New Zealand Guardian Trust Company Amendment Bill

The National Party supports this legislation, but I want to raise a couple of issues through the course of this Committee stage. At the bill’s first reading it was suggested by one speaker that the legislation would put New Zealand’s assets at risk, because the Promina Group, which bought the Royal and SunAlliance group of businesses, is incorporated in Australia, and Australian legislation gives a statutory priority in a winding up situation to Australian creditors, in relation to assets of Australian banks, financial institutions, and insurance companies.

I have to say that the suggestion made by that speaker is misleading. It is true that the Australian legislation the speaker referred to does apply to some of the companies of the Promina Group, but it does not apply to trust funds under the control of the New Zealand Guardian Trust Co. Hence, Australian creditors would not have a priority over those trust funds. That really goes to the heart of the issue.

When I was taking a call during the second reading I suggested that this type of legislation should not be brought to the House every time there is a change of ownership. Although I respect the fact that beneficiaries should not have their funds put at risk, I suggest that there is no conflict whatsoever. The Guardian Trust Co. is just one of many companies that will have their parent companies change ownership all the time. I think it is a waste of parliamentary time that every time that happens Parliament will have to go through this protracted process.

Some of the members I was dealing with on the Commerce Committee were concerned about the financial stability of a company like Promina. I think that that concern is misplaced. On 25 August 2004 that company announced a A$204 million half-year net profit after tax. That is a 51 percent increase over the prior year’s comparative period, a return on equity of 17.5 percent, and an earnings per share of 19.3c or, if you like, a 52 percent increase. I want to bring the size of that balance sheet to the attention of members in the Committee only to try to allay any fears they might have that if we pass this bill, that company will in some way put beneficiaries’ funds at risk. That is just not the case. I argued before, and I will mount the argument again, that Parliament’s time should not be wasted in members being asked to pass this sort of legislation every time there is a change of company ownership.

Hon Judith Tizard: I completely agree.

BRIAN CONNELL: If I recall correctly, the Minister in the chair, Judith Tizard, was building the same argument when she made her first reading speech. I think that all we are doing, essentially, by making this decision now is just putting the decision off for another Parliament. I think it is time we just bit the bullet and said: “Let’s invest in the Minister of the time the ability to make decisions based on the information presented.” I think that that is an entirely reasonable position. I know a couple of members in Parliament have a contrary view, but the vast majority of submitters who came to the select committee actually supported the argument that the Minister in the chair and I are now mounting. [Interruption] The member who is calling out will get his chance in a moment, I am sure.

But the point is that the vast majority of submitters, in a very cogent way, said that there was no need to be concerned, so we are simply putting off making that decision to the time of another Parliament. I think we have lost a huge opportunity—in fact, I have called it a lost opportunity—to make that decision now and stop wasting the time of this Parliament. This will not be the last occasion in which the ownership of the Guardian Trust Co. will change, and we will then go through this debate again. Then it will happen again, and we will do it again—and again. All the members on the select committee who looked at the legislation agreed that it was essentially a technical issue.

Russell Fairbrother: No they didn’t.

BRIAN CONNELL: Well, that member will get his chance in a moment. The vast majority, then, if I can put it that way, of members on the select committee agreed that it was a technical issue only, and essentially a waste of time for Parliament. The right thing to do, as the National Party argued at the time, would be for the Act to be changed by Order in Council, and I know that the Minister in the chair agrees with me. A rugby match is on with a very close score, but here we are at 25 past 8 spending our time debating an issue that is simply unnecessary!

In conclusion, I say that the National Party’s position is to support the Act. It was never in doubt that we would not do that. But we suggest that it is time parties in this House had the courage to change the legislation so that relevant decisions can be made by the Minister at the time by Orders in Council, with the absolute surety that beneficiaries’ funds will not be put at risk. We say that those decisions are for the Minister at the time to make.

I would like to express New Zealand First’s support of Brian Connell’s comments. It is time that this particular legislation was made far easier and more manageable. The Commerce Committee discussed this during its deliberations and made some recommendations to that effect. However, it was decided that we could not go ahead with it at this point in time because four trusts are involved, with similar legislation, and each one of those pieces of legislation would have to be changed individually. Whereas if we go down the track of making one separate piece of legislation that is an umbrella legislation for those four trusts, that would leave the mechanism for all four trusts to go through the process of an Order in Council.

Under those circumstances New Zealand First agreed that it would proceed with this bill as it is, but with the understanding from the Minister and the officials that the review was under way and the legislation would be not very far down the track. However, I was very disturbed by the Minister’s comments when she was winding up her second reading speech, that the review and the legislation is not a high priority for this Government. That tells me one thing—that this Government’s high priority is to waste the time of this Parliament, simply because we will have to go through this process time and time again as the trusts change ownership. It is unfortunate that change of ownership takes place so regularly, but that is one of the situations of the commercial world. Unfortunately this Government is of the opinion that to stop wasting Parliament’s time is not a high priority.

New Zealand First supports this legislation as it is, but would like to see it come under an umbrella that takes this whole process out of the way and the name of the owner can be changed, instead of having to go through separate legislation.

The ACT party position on this bill was made clear during the first reading. When my colleague Kenneth Wang came to Parliament and was appointed to the Commerce Committee, the committee’s dealing with this bill was very advanced. As is appropriate for a new member, he has been biting his tongue—or breathing through his nose, as I think Mr Holyoake advised—and watching.

It is a matter of regret to me that the committee saw its function on this matter as finding expeditious ways to get rid of a problem, whereas it should have been looking at it in the same way that Dr Bollard has been looking at the issues of Australian banks now controlling the New Zealand banking system, and asking what that would mean in the event of financial stringency in Australia, or in the event of something in Australia that made New Zealand seem disposable.

That is the problem with this bill. Trustee companies, because of trust law that has evolved for hundreds of years, normally would not be allowed to run transactions with themselves involving trust assets. This bill provides a privilege. The privilege that the New Zealand Guardian Trust seeks is a waiver of trustee law. It comes before us and asks for that privilege, on the basis that Parliament will look at whom the waiver is to be granted to—that is, the parent company—and say that, yes, it is OK, it has probity, and it is not going to abuse the privilege. I am sorry to see the committee, the National Party, and, indeed, the Government treating this matter as a nuisance. This bill should have written into it the kinds of rules that would prevent or impede the exploitation of the trust by a controlling shareholder, by an owner of a 100-percent subsidiary, where it procures self-dealing transactions.

There is no indication in the report that the committee chose to ask the Reserve Bank to comment. It has been facing exactly those issues and trying to think about how to deal with the fact that the Aussies have an Aussie preference. Quite nakedly, Australian banking law states that if there is a banking collapse, Aussies will come first—the Kiwis come second. That is a natural human instinct. That, I fear, is what will happen to people dealing with trustee companies, if the trust assets are allowed to be deployed through a head office treasury, or through an accounting system, that is in Australia—suddenly, the shutters will go up.

The bill could have dealt with that by setting out a series of protections—for example, requirements for routine reporting, requirements or a stipulation for a review every few years to see whether the body that is approved is still regarded as being in good hands. I am not making any allegations against the parent company, the New Zealand Guardian Trust, at all, but the bill treats the matter as though a once-and-for-all approval is OK. For a commerce select committee, that is pathetic. There has been no insight whatsoever into the purpose of parliamentary scrutiny and approval, and no insight into the risks and pressures that could face parent companies in the event of stringency at home. Because they will look after themselves. Directors sitting in Australia facing liabilities to Australians will make sure that those liabilities are satisfied before liabilities to someone outside the jurisdiction. It is just human nature. If the trust is run as a wholly owned subsidiary, and the local board has become a bit of a cipher, a mere formality, the local board will not be given the slightest protection.

I think this matter is evidence of the poverty this Government has brought the Ministry of Commerce to—the absence of analytical inability and insight, of resource. It reminds me of the report I saw today of the Parliamentary Counsel Office, which was quite blunt about the low ebb that legal resources available to Government departments had come to. This bill is not very complex. It did not need the select committee to explore at great length what appears to have been National’s proposal to set up a regime for ministerial Order in Council approval. That is simply a mechanical or procedural step. What was needed was for this bill to pioneer—it could have been done at the expense of the New Zealand Guardian Trust; we could have required that the thinking work be done by the trust, in order for it to get itself this privilege—a set of restrictions, a set of reporting requirements, a set of constraints on the self-dealing privilege that made it of much less risk to the widows and orphans that the New Zealand Guardian Trust looks after.

This concern is not far-fetched. In my practising lifetime three trust companies have got into serious difficulties, and in each case they have been rescued—in one case by a moratorium and in another by excellent management and a dedicated majority shareholder, a patient shareholder, willing to invest in the hope that it would come right. But it is very much easier for a foreign head office, for a foreign board, to say: “Let’s write it off to experience. Our reputation will be trash in New Zealand, but New Zealand is a very small market. We would rather do that than feed back what would be needed to rescue a trust company in failure there.”

This measure is a primitive response. It gets the Government through the immediate request. The attitude to it was typified by Brian Connell’s suggestion that he would rather listen to the rugby. I am sorry that, on something like this, the Government was so bereft of resources that it was not able to come up with something better than we see in the reported-back version of this bill from the Commerce Committee.

I thank honourable members for their contribution in the Committee stage of this bill. I share the concern that this issue frequently comes back to Parliament. I also share the concern that Mr Catchpole and Mr Franks expressed. We all recognise, I think, that it is often the more vulnerable investors and beneficiaries who use the trustee companies. Four trustee companies have been established by a private Act: New Zealand Guardian Trust Co. Ltd; Trustees Executors Ltd, formerly TOWER; Perpetual Trust Ltd and PGG Trust Ltd, trading together; and New Zealand Permanent Trustees Co. Ltd. They have indeed asked for a privilege, and it is a privilege that Parliament has given them through the method of private bills.

I want to read into the record the Commerce Committee’s decision, which I think is very thoughtful. It states that although the committee members felt that the proposal to deal with the matter by Order in Council has merit, most of them believed that “the ability of a trust company to transact business with its parent company is such a significant departure from the general rule against trustees taking profit from their administration of a trust that approval to allow this should remain in Parliament’s hands. Most of us consider that the preparation and introduction of a private bill to Parliament does not constitute an onerous liability on a company. Further, this obligation sends a clear message to trust companies, and their parent companies, about the paramount importance of their obligations to their beneficiaries and the trust that these beneficiaries place in them.” I am happy to accept the view of the committee. I do not think we can change the laws and provisions relating to four companies in the one private bill before us.

I noted Mr Catchpole’s comment. It is not that I do not think this issue is a priority, but unfortunately the Minister of Justice has meagre resources—because this Government is so frugal with taxpayers’ money—which means that we limit the number of public servants we employ. We note that the Minister of Justice informed the previous Commerce Committee that a review would be undertaken by the Ministry of Justice and completed by mid-2003. At the second reading I expressed my regret that that review had not taken place, but I absolutely accept that taxpayers’ money should not necessarily be used to give highest priority to matters that are basically commercial issues for the benefit of commercial companies, and not necessarily of the people who are the beneficiaries of the trusts they undertake.

So I thank the Committee. I particularly thank Mr Franks for the useful comments he has made. I assure the Committee that I am not the owner of this bill. I am merely, as the local member of Parliament, proposing it on behalf of the New Zealand Guardian Trust Co. I readily accept the collective view of the select committee. After all, that is its job, and I think that this has been a very good process.

In rising to speak, I hope Stephen Franks is not about to go, because I was thinking I might ask him a question, to which he may—or may not—be able to provide me with an answer. All the clauses in this fairly short bill provide for the bringing in of Promina as the new parent company of the New Zealand Guardian Trust Co. Most of the wording is around that—related companies, the fact that Promina is incorporated outside of New Zealand, which was some new wording brought in by the select committee, and so on.

But what really puzzles me—and I mentioned this in my second reading speech—is that the select committee, in its report back to the House, says that there is a general rule against trustees taking profit from their administration of a trust, and that approval to allow this should remain in Parliament’s hands. So the implication is that by this bill, Parliament is making a decision to allow Promina Group Ltd to take a profit from the administration of the trust, through New Zealand Guardian Trust Co. I would like to ask somebody who was on the select committee, or maybe the Minister in the chair, the Hon Judith Tizard, to take a call to reassure Parliament that the intention of this Act is not to allow Promina to take a profit, but to allow transactions to occur between New Zealand Guardian Trust Co. If they are the same thing, then I would appreciate an explanation of that point, because to me a transaction, although it may include a profit, would not necessarily mean that Promina would profit from the activities of these trusts.

I guess that related to that, if it is taking out a profit, how did the select committee assure itself that the profits would be fair and reasonable and would not be to the detriment of the beneficiaries of the various trusts?

Preamble and clauses 1 to 4 agreed to.

Bill reported without amendment.

Report adopted.

Third Reading