Franks Stephen: New Zealand Guardian Trust Company Amendment Bill — First Reading 
Franks Stephen: New Zealand Guardian Trust Company Amendment Bill — First Reading 
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STEPHEN FRANKS (ACT) 
: 
 I rise for the ACT party to address the bill just introduced by Judith Tizard. This bill is designed to allow the New Zealand Guardian Trust Company a trustee corporation to breach trust law and do things that trustee companies are not allowed to do; that is to have transactions with its parent company where there may be a conflict of interest. It is not unprecedented. This arrangement has been permitted for trustee companies for some time on a case by case basis as members who spoke earlier have mentioned. Parliament in effect has approved new parents and said that they can have dealings with them. 
But the introduction of this bill as if it were just another standard copycat bill is evidence of the commercial naivety of the Labour Party and of the utter unsuitability of Dr Cullen and the Labour Ministers involved in the commerce area to their jobs. This bill should not be proceeding in a form anything like this. It is a completely different matter to allow related-party or cosy transactions within a group where the entire group is in New Zealand than it is to allow those transactions to occur with something as vital to so many people as a trustee company when the parent is offshore. 
We can draw parallels and lessons from Dr Cullen’s approach in allowing the control of the New Zealand banking industry to disappear offshore and allowing New Zealand’s ability to recover from a banking crisis to be determined by Australian banks and Australian regulators who do not need to give a stuff about New Zealand depositors. 
I urge the Commerce Committee to which this bill will go if it gets there to have a look at some recent speeches: two speeches by the Governor of the Reserve Bank Dr Alan Bollard one in Chicago and one earlier in Australia in August; a brief speech by Dr Michael Cullen to a tax and regulatory seminar on 14 October; and a speech by Mr John Key the National Party finance spokesman to a conference of independent financial advisers. 
I mention those members because they show a complete want of appreciation and ignorance—which was not shown by the Governor of the Reserve Bank—of the significance of cross-border group transactions. What Dr Bollard has pointed out and what ACT has been concerned about from the very moment I came to the House is that the Australian Government is ruthless when the interests of its citizens conflict with those of New Zealanders. Australian banking legislation for example states that foreign creditors of an Australian bank will not be paid until every Australian depositor has been satisfied. I understand that there are similar provisions in some of the other law affecting Australian financial institutions. Insurance companies and trustee companies are in the same category as banks in terms of people’s legitimate expectations that the Government will not simply sacrifice their interests to foreigners. 
Dr Bollard very properly drew the attention of his audiences to the fact that when risk limits and capital adequacy are established overseas when governance is driven from overseas when the management of the company that might have the money is out of the jurisdiction and when there may be an outright conflict of regulatory interests between the Australian regulator that wants to have happy and satisfied Australian creditors and the New Zealanders who are saying that their money went across to Australia the regulators and this Parliament should be deeply concerned. 
Dr Bollard has pointed out the practical problems. The Minister’s naive bill states that without any sort of restriction transactions can be entered into. If those transactions included for example transferring the accounting functions treasury management functions the risk management functions and mid-level and technical management and contracting those back from Australia and if there is a collapse in that group the New Zealand beneficiaries who depend on the integrity and capacity of the company could be left swinging and waiting for a very long time. There would be no capacity in New Zealand even to know what was happening. 
If the bills stopped being paid to the New Zealand provider of information technology for example—if the organisation even had information technology capacity in New Zealand—because the group had gone into receivership in Australia who would be able even to keep the records for the beneficiaries in New Zealand? This useless and utterly naive Government inherited a well-running economy from the National Party and an earlier breed of the Labour Party. 
Taking the example from Dr Cullen and his approach to banking regulation—which is essentially “Oh let’s leave it to the Aussies it’s all too complicated for us we don’t need to know about it—this bill comes in and states that the New Zealand Guardian Trust Company can do what it likes with its parent and we do not have to care about it. 
Well I hope the select committee gets some expert advice on the issue. I believe that because this is part of the financial sector committee members should go to the Reserve Bank and ask it what kinds of safeguards they should write into the bill to make sure that when Promina Group goes down if that happens people do not suffer the fate of the creditors of for example the most recent major Australian insurance company collapse. It was only the toughness of the New Zealand legislation around the Accident Compensation Corporation denationalisation that meant the New Zealand claimants did not swing after the Australians. It was the toughness of the US authorities which promptly seized $500 million of assets of the Australian group that meant the Americans got paid. We need a regime that makes sure New Zealanders are looked after before a bill like this goes through to look after the now Australian-based shareholders in a company that is as important to many New Zealanders as the New Zealand Guardian Trust Company. 
These trustee companies are not invulnerable. They are very dependent on the quality of local management. They are very dependent on the systems that are available. If the management and functionality is outsourced to Australia it would not matter how well intentioned the New Zealand authorities were in trying to impose a moratorium or in freezing things or in fixing things—as the Government had to do for the Perpetual Trustee Company in Dunedin 30 or 40 years ago. The Government had to step in there impose a moratorium put in administrators to run the company and ensure the company was run until it could trade out. In those days of course one could go to look up paper records and as long as they had not been thrown away burnt or dealt with fraudulently one could trace back and find out what had happened. 
In a company like the trustee company today if an Australian receiver decided he did not need to bother to pay the information technology fees for a New Zealand business that he had already decided was worthless we might find that the beneficiaries were quite helpless. The Government would have to step in and pay for what should be a cost met by the Australian owners who would presumably have sucked the benefit out of the company. It is not hard to loot a group whose governance is not subject to local jurisdiction. It could be done even if local directors did not know it was happening. If treasury management was centralised in Melbourne or Sydney it could simply be that short-term loans were made in perfectly good faith to the Aussie company when it was in strife which the local directors did not know about. Lo and behold when the balloon goes up they cannot repay those loans. A company that looked as if it had a perfectly sound balance sheet is suddenly shown to have undue exposure to its parent. 
This bill needs a great deal of work. I disagree with the National Party speakers—this is not a simple matter. This is a matter that is a precedent for a lot of transactions between our financial sector and other foreigners and it is not an anti-Australian move. We need to know that the capacity has been properly protected before allowing a trustee company open slather with its parent.