Barker Rick: Business Law Reform Bill — Second Reading 
Barker Rick: Business Law Reform Bill — Second Reading 
[Volume:616;Page:11898] 
Hon RICK BARKER (Minister for Courts) 
 on behalf of the 
 Minister of Commerce 
: I move  
That the Business Law Reform Bill be now read a second time 
. This the second Business Law Reform Bill to come before the House is part of a programme of regular incremental housekeeping reforms to improve our business laws. Most of the changes in the bill are not dramatic but when taken together will make a significant contribution to keeping our business laws efficient effective and up to date and reducing unnecessary cost to business. 
The Business Law Reform Bill contains 122 clauses amending 13 business law statutes falling within the responsibilities of the Minister of Commerce. Some changes are purely technical and I do not intend to outline them. Instead I shall talk about six areas where the bill itself makes significant changes or where major changes to the bill were recommended by the committee. 
One of the statutes amended by the bill is the Personal Property Securities Act which came into force on 1 May 2002 and unified the very complex law governing securities over personal property and the priority of different debtors. The bill contains a number of provisions clarifying how that statute will work. In particular it contains an amendment to the Distress and Replevin Act to set out how that Act and the Personal Property Securities Act fit together. It clarifies the priorities between landlords and other creditors and as introduced it provided that landlords’ rights under the Distress and Replevin Act have priority over security interests under the Personal Property Securities Act. Some submitters suggested that that amendment disturbed well-settled law and pushed the commercial balance too far in favour of landlords at the expense of secured creditors. The bill was amended to achieve a better balance between those competing interests and now more closely reflects the position before the Personal Property Securities Act came into force. 
I accept that the Distress and Replevin Act is in need of a comprehensive review. That review is outside the scope of this bill but it is on the 2004 work programme of the Ministry of Justice. 
Clause 68 amends the Personal Property Securities Act to draw a more appropriate commercial balance between the interests of accounts receivable financiers such as factoring companies and trade suppliers. In doing so it recognises the important role that factoring companies play in providing cash flow to small and medium sized enterprises. 
In relation to wealthy and experienced investors the third major change reduces the costs for businesses of raising capital. As a protection for potential investors the Securities Act requires extensive disclosure of information before securities can be offered to the public. The bill provides exemptions where the investors have reduced need of that protection and disclosure costs are not justified by the protection given. The wording of the exemption was adjusted in the select committee as a result of submissions made on the bill. Originally the bill required that investors should be wealthy in assets and in income and experienced in investing money for the exemption to apply. Submitters suggested that the test was set too high and that the exemption would be of limited use. I agree. So did the committee. It has been adjusted accordingly so now exemptions apply to investors who are wealthy or experienced. 
There is a further exemption where the minimum value of the security to be subscribed for is $500000 or more. Investors with that sort of money are generally people in a strong position to make their own investment decisions. For the same reasons as the wealthy and the experienced are exempted those investors do not generally need the same degree of protection. 
The change in pre-prospectus advertising is designed to reduce the cost for businesses considering raising capital. The bill will allow people to publish advertisements that seek expressions of interest in the offer without complying with all the disclosure requirements. The public are protected by a number of provisions ensuring they understand that the advertisement does not amount to an offer. 
The fifth change also relates to compliance costs under the Securities Act. Schemes offering superannuation must comply with disclosure requirements under the Securities Act and in particular must produce a prospectus. That imposes large compliance costs on employer superannuation schemes—schemes to which employers contribute—that are then passed on to members reducing their retirement savings. Currently there is an exemption from the prospectus requirements for small employer superannuation schemes which do not have to produce prospectuses. The bill extends that exemption to all employer-based superannuation schemes. Specific requirements have been intended to ensure that employees are properly informed. 
In relation to void and voidable allotments the committee has in accordance with Supplementary Order Paper 152 recommended further amendments to the Securities Act to empower the High Court to make relief orders in connection with contraventions of sections 37 and 37A of that Act. The Securities Commission has exempted certain overseas collective investment schemes from the requirement for a prospectus under the Securities Act on certain conditions. A number of overseas issuers have committed minor breaches of that exemption notice many simply by the late filing of documents. As a result the exemption notice no longer applies and any securities allotted during the period of non-compliance are void and the issuer and directors liable to repay the securities with interest. This severe penalty occurs even when the breach is minor and would not have altered the subscribers’ investment decisions. Ordinarily where contracts are void issuers may be able to seek relief under the Illegal Contracts Act but there are arguments this Act does not apply in the security law area. So issuers may have no effective avenue to seek relief from allotments voided under the Securities Act. A number of overseas collective investment schemes risk losing millions of dollars if the situation is left as it is. This could lead to negative perceptions about New Zealand’s financial markets. 
The bill amends the Securities Act to include a procedure allowing issuers to apply to the court to grant relief. The relief would be similar to that available under the Illegal Contracts Act. The amendment will be retrospective allowing the court to consider breaches of sections 37 and 37A before or after the date of enactment and applying to proceedings not already concluded. The procedure is seen as an appropriate balance of all competing rights allowing relief in some situations and protection for investors where appropriate. 
In conclusion I say that although this bill deals with a range of amendments they are united by the aim of keeping our business laws up to date clear efficient and effective. The changes will help business by doing so and by removing unnecessary compliance costs. I wish to thank the members of the Commerce Committee for their work in considering this bill and acknowledge the contributions of those who provided submissions. I commend this bill to the House.