Cunliffe David: Companies and Limited Partnerships Amendment Bill — Second ReadingText is incorporated into the Bound VolumeCunliffe David: Companies and Limited Partnerships Amendment Bill — Second Reading[Sitting date: 02 July 2013. Volume:691;Page:11432. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn):Here we are in the dead of the afternoon with the Leader of the House having thrown the House into urgency to debate the Companies and Limited Partnerships Amendment Bill. Somehow it seems to me emblematic of the sense of drift and listlessness of the Government that this is the best that it could throw up in order to justify this period of urgency.There is nothing wrong with this bill. Labour supports the bill. It will provide limited steps forward to help improve the transparency and the integrity of commercial markets and we think that that is a good thing. I think all New Zealanders would think that that is a good thing and we commend the Government for doing that. But here we are throwing the House into urgency to debate a bill that is relatively routine and on which the Commerce Committee has done a relatively good job to tidy up at the edges.So what does this bill do? This bill gives new powers to the Registrar of Companies to investigate and deal with non-compliance under the Companies Act. It includes the power to flag companies on the register that are under investigation. It allows the removal of companies from the register if they provide inaccurate information or persistently fail to comply with the Act. It gives the registrar the power to ban directors of such companies from taking part in the management of any company for up to 5 years. It makes changes that are of a similar nature to the Limited Partnerships Act so that those misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead which is very important because limited partnerships were exceptional structures that were allowed to deal particularly with professional services firms’ challenges and were not seen as an alternative to the regular company structure.The bill better aligns the Companies Act and the Takeovers Code to ensure shareholders understand the effects that changes in company control will have on the value of their shares—Allied Nationwide Finance springs to mind—and quite important it introduces criminal offences for directors who commit a serious breach of their duties to act in good faith and in the best interests of the company and more on the detail in a minute. But I think it is very important for us to reflect that New Zealand does already have an international reputation as a trusted place to do business. I think we all celebrate that. We are all proud of the rule of law.The World Bank and the International Finance Corporation have ranked New Zealand No. 1 as the easiest place in the world to do business. That is both a good thing and a challenging thought. The good thing is of course we want business to be able to flourish because it provides jobs and it provides incomes. It is a bad thing in the sense that if we are already No. 1 for the ease of doing business then what is holding the New Zealand economy back—because it cannot get out of first gear at the moment—cannot be the fact that we are over-regulated because it is already the easiest place in the world to do business. It cannot be a deregulation problem. I see the Minister of Conservation over there. He wants to gut the Department of Conservation because it gets in the way of commerce. Cutting the budget cutting the number of rangers—anybody would think we were No. 183 out of 183 countries in terms of the ease of doing business not No. 1.So if this is already the easiest place in the world to get a business started why is the Government on a further deregulation crusade laying waste to the Resource Management Act trampling over local democracy with the Housing Accords and Special Housing Areas Bill making it illegal to protest against oil companies—because you could go to jail for exercising your democratic rights—and ensuring that if there are any little legal snags in the way of the surveillance agencies undertaking their work no problem we will just change the law to make it all legal? The Labour Opposition although it supports the bill is concerned at some of the subtext that lies around this. We are already an easy place in the world to do business. This bill actually strengthenssome of the requirements on companies in terms of integrity and transparency and strengthens the duties of directors and we think that that is appropriate. We think that it is a good thing. We commend the Government for doing that.Just turning for a second to the arrangements amalgamations and compromises of code companies under the current law companies that are subject to the Takeovers Code can use the provisions of the Companies Act 1993 relating to schemes of arrangements amalgamations and compromises to effect mergers with or acquisitions of other companies. Those provisions are being utilised by code companies to avoid the provisions of the Takeovers Code which protects shareholders in respect of transactions that result in a change of control to those companies. The bill provides a number of changes to ensure that shareholders of code companies will not be disadvantaged by changes to the company being effected under the Companies Act.I wish to turn briefly to the criminalisation of breaches of certain directors’ duties. The recent finance company collapses—and members opposite would not have any firsthand knowledge of that at all would they? None at all no none at all and the Minister would not have any firsthand knowledge of those issues I am sure. The recent finance company collapses in New Zealand have highlighted weaknesses in corporate governance and investor protection under New Zealand’s corporate law and the names are already legion: Bridgecorp Hanover Finance and the granddaddy of them all South Canterbury Finance.The bill in new section 138A in clause 4 provides for offences in relation to serious breaches of the following duties: “section 131 (duty of directors to act in good faith and in best interests of company)”; and in relation to section 135 the duty not to agree to or cause or allow company business to be carried out in a manner that is likely to create a substantial risk of serious loss to the company’s creditors. Well thank goodness! Here we are in 2013 passing a law that actually should have been there a little earlier because we all know that there is a generation of new poor: the senior poor. They are New Zealanders who worked hard played by the rules saved hard built up a bit of a nest egg put it in finance companies because they were told by some celebrity that it was as safe as houses with a return just a little better than a bank and then in hindsight we found out on their behalf that actually the business models that a lot of those finance companies were based on could never have worked. They were a one-way bet. They were securitised on equities and other leveraged instruments so that if markets kept rising they were fine but the moment that the underlying investment turned southwards the business model was—to use a technical financial term—stuffed and the investors were out of pocket. The directors often knowingly carried on with business models that could not have succeeded and in some cases that are a matter of court record now knowingly misled investors to disguise those problems until it was too late.I do want to mention South Canterbury Finance. I grew up in South Canterbury. It has always been kind of close to my heart. That was the biggest disaster on this Government’s watch—$1.7 billion of gross cost and $1.2 billion of net cost. That is about as much as the Government is flogging off in Mighty River Power. That is the power company for those watching whose shares are now worth less than they were when the Government privatised them so that those investors have taken a minor bath as well.What is really tragic for those viewing here is that of course the taxpayer could have been indemnified to a maximum loss of $500 million instead of the $1.2 billion it actually cost them because the Hon Craig Foss’ predecessor Mr Power and Mr English and Mr Key decided in their wisdom to veto the recapitalisation deal that South Canterbury Finance could have effected and—Hon Dr Nick Smith: Nobody believes this rubbish.Hon DAVID CUNLIFFE: Oh yes they do. It is all well documented. You talk to the brokers—Hon Dr Nick Smith: No—trying to rewrite history.Hon DAVID CUNLIFFE: No no. If you go and talk to the brokers you will understand the full extent of the Government’s failure. That failure has cost the taxpayer $700 million—give or take $10 million or $20 million perhaps—because the Government allowed this finance company to trade on and even renewed its licence. It issued further prospectuses and it took more investors’ money while the Government watched it and waved it through.Peseta Sam Lotu-Iiga: I raise a point of order Mr Speaker. He is clearly going outside the scope of this bill and talking about another bill that had been passed—The ASSISTANT SPEAKER (Lindsay Tisch): I am listening very carefully and his time is nearly up.Hon DAVID CUNLIFFE: Sad but true time is nearly up. So let me conclude by saying thus: South Canterbury Finance could have been saved with a recapitalisation deal that limited the taxpayer’s exposure; it was not. Instead the Crown wore the full cost. The strengthened disciplines in this bill would have addressed some of the issues that we saw writ large in the South Canterbury Finance case. This is a useful little bill. It is a shame that the Government has thrown the House into urgency to get it through. The Commerce Committee has done a good job on it. We support the contents of the bill. We need to ensure that New Zealand’s reputation—