Foss Craig: Companies and Limited Partnerships Amendment Bill — Second ReadingText is incorporated into the Bound VolumeFoss Craig: Companies and Limited Partnerships Amendment Bill — Second Reading[Sitting date: 02 July 2013. Volume:691;Page:11426. Text is incorporated into the Bound Volume.]Hon CRAIG FOSS (Minister of Commerce):I moveThat the Companies and Limited Partnerships Amendment Bill be now read a second time . I would like to thank the Commerce Committee for its timely consideration of this bill. The committee considered 13 written submissions and heard from eight submitters. The bill brings together three strands of policy along with many other recent reforms in the financial markets sphere which aim to increase confidence and ensure that New Zealand remains a trusted place to do business. These are crucial objectives that we must promote in order to achieve long-term growth of our economy.The bill proposes amendments to the Companies Act 1993 and the Limited Partnerships Act 2008 which will strengthen the rules applying to governance registration and reconstruction of companies and the registration of limited partnerships. New Zealand continues to be the No. 1 place for starting a business in the World Bank’s Doing Business index of the world economies. It is unfortunate that that same situation of trust which supports the ease of doing business in New Zealand is to a few undesirable individuals also sadly viewed as the opportunity to easily register and operate New Zealand companies under the cloak of secrecy.The genesis of this bill was a response by my predecessor to the use of a New Zealand registered company to facilitate international arms trading. The ease of registration and the use of shell companies to undertake criminal activity is damaging to New Zealand’s international reputation. It is in the public’s interest to know who is behind any company or limited partnership they are dealing with. Likewise enforcement agencies need effective tools to monitor the market. A key aim of the bill is to increase the transparency of companies and limited partnerships to an appropriate level but to a level that will not impede the ease of doing business for the vast majority of companies that are legitimate.I would like to comment on some of the most significant changes in the Commerce Committee’s report on these provisions. In relation to registration some submitters raised concerns that the measures in the bill as introduced and to deal with shell companies were not strong enough and were easily able to be circumvented. The Commerce Committee has now recommended that every company and limited partnership must have an identifiable individual who is the point of contact in New Zealand and that this person must be a director of that company or a director of a company in a country where New Zealand has reciprocal arrangements for the enforcement of criminal sanctions. I support this amendment.Most companies already have a resident director. At most 4200 companies of the over 550000 companies registered will need to adjust their circumstances and there are a range of options available for them to do so. Those companies that this measure intends to target could have used the previous resident agent option as a loophole to prevent transparency and accountability. In addition the Commerce Committee recommended requiring the date and place of birth of those running companies and limited partnerships and the disclosure of a company’s ultimate holding company if it has one. Again this will increase transparency with minimal additional compliance costs for companies.I am pleased to note that the committee has also brought forward the commencement date for the new registration requirements to 6 months after the Act receives the Royal assent rather than 12 months. This will put the provisions in place sooner but still with sufficient time for any affected companies and limited partnerships to adjust their circumstances as required.I have taken on board the Commerce Committee’s support of a power for the Registrar of Companies to require information about the true owners and ultimate controllers of companies and limited partnerships. This is an important amendment that will further assist New Zealand in meeting the Financial Action Task Force recommendations about the transparency of legal persons.I have introduced Supplementary Order Paper 249 which picks up this recommendation. The Supplementary Order Paper firstly sets out the purpose the registrar must have regard to before exercising either of two new powers for the purpose of the enforcement of specific laws relating to detection investigation and prosecution of serious crimes including money-laundering and the financing of terrorism.The first power is that the registrar can ask about beneficial interests in shares of a company and the circumstances that give rise to those interests. This is called a control interest in the Supplementary Order Paper. Several new sections define the concept of a control interest and where it applies and whom it applies to. Secondly the registrar has the power to require a director to disclose control information about a company. This includes directions or instructions given to the directors or the board by that person or any management or administrative powers delegated by that person.Both of these powers are recursive and the information provided can in turn be followed up the chain of control and ownership. The registrar can specify deadlines in the form of information and whether the information needs to be verified. Finally the registrar can share this information with named Government agencies or their overseas counterparts. New offences for failing to comply are provided with a maximum fine of $10000.These changes will also be applied to limited partnerships with slight modifications to take into account the different structure of a limited partnership. Many submitters commented on the provisions in the bill that deal with breaches of two director’s duties. The Commerce Committee recommended only minor changes but also further consideration of the drafting to ensure the provisions would not have a chilling effect on legitimate business risk taking. Although the bill never intended to do this I have taken the committee’s recommendations on board and officials have consulted further with submitters in an effort to tune the provisions so that they more clearly capture only behaviour that crosses the appropriate criminal threshold.The Supplementary Order Paper that I have introduced contains these redrafted offences. The good-faith offence has been amended to clarify the behaviour intended to be caught and to set out the defences as are available for the existing civil offence. The offence of reckless trading has been removed as a stand-alone offence and has been included as a new offence under section 380 of the Companies Act. An important feature of this new offence is that if affected creditors agree companies that are close to insolvency can enter into arrangements with their creditors to save the company without the directors facing the risk of prosecution. The new provisions will more directly capture blameworthy behaviour related explicitly to breaches of directors’ duties and will more closely align New Zealand’s company law with other countries including Australia.The offences introduce a concept of serious loss. This is intended to encompass a loss that would be more than material to the creditors involved. Creating offences for serious breaches of directors’ duties will deter behaviour that is harmful to markets and will sharpen the focus of directors on decision making compliance and good governance. Competent directors will never need to worry about these provisions. This in turn will increase investor confidence in the financial markets and strengthen New Zealand’s reputation for honesty integrity and transparency.The last part of the select committee’s report deals with amalgamations and arrangements for code companies. The bill will require all arrangements and long-form amalgamations that affect the voting rights of a code company to follow a modified court process. This process will mean that code companies will need to seek greater participation from—and in particular—small minority shareholders when considering undertaking these transactions.This new process is internationally consistent and will promote increased confidence by investors in capital markets. The Takeovers Panel will be empowered to regulate these transactions by way of issuing a “no objection” statement for the consideration of the court if it is of the opinion that the arrangements will not adversely affect shareholders. The select committee has also taken the opportunity to align the definition of a “director” across the Takeovers Act and the Takeovers Code to include reference to limited partnerships as well as companies. I support these amendments. The Supplementary Order Paper that I have introduced makes further minor amendments to these reconstruction provisions.It is important that the governance of companies the registration of companies and limited partnerships and the reconstruction of code companies work together in a consistent manner to promote New Zealand and to ensure that New Zealand remains a trusted place to do business. I am confident that these reforms will not only do this but also impose the necessary costs on legitimate businesses. I commend this bill to the House.