Franks Stephen: Business Law Reform Bill — First Reading 
Franks Stephen: Business Law Reform Bill — First Reading 
[Volume:609;Page:6535] 
STEPHEN FRANKS (ACT NZ) 
: 
 The ACT party welcomes the long-awaited arrival of this bill in the House and we look forward to it being a pattern for reasonably conservative and careful updating of the law from time to time. But I urge the Commerce Committee which is the select committee to which the bill will be going to be very careful that this bill is a measure that has conservative non-contentious and well-drafted provisions because a quick trot through it reveals some worrying aspects. 
The first of those is simply the ambition of the drafters. I notice that the statement of the net benefits of the proposal in the regulatory impact and cost compliance statement which is in the explanatory note of the bill contains rather incautious terms. If there is one thing that should mark out a bill of this kind it is that the statement of its purposes and intentions should be a very sober careful and unchallengeably accurate statement. Yet I see a sentence that states: “This incremental improvement will also ensure that the body of business law has the following characteristics:”—I just pause for a minute to say that to “ensure” anything is very bold indeed—”clear statutory provisions where money is not spent on legal fees to establish their meaning and businesses and regulators can proceed with certainty;”. I think that is a noble objective. It is a wonderful statement of aspiration but I would never ever have claimed that something could ensure that. The drafters of this bill who felt able to claim that they were ensuring clear statutory provisions where money is not spent on legal fees to establish their meaning and businesses and regulators can proceed with certainty are in heaven. 
That sparked in me an eager attempt to look at some of the things that I have known for many years were needless irritations and pointless causes of constant recourse to the lawyers. The first of those that I will look at is the new exemptions in the Securities Act. We were directed to look at those exemptions by Rod Donald who spoke recently. The Green Party now feels that it has pretty much got on top of the investment and capitalism business. It feels it has mastered it: one just invests in a rising market where one’s colleagues are opening the floodgates to immigration and one can feel like a Midas too. By doing that one can find that investment is easy and that all the bunnies who invested off shore just did not know how to do it. One just has to be like the Greens and buy property. That is very interesting. 
I can see that shortly someone in the Green Party will point to the exemption for the wealthy and claim that they no longer need prospectuses or offer documents because they come within that category of the wealthy. Wealthy people will now be able to avoid the compliance costs of the Securities Act—although I see that exemption is only for individuals with a net worth of $2 million and an income of $200000 a year. No the Greens I think possibly still have a little way to go towards meeting those criteria although their superannuation scheme if property keeps on going up in the way that it is at present might get each one of them into that blessed category. 
To be serious though there are problematic aspects to this bill and I do want the Commerce Committee to look at them very closely. For example it seems to have been assumed by the Minister who introduced the bill that nobody could possibly object to the change to section 61 of the Securities Act which prohibits indemnities or insurance for the directors officers employees and auditors of issuers. It states that issuers must not indemnify or directly or indirectly effect insurance for directors officers employees and auditors of issuers that covers liability for any negligence or default in their capacity as directors employees or auditors. If we now think of the inventiveness of the courts in going back and applying their hindsight judgment to business we can realise that that could be pretty significant. That prohibition could mean that a normal directors’ and officers’ liability policy for a member of a public issuer is something that must be funded out of his or her own fees. 
Then we look at the proposed new anti-avoidance clause new section 61C which states: “effect insurance includes pay whether directly or indirectly the costs of the insurance”. Does this Government still believe in Father Christmas? Does this Government believe that the directors of companies would not expect their fees to pay indirectly the costs of any necessary insurance? How do we deal with this issue and what is the net effect of saying that a company may not effect ordinary prudent insurance for its directors? 
Let us think for example of the directors of the various investment funds that inadvertently failed to comply with New Zealand’s securities law in filing all the copies of accounts etc. that they were required to file recently with the Registrar of Companies. It is said that one group of trusts alone—BT Financial Group which is now a Westpac subsidiary—is liable to pay $200 million to New Zealanders. Not unnaturally those people are desperately lobbying the Government to be relieved of that liability. Not unnaturally the Government which is in a far from cosy relationship with the Australians is coming under pressure to try to accede to that lobbying and to relieve those Australian companies of the obligation to pay New Zealanders $200 million that they would not have been able to get if it had not been for that default. 
I look at that provision that states that a company or an issuer in New Zealand cannot indemnify directly nor indirectly effect insurance for a director. I ask myself whether we are about to see the directors of Westpac in Australia suddenly struck with illegality because that company has been issuing in New Zealand. If we are we should think very carefully about that. For companies to be precluded from ordinary prudent insurance simply means that the regime in this country will come under constant pressure of the kind that is now coming to exempt the Australians from something that New Zealanders are being afflicted with. 
I also want to look very quickly—and I urge the committee to look—at the new exemptions from the prospectus offering requirements. I have already mentioned the exemption for “persons who are wealthy and experienced in investing money” in clause 89(2). That term is further defined in new section 3(9) inserted by clause 89 as people with the experience to be “able to assess—(a) the merits of the offer; and (b) the value of the securities; and (c) the risks involved in accepting the offer; and (d) that person’s own information needs;”. 
Why are those exemptions so confined? Why is a Labour Government so anxious to protect people who can well afford to lose money from the consequences of their own folly or imprudence? Why is the Government to impose that securities regime across a whole lot of people who individually have far less than $2 million in net assets and who have an annual gross income of far less than $200000 but who ought to be allowed to participate in the kinds of offers that are made outside the Securities Act regime? Why has that threshold been chosen when for this Government if one earns over $60000 a year one is wealthy enough to have one’s tax whacked up to 39 percent and one is wealthy enough to be in the top 5 percent of the population? Does this Government say that the top 5 percent of the earning adults in this country are so stupid that they cannot be trusted to make their own investment decisions and cannot be trusted to opt out of the securities regime and that the only ones who can do so are those who earn $200000? That must be such a tiny proportion of the population that I ask what the point of the exemption is.