Franks Stephen: Business Law Reform Bill — Second Reading 
Franks Stephen: Business Law Reform Bill — Second Reading 
[Volume:616;Page:12028] 
STEPHEN FRANKS (ACT) 
: 
 I rise for the ACT party to speak to the second reading of the Business Law Reform Bill. I say at once that we will vote for this bill on the basis that something is better than nothing even something as absolutely pitiful as this bill. This bill has been a very long time coming. Quite an interesting sequence of Ministers have had charge in this area—and we have now ended up with the Hon Margaret Wilson. None have had enough knowledge or authority to be able to persuade people that these are absolutely trifling matters and should proceed. So we have had the very long period of time during which New Zealand First was spooked by shadows and eventually we have reached this stage. 
The bits that I am interested in and on which I will comment on essentially for the record a record of sad failure are the changes to the Securities Act. They are absolutely hilarious if we look at what might have been. Very briefly the bill states that people who are wealthy or who are experienced investors can be allowed to go forward with an investment without putting the offer to the huge expense of the prospectus requirements. I know because that used to be my business. Typically complying with the offering requirements prospectus document requirements and the reports and sign-offs takes anything between $100000 and $300000 from the person who is proposing it and ultimately from the investment and the project. That is simply dead money the moment it has been spent. It does not add a cent in terms of return. 
We are now to take the very brave step of suggesting that wealthy people—with $200000 or more in wealth—and people who are experienced investors might just be trusted to appraise an investment without someone having first produced a prospectus. 
The next set of changes—and it would appear simple—is that the person who will decide whether they are experienced has to be an experienced financial service provider and he or she has to be satisfied that the person who will be entrusted to spend his or her own money can appraise the merits of the proposal can estimate value work out the risks and is getting adequate information. 
Next there will be a waiver of pre-prospectus publicity. A person can actually go out there in this world of free speech and say: “I’m thinking of putting together an investment and I can tell you a very few limited things about it without exposing myself to criminal sanctions.” That person can say what the name of the issuer will be give a brief description of the securities the rate of interest if any the total number the intended use of the subscription the terms of the offer the kinds of people to whom it will be made and the date. He or she cannot tell the most important thing—for example who is behind it who the directors might be who thinks it is a good idea or a bad idea what other businesses of that kind have performed where it might be risky and what their view is of the risks. In other words this is very lame. 
We have a very sensible exemption for employer superannuation schemes. I along with many others said 10 or so years ago that when the prospectus regime was applied to superannuation a lot of employers would say: “Flag. I don’t need that. We’ll do without it.” This is a mistake of securities law being remedied. 
Lastly there are the provisions to rescue the Australian issuers who have breached our law—Westpac and others. Let us look at these. What social purpose is this law serving? What possible value is securities law when it stops wealthy people or people with disposable income from deciding how to invest their money but it does not stop people from drinking themselves to death? We have no law that states people cannot climb mountains and kill themselves or ride motorbikes and kill themselves for the very obvious reason that people ought to be able to take those risks if they wish to. We have no law that states that people cannot gamble their whole estate on racehorses. We have no law that states people can buy a house only after it has been appraised by a valuer and that people are not allowed to throw their money away on a farm that will not produce. We have no law that states that a young person cannot invest his or her entire assets in a hot Japanese car a second-hand car or new car of any kind that will lose 40 percent of its value in the first year after a person buys it. 
We do not have a law that defines when people can marry or when they can have children. Can members think of anything more likely to affect their life chances and the value of their assets than having children? We have nothing that restrains having children. Indeed the Hon Margaret Wilson the Minister in charge of this bill as the Minister of Commerce now presides over a law that people with disposable income cannot be trusted to invest their income. Yet this Minister produced a law that without warning cuts people’s assets in half the moment they let their star boarder or the live-in boyfriend or girlfriend stay 1 day past 3 years. 
 In other words she automatically married people for property purposes cut people’s assets in half and overturned all the expectations that they and their families might have had in terms of what would be there to look after them in their old age and what might have been there to provide against sickness. All of that gets automatically cut in half the day after some boyfriend or girlfriend is allowed to stay longer than 3 years and with no warning. One does not have to have a prospectus. No one has to sign up. When the boyfriend turns up and offers companionship he does not have to say to the widow or the lonely mother: “If you let me stay I may well be able to bring an action even before 3 years are up and take half your assets.” 
But here we have this Government timidly saying that wealthy people and experienced people might just be allowed to make decisions about the investments of their own surplus money if they can get an experienced financial services provider to undertake that they are capable of making that decision. What a pathetic piece of reform! Securities law is a great big rort wherever it is. It works brilliantly for advisers. It works brilliantly for the people who publish prospectuses. It works brilliantly for the people who do glossy advertising. It works very well for accountants. There is no proof anywhere in the world that prospectus requirements and rules against pre-prospectus publicity make one blind bit of difference to the performance of financial markets. 
If anyone in this Government knew anything about business instead of signing up to even more onerous requirements from Australia they would be taking the money that has been wasted. I would guess from the number of floats on offer that this must be an industry worth $100 million a year from the advisory and other fees plus expenses. If they took a tiny fraction of that and applied it to enforcing the law against fraud and enforcing the Fair Trading Act against misleading and deceptive conduct and to chasing crooks a message would go out that would be of value to everyone in the commercial community. 
If they took a tiny fraction of what is wasted on securities law and on the Securities Commission’s pursuit of someone like the former chief executive of Air New Zealand one of Hawke’s Bay’s most successful businessmen who has been hounded because he dared to allow some wealthy people to invest in his business without jumping through these ridiculous hoops and spent a mere fraction of that on chasing the dishonest or beefing up the Companies Office investigating accounting resources instead of having a couple of overworked accountants—if they had five or 10 of them to chase fraud—we might have seen some practical reduction in compliance costs and some practical increase in commercial morality. 
Instead the Commerce Committee has laboured long and has not even produced a mouse. This modification of our prospectus regime is utterly hilarious and utterly pathetic. Here is a Government that has decided to push this legislationthrough. It came in under the Hon Lianne Dalziel’s name and is now under the Hon Margaret Wilson’s name. What commercial experience have those people got? How could they be put in charge of legislation like this? Well only because Labour has no one who knows anything about making money. None of them have ever made a buck on their own. They have always taken someone else’s salary and money and always used money with no risk. Those people presume to tell business what it can and cannot do in offering instruments for the investment of their own money. 
Bill read a second time.