Parker David: Companies and Limited Partnerships Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Companies and Limited Partnerships Amendment Bill — First Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3858. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The Labour Party will be supporting this bill the Companies and Limited Partnerships Amendment Bill going to the select committee as the Hon Clayton Cosgrove has already indicated. I want to start by saying in response to the comment that was made by the last speaker on behalf of National Jonathan Young that this matter came to the knowledge of authorities in 2010. Those were his words and I will take him at his word on that. In 2012 2 years later we are considering the first reading of this bill and the question has to be asked why it is after 2 years of knowledge of serious fraud being committed around the world in a way that besmirches New Zealand’s reputation and therefore imposes long-term costs on the New Zealand economy for our businesses whose ease of doing business in offshore jurisdictions has been undermined by these instances of fraud that the Government has taken 2 years to get this bill from 2010 to 2012 into a first reading in this House. 
We know that New Zealand has a long-standing reputation which has taken approximately two centuries to cement in place as being one of the least corrupt countries in the world. We know because we are very good at using information technology to reduce business compliance costs in New Zealand that New Zealand is an easy place in which to form companies and we have known for some years now that some people have been taking advantage of that ease of setting up a company and of the lack of checks and balances as to whether people are telling the truth when they are filing the documents that are filed via the internet when they form a new company yet we have had such a lax approach by this Government that it has taken 2 years from the date when these problems became evident in 2010 for it to take some legislative step to bring about a remedy and protect New Zealand’s reputation overseas. 
What have been the consequences of that in the meantime? Well New Zealand has already been taken off a low-compliance white list in some overseas jurisdictions. Until we were struck off this white list in Europe the European banking system was able to rely upon documentation originating from New Zealand as evidence that the entity was non-corrupt. They could take these things at face value because New Zealand had a reputation for properly policing our system and pushing against corruption which is one of the reasons why until now we have been seen by Transparency International as one of the least corrupt countries in the world. But because of the lack of speed the lack of alacrity with which we responded to these problems that were being experienced we have been struck off that white list which means that the banks and the other institutions in the European Union are no longer entitled to carry out a simplified level of research and they cannot accept and acknowledge customer identification and corporate identification at face value now. 
That is of detriment to every New Zealand company that operates in Europe and has dealings with these European financial institutions that now have to be satisfied with more information being provided by the New Zealand corporate which no doubt increases their compliance costs as a consequence of this problem not being remedied earlier. 
The bill not only has restrictions on the registration of companies but enhances the registrar’s ability to investigate allegations of ill-dealing and deregistration powers for companies and as the Minister rightly said limited partnerships which if they were not covered could be used as substitute incorporated structures. There are some preconditions that are set out in the bill. Obviously the registrar has to have reasonable grounds before they exercise these powers otherwise we could be creating other injustices. Or if the registrar writes to the companies concerned and does not get a response from these companies because using the example that Jonathan Young referred to where there was a front of a Queen Street address where someone in the fast-food industry had registered companies on behalf of somebody else it is likely that if there were queries put to that person by the Registrar of Companies they would not get an adequate response or in fact they might get no response because the address might be fictitious or old in respect of those instances where the registrar does not get a response or does not get other information to confirm the correctness of information that might have been provided then there is a discretion for the registrar to strike those companies off. Indeed even before striking them off my understanding is that the bill confers some powers to put warnings on the register so that if someone is accessing those registers via the internet—and that could be someone in New Zealand but it could also be someone who is having business dealings with them in an offshore jurisdiction—that person could see that the registrar of the New Zealand Companies Office had some concerns and they might have cause to doubt whether they should take the information at face value or look a bit further. That will improve New Zealand’s standing in the international community and therefore make it easier for New Zealand to protect its reputation and for our legitimate corporates to go about their business because we will be taking a step to protect their legitimacy and the trustworthiness with which they are viewed by people overseas. 
There are also other amendments which are unrelated to this aspect that relate to takeovers and amalgamations. Currently there is a route under the Companies Act 1993 that enables schemes of arrangement including amalgamations or compromises that act a wee bit like mergers to go outside the rules that relate to the Takeovers Code. So the protections that lie for example with minority shareholders or requiring a certain level of shareholder support before a takeover can be put into effect under the Takeovers Code have had this alternative route under the Companies Act which they have been able to utilise in a way that avoids the Takeovers Code. This legislation makes changes to ensure that shareholders of the companies that are meant to be covered by the Takeovers Code cannot be disadvantaged by the company affected making the same changes under an alternative route under the Companies Act as opposed to under the Takeovers Code. There is a prohibition introduced on code companies using long-form amalgamations under the Companies Act. They will have to do that—if my understanding is correct—through the Takeovers Code rather than under the Companies Act. There are also changes to the voting thresholds that are required in respect of schemes of arrangement amalgamations and compromises under Part 14 of the Companies Act. There is a mechanism to seek a ruling a no objection statement from the Takeovers Panel—it may be of assistance to the parties if they are going through a court-related process to gain some tick-off if you like from the Takeovers Panel that it does not have an objection to what is proposed. 
The other change made by the bill that we are supportive of is the criminalisation of certain breaches of directors’ duties. There has been some terrible conduct on the part of some finance company directors that has been exposed since the global financial crisis caused a clean-out of finance companies. Not all of those finance companies were being improperly governed but some were. Some of the finance companies failed in what has been the greatest recession around the world since the Great Depression and you would expect following a recession like this that there would be some finance companies that would fail and that some people would lose some money. Certainly on this side of the House we are not saying that in finance companies there ought not to be some level of risk that could come to pass that causes people a loss—we do not go that far. But where directors are so errant in their responsibilities that they recklessly pursue a course of conduct that they know will put investors at risk in a way that is not properly disclosed to investors that is criminal—especially where they are profiting themselves personally or where through related parties like family trusts they are profiting. The greatest ill-gotten gains in that regard in recent years in New Zealand were probably by Mr Petricevic who has met some criminal penalties but who has not met criminal penalties for these sorts of breaches of duties where he probably should have faced legal risk in respect of them. This bill criminalises some of these more serious offences by introducing a term of imprisonment of up to 5 years or a fine of $200000 and in the worst of these cases that is absolutely appropriate.