Securities Legislation Bill

Part 2 amends takeovers legislation, and I hope that the Minister, once again in the spirit of cooperation, will consider my amendment to this part. We have heard reported high-profile cases where company mergers try to sidestep the Takeovers Panel and use the restructuring provision in the Companies Act. I am trying to be helpful in saying that we do not need to wait for another piece of legislation to be introduced to the House, and taking a few years to go through the first reading, the select committee process, etc. It seems to me that all the commentators agree that a company in a takeover situation should be dealt with by the Takeovers Panel.

My amendment proposes that the panel, using the stated criteria, should have the authority to decide whether a takeover should come before the Takeovers Panel and also rule out mergers when companies are structured for the purpose of avoiding their coming before the Takeovers Panel. In doing so, the Takeovers Panel would consider whether the same result would be achieved if it were a takeover, whether there was a legitimate commercial purpose in preferring the merger, and whether there was a key feature of the merger that could not have been achieved through the use of the takeover mechanism. Key features could include a reduction of capital, an amendment of the target’s constitution, a variation of the terms of options or convertible securities, or an acquisition of more than one class of share by a single procedure. The provision is largely taken from the Australian takeover legislation because, I guess, in the spirit of closer economic cooperation, a lot of our commerce, etc., is moving to standardisation with Australia’s.

It seems to me that those are sensible amendments to avoid company restructures where their purpose is simply to avoid being interpreted as a takeover. National is in a mood of full cooperation, and I think that if the Minister has a discussion with her officials she is indicating that they are considering it, well, the Government is considering my amendments. I always say that if something is worth doing, why do we not grasp the opportunity and accept those amendments. We have time; in the next hour or so we can look further through the individual provisions. But it seems to me that we should not tolerate a business that would restructure solely to avoid coming under the Takeovers Code.

So far we have not really seen too many complaints against the Takeovers Code, and the fact is that Part 2 will make further amendments to improve it. It seems to me that businesses should not be allowed to circumvent that issue, and obviously I am looking forward to a contribution from my colleague Brian Connell to assure us that Part 2, the amendments we are now debating, will improve the Takeovers Code. Maybe the amendments that I am proposing now will help further the working of this legislation. So I am positive and hopeful that the Minister will start to look into those amendments.

In talking about this takeover, I say that we are also pleased that there is a proposal in this legislation that the Commerce Commission, the Securities Commission, and the Takeovers Panel will sensibly share some of that information, to ensure that our legislation regarding the operation of the capital market and security market will work very well. I think we endorse those three agencies to work in a cooperative manner.

Yes, I did have the time to have a look at Pansy Wong’s proposed amendment, but I do not think the amendment she is proposing would do what she wants it to do. I want to give some background to it.

The Takeovers Panel decided to go out and consult on what it felt was a problem in relation to schemes of arrangement and amalgamations under the Companies Act and the Takeovers Act. Interestingly, both of those pieces of legislation were passed in 1993, so the Government of the day did intend for different rules to apply, and specifically allowed for schemes of arrangement under the Companies Act. I do not think that an amendment moved on the night, as the bill is going through the Committee, is a good way of resolving this. I know that the member has chosen to take up the Australian language, but unfortunately that does not resolve the fact that the Companies Act still has the other provisions within it. So the inclusion of this within the Takeovers Act would not actually stop what has been occurring from occurring again.

The Takeovers Panel heard submissions over a 10-day period. That—even with my Small Business Advisory Group representational role—is not long enough to actually qualify as the level of stakeholder input required to make the changes that need to be made. My officials are certainly looking at the report that I received from the chair of the Takeovers Panel, probably a fortnight or 3 weeks ago—it was not very long ago—and I understand there is to be a report to the select committee that is looking at the Business Law Reform Bill, because the Takeovers Panel made a submission on the Business Law Reform Bill at the same time that it provided me with its results of its consideration of the subject matter.

So it is not that I am unsympathetic to the issue; I think the issue does need to be resolved. But I do not believe that an amendment to the Business Law Reform Bill—which, tragically, I have already been told would be out of the scope of the bill, anyway, and that is not a decision I get to have any say over—is appropriate. On the other hand, dealing with it in this way would not be appropriate, either. I am glad the member feels that there is an issue that needs to be addressed.

We want to go through a proper process, now, with the Takeovers Panel recommendations. I should say that the Takeovers Panel did not get unanimity from the community sector. Some felt it was too much to leave it entirely within the jurisdiction of the Takeovers Panel, and some felt that the Takeovers Panel recommendation that it be heard by the High Court in the consideration of schemes of arrangement would in fact resolve the problem. So I think we have a wee way to go before the issue is resolved, one way or the other, but I thank the member for raising it in the spirit that she has.

In continuing what we spoke of earlier, I look forward to a speech from the Māori Party on this Securities Legislation Bill. I would be interested to hear its members’ thoughts on what was perhaps New Zealand’s earliest—perhaps even founding—piece of securities legislation, which of course was the Treaty of Waitangi. So I look forward to 10 minutes on that one, as we go through the night. I would also be interested in hearing that party’s opinions—and, in fact, the opinions of more members on the Labour side—of the securities legislation, particularly the takeover side. I notice that members of United Future have obviously been through takeovers, with their takeover of various small parties, etc. I would be interested in seeing it in that context, which is a bit from left field, I appreciate, but it is always worth looking at issues from the point of view of the other side.

Takeovers, equity markets, and financial markets all have to operate in an environment of confidence and total transparency, and with a free and full flow of information to all parties concerned—regardless of whether or not they have a stake—and in an environment full of integrity where, as earlier speakers have said, a handshake is as good as a bond. Yes, that has to be backed up by legislation; I think we have 182 pages of legislation here, plus two Supplementary Order Papers, and plus the amendment that my colleague Pansy Wong is putting together. But confidence, transparency, and certainty are what financial markets are all about. Commitments must be delivered upon when promises have been made and consideration given. When I spoke earlier, I touched on the pledge card. I would be interested to examine that in these circumstances, but of course it is outside the realm of this bill.

New Zealand is part of an international global capital market. We are talking about equity takeovers here, and we talk about New Zealand and Australia in particular, but we are only 2 percent of the world equity markets—only 2 percent. I find that interesting, given that the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill, which is currently before the Finance and Expenditure Committee, actually disincentivises New Zealand from going to 98 percent of the world’s equity market, and encourages us—in fact, essentially gives us a tax incentive—to operate within only 2 percent of the world’s equity market.

Under this takeovers part of the bill, many of those new entities that now have to be KiwiSaver-compliant will also have to deal under the taxation bill as it was prior to the suggestions and the changes the Minister of Finance announced the other day, which were thrust upon us. They will also have to deal within the new certainty and the transparency that this bill will give.

The incoming National Government will, of course, need robust and strong capital markets. As we are supporting this bill on its way through, we will endorse it to help create the parameters we need to help New Zealand grow. The earlier part of the bill touched on insider trading. I realise that we are on to Part 2 now. I think the world has moved on an awful lot. As I mentioned earlier, sadly and unfortunately problems will still happen. People will still deal outside the spirit of this legislation.

I note that the Minister of Commerce and earlier speakers also mentioned that we are getting closer to the Australian examples. We are following its lead, perhaps hand in hand, around certain law on this issue. Of course, being a good Hawke’s Bay MP, I make the point that our apples are still not allowed into Australia. Hopefully, one day our agricultural markets will follow our business tax law and our commercial law. Interestingly, I think, this convergence with Australia is a debate that New Zealand is yet to have. Almost every bill that is coming before the Commerce Committee and the Finance and Expenditure Committee touches on a closer economic relation with Australia. Of course we all know about Closer Economic Relations, but the back office of New Zealand is starting to resemble another state of Australia. This bill is part of a portfolio of changes that the current Government is bringing through. There is this bill, the Reserve Bank of New Zealand Amendment Bill, taxation legislation, and the Westpac New Zealand Bill that was passed the other night. All of those bills have a common theme of New Zealand getting closer to Australia, with convergence of back office legislation, etc. On its own I do not have a problem with that. But I do have a problem when that debate is not out in the public arena.

I will start by asking this question, albeit a hypothetical one. Is this legislation necessary? As I examine my own inner feelings on this, I have to conclude that the answer is yes. I do add, though, that if capital markets are to work properly they need clarity and certainty.

We do risk stifling capital flows, with the way this legislation is drafted. I am not sure we could do it any better, having said that. What I do say to members, though, is that we need to be pragmatic enough, big enough, to come back to the House and make changes to tweak this legislation, where and when appropriate, as we discover, through the course of examining legislation that is so large, that we have made errors in drafting, in intent, or in application. Experience has taught me that that will be necessary. What investors in this country do need, though, is certainty and confidence in their markets and in the operators therein. I have no problem with supporting the legislation, but I do offer that advice to the Minister and to subsequent Governments. I am sure that this is legislation that, just by its sheer complexity and size, we will come back to, sooner rather than later, and have to rework in some areas.

I turn now to Part 2, and look at the powers that the courts have. There is no doubt that the powers inherent in this bill do enhance the powers of the courts to bring convictions; there is no doubt about that. But I say to colleagues let us not assume that because there are enhanced powers, we will see a significant number of prosecutions as a consequence. What I think this part will do is send very clear signals to people who are operating in this market that they need to be very careful and they need to be beyond reproach, otherwise the consequences will be severe. That is a warning, also. It goes back to my concern about stifling capital flows, because I think there is a tendency, in the way the legislation was drafted, to make operators risk-adverse. By that I simply mean that when they are uncertain they will take the no-risk approach and decline to get involved, as opposed to shaking their shoulders and having a go, just because the consequences are significant.

I touched on management banning orders in a previous call, but it is something that concerns me. I think, on balance, the Commerce Committee has worked well to come up with a sensible solution. I want to share with members just how significant some of these things are. In terms of management banning orders, new section 44DB, inserted by clause 51, states: “A management banning order may, for a period stated in the order of 10 years or less, prohibit or restrict the person (without the leave of the Court) from being a director or promoter of, or in any way (whether directly or indirectly) being concerned or taking part in the management of, an incorporated or unincorporated body …”. I say to the Committee that that is a hell of a power; it is a hell of a thing to do to ban someone from taking part in what was hitherto his or her livelihood.

I do not want to be giving confused messages. If someone is engaged in inappropriate behaviour, let us throw the book at that person. But let us be careful that we are not getting people caught up under banning orders because of a technical breach, an unintended breach, because the consequences are very, very significant. A person who is banned and cannot pursue his or her livelihood as a manager or director of an organisation in one field, will not be able to pursue his or her livelihood in another.

Hon Lianne Dalziel: They have to be convicted of an offence.

BRIAN CONNELL: I agree with that. I understand that point. I am just drawing attention to the fact that this is a very significant issue.

Business thrives on risk. That is how it measures progress—by taking risks, and getting benefits from taking that risk. What stifles business is uncertainty. The question we have to ask—as well as the question asked by my colleague as to whether legislation is necessary—is whether this legislation, the Securities Legislation Bill, will provide certainty, and remove uncertainty, to those in the commercial field. In speaking to support the bill I join my National colleagues in considering that it will indeed remove uncertainty and therefore it merits support. It is worthy of support, given the considerations and concerns that my colleagues who spoke earlier have mentioned thus far.

I do have a question, though. Even though we have moved on from Part 1, I do have a question for the Minister. Why has this bill taken so long to come back to the House? We are talking about certainty and uncertainty. I would suggest that this bill requires a certain amount of urgency. We have heard the comments of my colleagues—Mr Tim Groser, not least—about where New Zealand sits on a world measurement basis. We need to have confidence in the level of integrity, and we need to know why the bill has taken so long to come back from its introduction and consideration by the Commerce Committee. It has now come back, at this late stage. Were there difficulties associated with its development? I think the Minister should take a call and help us with those responses.

Hon Lianne Dalziel: I wasn’t the Minister when it was reported back.

CHRIS AUCHINVOLE: Well, that says it all I guess. I know there has been an array of Ministers who have handled this portfolio. Indeed, of the last four Ministers, I think the present Minister has held the position longer than most, and that is to her credit.

There are aspects of the bill that merit being looked at individually. One is the effect on the Takeovers Act 1993. The bill makes three main changes to that Act. It amends the application to the Takeovers Act and the Takeovers Code by removing the $20 million threshold requirement from the definition of a specified company. The Act and code will apply as long as a company has 50 or more members and shareholders, regardless of whether it has $20 million of assets.

Hon Lianne Dalziel: This is extraordinary—it’s exactly what my notes say.

CHRIS AUCHINVOLE: It is. It is similar, and I think it is important that those who are listening to the debate are party to some of the detail in the bill. It is not a matter of just talking in platitudes, although the Minister might be more comfortable with that. I think it is important that we get into the nitty-gritty of it, look at some of the hard stuff, and ask questions in the hope that those questions will be answered.

Again, the overarching question I have is why this bill has taken quite so long in coming back. Is that an indication of the significance that the present Government attaches to this bill? Because National would attach rather more to the integrity and the confidence that people can have in our capital markets in New Zealand. I notice that aspects of this bill—I think someone has commented on it—are borrowed legislation. A lot of it comes from Australia. To me, that is not entirely a bad thing, because, ever-increasingly, we do need to have closer relationships and closer harmony in our legislation with our trans-Tasman cousins so that there can be a regular interchange of business relationships between the two countries. Thank you, Madam Chairperson.

The question was put that the following amendment in the name of Pansy Wong be agreed to:

to insert the following new clause:

52A New section 45A inserted

The principal Act is amended by inserting, after section 45, the following section:

45A Panel to decide on use of code

The panel may decide whether a merger is structured solely for the purposes of avoiding the code and therefore must proceed as a takeover, in doing so the panel must consider—

(a) whether the same result can be achieved via a takeover; and

(b) whether there was a legitimate commercial purpose in preferring the merger; and

(c) whether there is a key feature of the merger that could not have been achieved through the use of a takeover mechanism, a key feature could include:

(i) a reduction of capital; or

(ii) an amendment of the target’s constitution; or

(iii) a variation of the terms of options or convertible securities; or

(iv) acquisition of more than one class of share by a single procedure.

I appreciate the confidence my colleagues are showing in me, in taking this call! I start by thanking the officials for the advice they offered to the Commerce Committee. I was negligent in not having raised this issue earlier when I took some calls, because the officials did help the select committee work its way through some very complex issues. I know there were lots of questions, and comprehension at times was lacking. The officials were very patient and we appreciate their indulgence. I also thank my select committee colleagues for the way they worked in drafting this Securities Legislation Bill, as well. The same argument applies. It is complex legislation and we worked collectively in a collegial way in order to come up with the best legislation that we possibly could—albeit I have expressed some reservations about compliance costs, and some of the complexities, and have raised the spectre of revisiting this legislation in future years, if the need arises.

Importantly, Part 3 deals with the sharing of information, and I will talk about that in a little detail. The information-sharing power inherent in this bill recognises the public interest in ensuring that regulators working in similar areas cooperate in the performance of their duties and, thus, enhance the efficiency of their investigation and enforcement functions. It might surprise members of the Committee that that has not been the way we have done things as a matter of course in the past, so I think that this is a very sensible initiative. Again, I thank the select committee members for working to make this possible.

Prohibitions against misleading and deceptive conduct have been introduced into this securities and takeovers law, and the same considerations suggest that the information-sharing power should be extended to encompass the Commerce Commission’s role under the Fair Trading Act. Again, I agree with that measure. It is a very significant and good initiative. My colleagues have touched on the significance of this legislation in the course of the debate, and on how important this legislation will be in enhancing confidence in our capital markets. I think information sharing like this is absolutely critical to the success of this legislation, so I commend this component particularly to members of the Committee as a cornerstone of the legislation and as something that is extremely important if successful prosecutions are to be brought.

I have laboured the point in the past and I do not want to bore members with it again, but bringing successful prosecutions for insider trading is notoriously hard to do. Without the ability to share information across Government departments and authorities, we will continue to have a poor success rate. So this is a very important component of enhancing our intention to capture those who would engage in misleading, deceptive, or insider-trading activities in this country.

We should have no sympathy for people who are prepared to engage in those activities. In the past I think there has been the view that white-collar crime like this is something we should not be overly concerned with. Well, it is mum and dad investors who are often the target of some pretty unscrupulous people who engage in activity for personal gain, which is why I feel so strongly about supporting this legislation and why, again, without labouring the point, I think the information sharing inherent in this bill is a very significant step in the right direction.

I conclude by again thanking the members of the Commerce Committee for working through this bill. I know there is one more debate to be had on the title, but I was remiss in not raising the point earlier. I know that some of the officials are here tonight. There are questions still unresolved in my mind that I am sure, if I had access to the officials, they would be able to answer. The Minister in the chair, the Hon Lianne Dalziel, has done a pretty good job in taking responsibility for answering tonight some of the legitimate concerns and questions, and I thank her, once again, for answering those. With those few words I will conclude.

National is supporting this bill, because we certainly believe in the objective of passing legislation to increase the confidence of investors. But I do have a concern. In the last 2 weeks in this Chamber we have been constantly told by the Hon Pete Hodgson that if the rules are correct and the interpretation is wrong, then Ministers will still pass the blame and say that the rules are not correct. So, to me, passing this legislation is fine—we are supportive of it—but what sort of assurance do we have in relation to agencies such as the Securities Commission, which is a statutory body, the Takeovers Panel, and the Commerce Commission, all affected by this legislation? If they operate following the intent of this legislation, will they be left alone to implement its spirit?

We have learnt this afternoon that the chairman of the Electricity Commission has been sacked, because he would not give in to political pressure. He wanted to carry out his duty according to legislative provision, but what happened? He was sacked. I want an assurance from the Minister that if we assist the Government to pass this legislation—in the spirit of improving and enhancing the confidence of investors in our capital and securities markets—the people who are in charge of the Securities Commission and the Takeovers Panel, if they adhere to this legislation, will be left alone to carry out their tasks objectively. I think that internally this legislation will assist them, because it will give them the flexibility to cooperate with each other. As my colleague Brian Connell said, they can share information in relation to commercial crime, such as insider trading, which is incredibly difficult to detect. So I think it is a good thing they are allowed to share information.

But to me, the biggest challenge facing those agencies is not so much having legislative backing; it is when, how, and where political interference comes. I have stated time and time again that if the Government is clear in its vision and in what it wants to achieve, only then is legislation the tool to point out the direction to get to that destination. But if the Government has no idea where it wants to go, then those agencies will be left carrying the can. For example, if the capital market continues to flounder, or if we find there are not enough investors interested, the Government will continue to say that it is because we do not have enough protection to tackle insider-trading practices, etc.

We are not trying to underrate the existence of the problem, and just now I have demonstrated that we have one case that was able to be prosecuted. Provenco was able to be prosecuted by the Securities Commission, under the existing legislation. That company and the Securities Commission eventually came to an agreement and agreed on a $600,000 settlement. So it seems to me that existing legislation had already provided the Securities Commission with the tool to do the job. The language and intent of this legislation are quite harsh and one wonders whether they will strike the balance, but the concern we really have is whether the Labour Government will leave those statutory bodies to carry out their tasks, according to the latter of the legislation we are debating tonight.

We have heard quite a lot lately about the seeming inability on the part of the Government to encourage New Zealanders to invest in stock, shares, bonds, securities, and other financial instruments instead of domestic property. I have no wish to be seen to be critical of Minister Dalziel—nothing would be further from my mind—but surely the Minister in charge of this bill will take a measure of responsibility for the seeming lack of confidence on the part of punters to invest their money beyond domestic property.

Perhaps the Minister in the chair, the Hon Lianne Dalziel, will take a call and explain why this bill is so late in coming forward.

The CHAIRPERSON (Ann Hartley): We are on three clauses—clauses 60 to 62—and they are quite narrow.

Hon Lianne Dalziel: Part 3.

The CHAIRPERSON (Ann Hartley): Part 3, clauses 60 to 62.

CHRIS AUCHINVOLE: We are sharing information on this aspect and I am sure the Minister will be interested in it. She is looking particularly interested as I speak. The Minister has surely accepted the fact of the matter that people are not sufficiently assured over the security of putting their money into the financial markets.

So we look at the specific parts we are presently discussing, clauses 60 to 62, as the Chair pointed out to me. Clause 62 amends the principal Act by inserting after section 48 new section 48A, “Sharing of information with Securities Commission or Takeovers Panel”, which states: “(1) The Commission may communicate to the Securities Commission or the Takeovers Panel any information that the Commission (a) holds in relation to the exercise of the Commission’s powers, or the performance of its functions and duties, in respect of this Act; and (b) considers may assist the Securities Commission or the Takeovers Panel in the exercise of their powers, or the performance of their functions and duties, in respect of false, misleading, or deceptive conduct under the Securities Act 1978 or the Securities Markets Act 1988 or the Takeovers Act 1983 or the takeovers code in force under that Act.”

Finally, for the sake of the listeners, I will read out subsection (2): “The Commission may use any information communicated to it by the Securities Commission under section 17B of the Securities Act 1978 or under section 15B of the Takeovers Act 1983 in the Commission’s exercise of its powers, or the performance of its functions and duties, in respect of this Act. (3) This section applies despite anything to the contrary in any enactment, contract, deed, or document.”

A central feature of the bill is the relationship between the Securities Commission and the Takeovers Panel, which is laudable. The question, though, that the Minister in the chair, the Hon Lianne Dalziel, should take a call on and answer is, what will this do to improve the confidence of investors in this country in the financial markets? Where will they draw from—the purpose of the bill—to increase the confidence of securities? How will this happen? How will it help? That is the challenge for the Minister. Will they stop investing in property? Will we see, with the passing of this bill, the intended target of the present Government, which is to see a wider-based level of investment on the part of New Zealanders other than into property? That is the question.

The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to Part 3 be agreed to.

Amendments agreed to.

Part 3 as amended agreed to.

Schedule 1

The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to schedule 1 be agreed to.

Amendments agreed to.

Schedule 1 as amended agreed to.

Schedule 2

The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to schedule 2 be agreed to.

Amendments agreed to.

Schedule 2 as amended agreed to.

Clauses 1 and 2