So what would be useful is to understand what is expected, whether a person would have to come up with a number of those criteria or identifiers or just one or two. So that’s one point.

I’m still very keen to get an understanding about why we can’t hard code a definition of “an invoice” in this bill rather than relying on regulations. And talking about regulations, in clause 15, “Entities must notify Registrar of error or omission”, the new wording says “This section applies if an entity becomes aware of an error or omission in a disclosure that involves a substantial departure from the requirements of this Act or the regulations relating to that disclosure.” And it then goes on in subclause 3, “In this section, substantial departure from the requirements includes (a) if regulations specify permitted departures, any departure that is greater than an amount or a percentage specified in the regulations”.

So if I’m a business owner and I’m out there thinking, “Holy Toledo, this thing’s coming barrelling down because the Labour Government wants to put more impositions on me just to make my life as a small-business owner a little bit more difficult—a little bit more difficult. When I can get a $35 credit check from someone tomorrow that’s perfectly up to date anyway, I’ve got to come up with this information.” What in the dickens is going to be in the regulations? And the only person that’ll know that is the Minister, because it’s only the Minister that signs off on the regulations.

That’s where we all tremble. We tremble at the thought of what might be in the regulations to define what an invoice is, because it’s an exceptional piece of work to do. And, secondly, what is a percentage variation or whatever it may be? I don’t know. Maybe the Minister can provide us with some insights on what her intention might be if she can rush this bill through the House and put it through the House before the election. I might just stop on that note so we can hear from the Minister, hopefully.

Thank you very much, Madam Chair. How could I resist not rising to respond to those questions? Thank you for that member’s questions.

Now, the point that was raised—more than once, I think, in that cluster of questions—was the question around why not put the definition of “invoice” into the bill itself. Why should that be in the regulations? It’s because that definition may well need to adapt or change over time. We would not be wanting to have to go back, and it would be best, therefore, in the regulations so that you have the ability to do that. It would sit alongside the actual reporting requirements, which might also evolve over time. That is the reason why.

Amongst all of those other questions, I also had one regarding registered address: why, if a business had a different address. Registered address is, in fact, not searchable under the register. If members refer to new clause 20A of Supplementary Order Paper 363, it specifies there what the searchable items are under the register, and registered address is not searchable in that space.

In terms of types of transactions, under clause 10, this enables regulations to exclude things like foreign currency transactions from falling under payment practices information. That was the question in relation to types of transactions in clause 10.

The point has also been made a number of times that this is going to increase the compliance or the red tape for small businesses. It’s definitely not the feedback that I’ve received when travelling around the country, doing a number of business breakfasts across the country. I guess I’d like to point out too in that space that a credit check is quite different to a business that pays on time. You may well have a business that stacks up on all accounts after having a credit check, but they may also be really lousy at paying their bills on time. So I guess there’s quite a distinct difference. To get back to the point that Xero makes in their research, those bigger businesses that can make interest on those funds remaining with them for the longest amount of time are, effectively, using smaller businesses in New Zealand as a credit facility and paying on the very last day, when the bill is due, or sometimes even late.

Having a transparency register enables those small businesses to check and see who pays their bills faster. And, in fact, some of those companies who pay their bills faster may have lousy credit checks. The point is that they’re not interrelated directly, and that information is valuable to those small businesses—those small traders who want to know who pays their bills quickly.

I thank the member also for his question about what’s in the regulations. Now, there’s been really good consultation. There’s a full consultation document that circulated in October of last year, and there’s been consultation with a wide range of stakeholders to get feedback on where they think things would work and where they think they might not work. Those will be formulated and will be ready for the member to take a look at in the fullness of time.

I move, That the question be now put.

Thank you. Just going back to my definition of an invoice, maybe I can just help the Minister.

Glen Bennett: How kind of you.

ANDREW BAYLY: Took me just a couple of minutes, Mr Bennett. “An invoice is an itemised commercial document that records the products or services delivered to a customer, the total amount due, and the preferred payment method. The seller need to send in a paper or electronic invoice to the customer … The invoice can be paid in one go or instalments, depending upon the payment terms that were agreed upon.”

To me, that’s a pretty standard definition of an invoice. I still can’t understand why we have to go to regulations to define it. Unless there’s something coming down the route, and I can’t think of it, whether it’s electronic, but this does cover electronic methods. I don’t know what difference it might be in invoices.

Right. I just want to move on now to clause 23 because we’ve got lots to cover in this part. The registrar’s function is to “establish and maintain the register;” to “receive information that entities are required to disclose the Act;” (c) “perform or exercise functions and powers conferred on the Registrar relating to measures of compliance enforcement”.

So a big issue—and I think many people would be worried about it and it does go back to Mr Uffindell’s rather serious comment—is the bill provides for payment information be provided every six months. Can’t be longer; it’s actually set in stone that it must be every six months. That means that there will be a time when the information is considerably out of date—up to just under six months, obviously.

The issue that the committee is concerned itself with is that for a very cheap sum, literally $35, anyone can ring up a credit agency—and we have four large established credit agencies—and get an immediate and up-to-date, timely, real-time credit assessment of businesses. One of the things I’m concerned about—because this will be the Minister’s jurisdiction—is: is it the intent of the Government, in passing this bill, that the Ministry of Business, Innovation and Employment (MBIE) will set up its own system?

Because when we spoke to some of those existing commercial providers, they said to establish a register such as this—as set out in 23—would cost anything between $3 million and $5 million. Then there’s an ongoing cost, and I think when we asked MBIE officials, I think there was an assessment of maybe 10 to 20 people—I’m not quite sure; I may be misquoting that, but I’m going from memory—or of that order. So not an insignificant sum of money to hire those people, keep them employed, and also keep upto-date technical and software changes, which we all know from very successful Government roll-outs of procurement and IT systems, how good we are doing that on budget and within time.

So is it the intention of the Government that MBIE will establish its own IT system rather than relying on a third-party provider to meet the requirements of clause 23 of the bill?

Thank you very much, Madam Chair. Silence is a blessing sometimes, isn’t it? In that context, I just wanted to clarify the answer that the Minister for Small Business gave, just in regards to my question regarding clause 20(c) around registered address. I believe I heard the Minister say that that was not a searchable field in the database. If that is the case, and without any guidance—whether that is what I heard correctly or not—how practical is it going to be to actually go into the register and look for that little shop in Cambridge that we referred to before, Andrew Bayly, that’s got its registered address in Pukekohe, even though that’s irrelevant. If you can’t find its address, then things start to become quite challenging in order to identify the business from whom you want to obtain information which is 5½ months out of date, which is run by a team of 20 people for $5 million and the rest. So if the Minister could just clarify, is that what she said? Even a wave of the hand or sort of a head nod, anything like that—no? OK.

I’m just giving the Minister a little bit of time to, hopefully, answer my rather serious question—because it did take up quite a considerable amount of time of the Economic Development, Science and Innovation Committee—about what sort of system will be running this platform and whether it’s managed or operated by the Ministry of Business, Innovation and Employment (MBIE), or whether in fact it’s by someone else.

What I now want to talk about is clause 24, because this states the “Registrar’s power to delegate; (1) The Registrar may, either generally or particularly, delegate functions and powers under this Act to any employee of the public service (within the meaning of the Public Service Act 2020)”. That’s a bit of a worrying thing. Does that preclude, then—maybe this is another question for the Minister—that a third-party provider couldn’t provide these functions under contract to MBIE because it’s precluded under clause 24 of the bill? So, hopefully, I might get a response to that.

The Ministry of Business, Innovation and Employment (MBIE) had, as far as I’m aware, given no advice to the committee in terms of costs or the cost of sitting up the register, but I can tell the member that MBIE is looking at the most cost effective option. I would also note that MBIE has a considerable amount of experience in administering public registers. They currently register 23 already, and given the experience they do in doing this work already, they are well placed to ensure maximum value for the system that is put in place. The other question that keeps coming up about how do you find a business in—where was it? Cambridge—

Andrew Bayly: Cambridge, but with Pukekohe—

Hon GINNY ANDERSEN: —or Pukekohe. How do you search and find a business in Cambridge or Pukekohe? So the purpose of the register would be for those bigger firms—in New Zealand, I can find the exact number but it’s those fewer ones that have over $33 million in revenue. So those bigger firms are the ones that will be listed, and the purpose of listing those big firms that have a far more substantial overturn, far more substantial revenue each year, is so that there’s transparency in terms of how quickly they pay their bills. And the value comes to the business in Pukekohe or to the business in Cambridge, that is then able to look on that register and find the bigger business that they are trading with and to determine—if they have a choice in providers, they can have greater choice amongst those listed on the register to then determine if they would prefer to do business with one who, in fact, might be slightly further away but does indeed always pay their bills on time. That, in fact, is the value of the register.

I move, That the question be now put.

The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Paper 363 be agreed to.