Corporate Reporter

Corporate Reporter
APRIL 2016
WELCOME
IN BRIEF
to Issue No. 40 of
Corporate Reporter, Bell
Gully's regular round-up of
corporate and general
commercial matters,
designed to keep you
informed on regulatory
developments, legislation
and cases of interest.
Items in this issue include:
o
Supreme Court allows Mark Hotchin to seek contribution from
trustee towards his liability to investors,
o
Terms of reference released for a review of the Insurance
(Prudential Supervision) Act 2010,
o
New health and safety laws now in force,
o
Breach of Overseas Investment Act places ‘‘associate’’ rules in
the spotlight,
o
The latest from the Financial Markets Authority, and
o
The latest media releases from the New Zealand Commerce
Commission and the Australian Competition and Consumer
Commission.
CONTENTS
CAPITAL MARKETS
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•
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•
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•
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Supreme Court allows Mark Hotchin to seek contribution from trustee towards his liability to investors
Regulatory relief required for offshore futures dealers
New exemptions for the $750,000 minimum investment wholesale investor exclusion
Proposed FMA exemptions for overseas businesses and restricted schemes
New standard conditions for market services licences in place
Two new FMA information sheets for fund managers
Proposed exemptions for small offers of co-operative shares
Disclose Register – new guide for providing managed fund data
RBNZ to review the Insurance (Prudential Supervision) Act 2010
Documents for insurer data collections updated
Mandatory credit rating requirement removed for some NBDTs
Updated NZX Listing Rules and Participant Rules
NZX releases submissions on its review of corporate governance reporting requirements
NZX publishes its inaugural Regulatory Agenda
MERGERS & ACQUISITIONS
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•
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Breach of Overseas Investment Act places “associate” rules in the spotlight
Regulatory update – Overseas Investment Act
Minor change to the threshold for Australian non-government in-bound investment
COMMERCIAL
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Hidden priorities – statutory charges and the PPSA
New health and safety laws now in force
The New Zealand Business Number Bill has been enacted
Targeted consultation on the intellectual property chapter of TPP
Free Trade Agreement with Korea
Technical documents released for second phase of the NZ ETS review
New law for businesses that sell food
COMPANY LAW
•
Company status description ‘struck off’ has changed to ‘removed’
COMPETITION AND CONSUMER LAW
•
•
The latest media releases from the New Zealand Commerce Commission
The latest media releases from the Australian Competition and Consumer Commission.
NEED MORE INFORMATION?
For more information on any of the items in the Corporate Reporter, please contact your usual Bell Gully adviser
or any member of Bell Gully’s Capital Markets, Commercial, M&A or Competition teams. Alternatively, you can
contact the editor Diane Graham by email or call her on 64 9 916 8849.
Disclaimer
This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects
of those referred to. You should take legal advice before applying the information contained in this publication to specific issues
or transactions.
CORPORATE REPORTER – 21 April 2016
2
CAPITAL MARKETS
In the courts
Supreme Court allows Mark Hotchin to seek contribution from trustee
towards his liability to investors
Mark Stephen Hotchin v The New Zealand Guardian Trust Company [2016] NZSC 24
Author: Jesse Wilson
Last month, the Supreme Court reversed the High Court and Court of Appeal’s decisions striking out Mark
Hotchin’s claim seeking a contribution from New Zealand Guardian Trust (Guardian Trust) towards Mr Hotchin’s
alleged liability to members of the public who invested in debenture securities issued by Hanover Finance Limited
(Hanover Finance).
As a result of the decision, Mr Hotchin will be allowed to file a fresh claim in which he would contend that:
•
he was liable to investors for untrue statements in Hanover Finance’s prospectus;
•
Guardian Trust (as the trustee for Hanover Finance) is also allegedly liable for not taking enforcement action
to prevent Mr Hotchin from causing damage to investors; and
•
it is just and equitable that Mr Hotchin should receive a contribution towards the settlement sum that he paid
to the Financial Markets Authority (FMA).
Background
Mr Hotchin was a director of Hanover Finance, which failed in 2008 causing significant losses to investors in
Hanover Finance’s debenture securities.
In 2012, the FMA filed proceedings against Mr Hotchin and his fellow directors alleging that the Hanover
Finance’s prospectus and advertisements contained untrue statements. In particular, the FMA alleged that the
public offer documents presented a misleading picture of the declining liquidity position and the increase in
overdue and impaired loans. Similar allegations were also made against Mr Hotchin in respect of other issuers in
the Hanover Group, for whom Perpetual Trustee was the trustee.
The FMA sought compensation under the Securities Act 1978 for depositors who sustained losses by reason of
the untrue statements.
Mr Hotchin joined Guardian Trust and Perpetual Trustee as third parties to the FMA proceedings claiming that, if
he was liable to the FMA, then the trustees were liable to contribute to any compensation that he was required to
pay to the FMA. Both trustees applied to strike out the third party claims for contribution.
For the purposes of a strike out application, the Court assumes that the allegations underpinning a claim can be
proven and asks whether – even if all the facts could be proven – the claim would nevertheless be legally
untenable. If so, the claim is hopeless and should be disposed of without trial.
The law of contribution
Where more than one person has contributed to the same damage, the injured party may choose to sue any or all
of the wrongdoers who contributed to that damage. This means that the injured party can recover all of the
compensation in respect of that damage from the person who is sued. For example, in the leaky building
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litigation, it is not uncommon for building owners to seek recovery from deep-pocketed defendants such as the
local authorities (backed by ratepayers) rather than chase other culpable parties such as builders and designers.
The law of contribution addresses the resulting potential injustice for the wrongdoer who is sued. The law
provides a right of action in “contribution” under which:
•
if the wrongdoer can establish that other parties caused the “same damage” and would – if they had been
sued – be liable to the injured party; then
•
those other parties can be ordered to make a just and equitable contribution to the compensation that was
ordered against the party who was sued. The proportionate allocation of the liability will reflect the Court’s
view of their respective levels of responsibility.
A successful contribution claim therefore does not result in any increase in the compensation for the injured party,
but instead provides for the parties responsible for the damage to share the burden of liability equitably between
one another.
These rights of contribution arise under statute (section 17(1)(c) of the Law Reform Act 1936) and equity. Under
the statutory right to contribution, the test is whether the two parties are tortfeasors who are “liable in respect of
the same damage” to the injured party. Under the equitable doctrine, the test is whether the parties share a
liability that is “co-ordinate” (which means that the liability is of the same nature and extent).
Earlier decisions
The trustees’ strike out application was successful in both the High Court and the Court of Appeal.
The High Court and Court of Appeal found that Mr Hotchin’s claim in tort under the Law Reform Act was
untenable. They held that the availability of a right of contribution requires a legal analysis of the claims against
each alleged wrongdoer to determine whether the wrongdoers share a common liability to the injured party. They
considered the nature of the liabilities and concluded:
•
Mr Hotchin owed the investors a duty to make accurate statements in prospectuses and certificates. The
damage suffered by the Hanover investors as a result of Mr Hotchin’s alleged breach of duty was the loss of
their deposits made in reliance on those statements or the excessive prices paid.
•
The trustees’ duties were of a very different nature, to protect investors against the harm arising from
breaches of the companies’ obligations under the trust deeds. The trustees cannot be liable in respect of the
damage suffered by the investors where they did not owe a duty to protect them against the harm of
inaccuracies in the directors’ statements. They did not assume substantially the same obligations towards
the investors as those performed by Mr Hotchin. The obligations they each assumed were not of the same
nature or extent.
•
Even if Mr Hotchin’s allegations against the trustees were assumed to be true for the purpose of the
application, the trustees could not be liable for “the same damage” as Mr Hotchin caused to the investors.
Their view was principally based on their interpretation of a 2002 decision by the English House of Lords (Royal
Brompton Hospital NHS Trust v Hammond [2002] 1 WLR 1397).
The Supreme Court’s decision
The Supreme Court split three judges to two in favour of allowing Mr Hotchin’s appeal (the Chief Justice, Justice
William Young, and Justice Glazebrook in the majority; and Justice O’Regan and Justice Arnold in the minority).
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Majority view
The three majority judges wrote separate judgments. In essence, they held that the High Court and Court of
Appeal were wrong to focus on whether the nature of the liabilities was similar or common between Mr Hotchin
and the trustees and whether the damage was allegedly caused in a similar way, or arose out of, the same set of
circumstances.
In the majority’s view, the legal test simply involved an inquiry into whether the damage caused by the party
seeking contribution could be said to be “the same damage” as the damage allegedly caused by the party from
whom contribution was sought. If those two damages overlapped, contribution was potentially available between
the parties and that should be determined at trial. The majority considered that the same approach applied to
equitable contribution; i.e., the test is whether the damage is the same, with no additional requirement.
In the majority’s view, the damage caused to investors was the loss of their investments. Mr Hotchin contributed
to that damage by causing investors to invest on the faith of untrue statements, thereby locking them into
debenture investments, and – for the purposes of the strike out application – it was necessary to assume that it
could be proved that the trustees should have intervened sooner. On that view, the damages could overlap. The
majority did not express a view on whether they would in fact overlap and said that the extent of any overlap (and
therefore whether a right of contribution exists) is a trial issue.
Minority view
The two dissenting judges applied the same legal test as the High Court and Court of Appeal: i.e., that the parties
must share a common liability and that it is necessary to analyse the legal nature and substance of the claims to
determine whether the two sets of alleged liabilities are legally common. On that approach, they concluded that it
was incorrect to characterise Mr Hotchin and the trustee as allegedly causing the same damage simply because
the investors lost their money. The fact that Mr Hotchin’s misleading statements and the trustee’s allegedly
negligent failure to intervene both led to the same ultimate result (investors losing their money) does not mean
that Mr Hotchin and the trustee share a common liability or that their liabilities are the same.
Implications of Mr Hotchin’s settlement
A further complication of the issues arose when, after the Supreme Court hearing, Mr Hotchin and several of his
fellow directors announced:
•
that they had reached a settlement with the FMA, in which they denied liability; and
•
in a separate press release, they said: “We, and the experts we had retained to report on Hanover affairs,
thought it was clear that there had been no breach of the Securities Act, and that any fair and expert
assessment, free of any political considerations, would lead the FMA to close its file … We decided to settle
because of the cost and burden of litigation lasting for many more years, and because our insurers and
former insurance broker made it possible to provide a payment which will go to the investors.”
This raised an issue as to how Mr Hotchin could, on the one hand, enter into a settlement denying liability and, on
the other hand, bring a claim for contribution in which he intended to prove that he was liable.
The majority judges concluded that the settlement and Mr Hotchin’s statements did not preclude a further
1.
contribution claim However, the majority judges were plainly unimpressed by Mr Hotchin’s inconsistent stances:
•
1
The Chief Justice said that Mr Hotchin’s position had an “artificial appearance” which meant that the claim for
contribution “may be viewed with some scepticism”.
The minority judges were not required to address the issue, given their different view on the outcome.
CORPORATE REPORTER – 21 April 2016
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•
Justice Glazebrook said, “At best, this is hypocritical. But the suspicion must be that this may be a cynical
attempt to force a settlement with Guardian Trust. If this is the case, the courts should not be party to what
would be a misuse of the court processes”. Her Honour went on to contemplate that Guardian Trust could
potentially bring a new application to prevent such an abuse of process.
•
Justice William Young said that “His litigation stance as against the trustee is thus diametrically opposite to
the position he has, in every other respect, maintained in relation to this litigation”.
It therefore remains to be seen how the High Court will deal with Mr Hotchin’s shifting stances and whether it is
possible for him to establish that it is just and equitable that he should receive a contribution to his settlement.
Implications more generally
The minority judges expressed concern that the majority’s approach would mean that there is now a greater
scope for contribution claims that cannot be addressed at the strike out stage. They said:
Glazebrook J [one of the majority judges] acknowledges in her reasons that the broad approach to
“same damage” preferred by the majority may mean there is much more scope for contribution claims
that will not be able to be addressed at the strike out stage. We see this as a matter of some
significance. Glazebrook J suggests this problem is the price necessary to secure conceptual simplicity
and a just result. We do not think it can be assumed it will lead to a just result. A plaintiff seeking to
pursue a simple tort claim for economic loss against a tortfeasor may be confronted with contribution
claims that, however remote and unmeritorious, will not be able to be resolved except at trial. That may
reduce the chances of a settlement between the plaintiff and the tortfeasor and may make the resulting
litigation more complex, expensive and lengthy. It will also mean that contribution claims will stand or fall
on the assessment of what is just and equitable under s 17(2). While that may be conceptually simple, it
is inherently uncertain and unpredictable. If the broad approach provides “conceptual simplicity”, these
consequences are a high price to pay.
These comments may have some force. On the majority’s view, the test for statutory and equitable contribution
does not require any commonality in the nature of the liability but only an assessment of the damage. It may
often be necessary to determine at trial whether the damage is the same. When the courts require such issues to
be addressed at trial, rather than at a preliminary stage, the parties are subject to the civil litigation process, which
can be slow and expensive. There are reasons to be sceptical that a broader approach – which will probably
result in more contribution claims being litigated at trial – will be more conducive to justice than the narrower
approach applied by the High Court, Court of Appeal, and the minority of the Supreme Court.
Bell Gully acted for the Guardian Trust in the High Court, Court of Appeal and the Supreme Court. Views
expressed in this case note do not reflect the views of any client.
Regulatory developments
Regulatory relief required for offshore futures dealers
The client money rules in Part 6 of the Financial Markets Conduct Regulations 2014 (the Regulations) and their
application to wholesale exchange-traded derivatives is causing concern for derivative issuers. Last year, in
response to that concern, the Financial Markets Authority (FMA) issued an exemption for US futures commission
merchants in the Financial Markets Conduct (US Futures Commission Merchants) Exemption Notice 2015. That
exemption exempts US FCMs from compliance with the Part 6 client money rules, but only in respect of products
traded on the NZX derivatives market. The FCM must still comply with the New Zealand client money rules in
respect of products traded on offshore markets.
The FMA has said that it will be approaching the Ministry for Business, Innovation and Employment (which
administers the Regulations) to seek “clarification” that the client money rules do not apply to exchange-traded
CORPORATE REPORTER – 21 April 2016
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products traded on an offshore market for wholesale investors. However, in Bell Gully’s view this would not be a
clarification; it would be a law change. That is, there is no doubt that the Regulations, as currently drafted, apply
to derivatives traded on offshore markets for wholesale investors.
For more information, please see our previous briefing: Is relief in sight for offshore futures dealers from NZ client
money rules?
Financial Markets Authority (FMA)
New exemptions for the $750,000 minimum investment wholesale investor
exclusion
The FMA has granted exemptions for offerors of certain debt securities that rely on the $750,000 minimum
investment wholesale investor exclusion in clause 3 of Schedule 1 of the Financial Markets Conduct Act
2013. Generally, offerors relying on this exclusion must include a warning statement in every offer document and
obtain an acknowledgement of the warning from investors under the requirements of Schedule 8 of the Financial
Markets Conduct Regulations 2014. The Financial Markets Conduct (Wholesale Investor Exclusion - $750,000
Minimum Investment) Exemption Notice 2016 changes these requirements for:
•
offerors of Kauri bonds who are now exempted from the warning and investor acknowledgement
requirements (without conditions), and
•
offerors on the issue of other unsubordinated debt securities who must include a warning statement only in
the principal terms sheet (which must be given to the investor) and are exempted from the investor
acknowledgement requirement.
The exemption notice also allows warnings for secondary sales of unsubordinated debt securities to be given in
any principal terms sheet provided to the investor. However, it is only mandatory to give the principal terms sheet
to the investor if the Bloomberg page does not contain a link to the principal terms sheet (which includes a
warning statement). Offerors on the secondary sale of unsubordinated debt securities are exempted from the
investor acknowledgement requirement.
The exemptions deal with specific transactional issues that were raised with the FMA as being particularly
unworkable, and have only been granted on a 12-months basis (i.e. until 4 February 2017) to enable the FMA to
monitor the use of the exemptions.
Proposed FMA exemptions for overseas businesses and restricted
schemes
Last month the FMA consulted on four proposed exemptions for overseas businesses and trustees of restricted
schemes to further support the implementation of the Financial Markets Conduct Act 2013 (FMCA) regime. A
copy of the consultation paper is available here.
The proposed exemptions will provide for:
•
FMC reporting entities with overseas subsidiaries operating in jurisdictions with inflexible balance dates to be
exempted from the balance date alignment requirement under the FMCA, regardless of whether or not a
change to the balance date could be made through a regulatory approval process,
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•
overseas custodians to be exempted from the requirement to obtain their assurance engagement from a New
Zealand qualified auditor where:
- the auditor providing the assurance engagement is independent of the custodian, and is a registered
auditor in the country in which the custodian’s operations are based, and
- the custodian is named as part of the assurance engagement.
•
certain overseas banks to offer simple debt products to their existing investors resident in New Zealand
without having to prepare part 3 disclosure documents or comply with the part 4 governance requirements
(trust deed and supervisor), and part 7 financial reporting requirements of the FMCA.
The FMA is also proposing to address, through exemptions, the practical ability of restricted schemes (i.e.,
KiwiSaver, superannuation, or workplace savings scheme that has restricted membership or is closed to new
members) to comply with the licensed independent trustee requirement when they use a sole corporate trustee
until legislative amendments are able to be put in place.
The exemptions are expected to be in place by mid-2016.
New standard conditions for market services licences in place
From 31 March 2016 variations to some standard conditions for Financial Markets Conduct Act 2013 (FMCA)
market services licences came into effect. This followed on from the FMA’s consultation in December last year
seeking market participants’ views on proposed variations to the standard conditions.
The key changes relate to the auditor’s procedures and the financial resources condition. In particular, managed
investment scheme licensees who have a supervisor are now required to report negative net tangible asset (NTA)
positions to their supervisors, rather than to the FMA, and their auditor’s report will only cover the year-end NTA
calculation on the basis of their audited financial statements.
The updated standard conditions are set out in the documents listed below:
•
•
•
•
•
•
Standard conditions for crowdfunding service licences,
Standard conditions for derivatives issuer licences,
Standard conditions for DIMS provider licences,
Standard conditions for Independent Trustee (Corporate) licences,
Standard conditions for managed investment scheme manager (MIS) licences, and
Standard conditions for peer-to-peer lending service licences.
Two new FMA information sheets for fund managers
The FMA has published the following new information sheets for fund managers, supervisors and their advisers:
•
“How to calculate 0% PIR returns” which sets out the formula the FMA expects managers of portfolio
investment entity (PIE) funds to use when calculating a fund’s return with a 0% prescribed investor rate, and
•
“How performance-based fees should be disclosed” which outlines how the FMA expects fund managers to
disclose performance-based fees to investors.
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Proposed exemptions for small offers of co-operative shares
The FMA is consulting on proposals to provide class exemptions to give co-operative companies and industrial
and provident societies a lighter path of compliance with the Financial Markets Conduct Act 2013 (FMCA) when
they offer shares of minimal value to members. The proposals are for class exemptions from the part 3 disclosure
requirements and part 7 financial reporting and audit requirements of the FMCA for certain offers of co-operative
shares.
Submissions close on 6 May 2016.
For more information see: Consultation paper: Exemption for small offers of co-operative shares.
Companies Office
Disclose Register – new guide for providing managed fund data
The Companies Office has released a guide for managers of managed funds which clarifies how fund data should
be prepared and uploaded to the Disclose Register. The guide outlines the options for delivery of data, file
formats and data requirements.
A copy of the “Guide for providing managed fund data on the Disclose Register” is available here.
Reserve Bank of New Zealand (RBNZ)
Reserve Bank to review the Insurance (Prudential Supervision) Act 2010
The RBNZ has released a terms of reference for a review of the Insurance (Prudential Supervision) Act 2010
(IPSA) to ensure that “IPSA provides for a risk based and cost effective regulatory and supervisory regime that
promotes the soundness and efficiency of, and public confidence in, the insurance sector”.
This will be the first review of the Act since its enactment, and although the RBNZ considers that IPSA has
generally worked well, the Bank views the review to be timely given the number of recent developments relevant
to the prudential regulation of insurance in New Zealand. These include changes in the insurance sector, such as
the entry and exit of insurers and the developments of new business models and insurance distribution channels;
updated international guidance on insurance regulation and supervision, and the recent changes to financial
market conduct regulation in New Zealand.
The terms of reference indicate that the review will be a comprehensive review of IPSA, albeit undertaken on the
basis that the current legislative purposes in IPSA remain appropriate. Issues that the review will consider include
whether:
•
•
•
•
•
there is scope to reduce the fragmentation of requirements across regulatory instruments,
additional tools are needed to recognise the diversity of business models in the insurance sector,
the requirements for overseas insurers adequately balance the goals of recognising home country regulation
versus adequately protecting New Zealand policy holders,
there is scope for the regime to provide more proportionate regulatory responses, and
there is increased scope to use generic, as opposed to individually applied, requirements.
Work on finalising the scope of the review will take place over 2016 and a formal public consultation is expected
to commence in the fourth quarter of 2016, with the release of an Issues Paper. The Issues Paper will set out
what the RBNZ sees as the key issues to consider in the review and it is expected to invite stakeholders to
CORPORATE REPORTER – 21 April 2016
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comment on those issues or suggest other issues that should be included with the review. This will be followed by
the release of an Options Paper for public consultation in 2017.
The RBNZ has indicated that any changes to IPSA would occur in 2018 at the earliest, and therefore are not likely
to have effect before 2019.
To read the full media release on this review click here.
Documents for insurer data collections updated
In March, the RBNZ published updated versions of all Forms, Definitions and Guidance to the insurer data
collections. Most of the updates are minor or clarifying in nature. However, an exception is the Insurer Return
and Quarterly Insurer Survey changes in respect of the tax component of policy liabilities under life insurance
methods. The updates apply for report dates from March 2016.
Regular data returns are required from licensed New Zealand insurers to support the prudential supervision of the
insurance sector by the RBNZ under the Insurance (Prudential Supervision) Act 2010.
For details refer to the RBNZ’s Insurer data collections page.
Mandatory credit rating requirement removed for some NBDTs
The RBNZ has granted a new class exemption for certain Non-bank Deposit Takers (NBDTs) from the
requirement to have a mandatory credit rating under the Non-bank Deposit Takers Act 2013. The Non-bank
Deposit Takers (Credit Ratings Minimum Threshold) Exemption Notice 2016 replaced the Non-bank Deposit
Takers (Credit Ratings Minimum Threshold) Exemption Notice 2009, with effect from 15 February 2016.
The 2016 exemption widens the number of NBDTs to whom the exemption is available. It is available if the NBDT
has only just commenced business, or the consolidated liabilities of the borrowing group of the NBDT are less
than $20 million measured as an average over a specified 12-month period. The exemption notice outlines certain
conditions, including specified capital ratio requirements that a NBDT must comply with in order to benefit from
this class exemption.
A copy of the notice is available here.
RBNZ consults on a crisis management regime for systemically important
financial market infrastructures
In March 2016, the RBNZ issued a consultation paper on proposed crisis management powers for systemically
important financial market infrastructures (SIFMIs).
The proposed crisis management powers form the final part of proposals that the RBNZ announced in December
2015 for a new oversight regime for designated FMIs.
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The proposed crisis management regime has two parts. First, SIFMIs would be required to maintain business
continuity plans, and recovery and orderly wind-down plans. Second, the joint regulators (the RBNZ and the
Financial Markets Authority) could call on proposed new statutory powers when these plans are inadequate to
manage a crisis.
Submissions close on 20 May 2016. A copy of the consultation paper is available here.
NZX Limited (NZX)
Updated NZX Listing Rules and Participant Rules
On 7 March 2016, NZX shortened the trading settlement cycle from the trade date plus three business days
settlement (T+3) to a trade date plus two business days settlement (T+2) for cash market trades on its markets.
This required a number of minor changes to the NZX Main Board/Debt Market Listing Rules, NZAX Listing Rules,
FSM Rules, NXT Market Rules (together the NZX Listing Rules) and the NZX Participant Rules to give effect to
the shortened settlement cycle. In addition, NZX reduced the “Ex Period” for corporate actions by one business
day to align it with the reduced settlement cycle.
The new NZX Listing Rules and Participant Rules, which also came into effect on 7 March, are available on NZX’s
website here.
NZX releases submissions on its review of corporate governance reporting
requirements
NZX is currently reviewing the 45 submissions it received in response to its consultation on proposed changes to
corporate governance reporting requirements within the NZX Main Board Listing Rules. Most of the submissions
are available to view on NZX’s website here. Specific areas in respect of which NZX sought feedback on included:
•
•
•
•
•
•
•
•
whether NZX should adopt the principles outlined in the Financial Markets Authority’s December 2014
“Corporate Governance in New Zealand Principles and Guidelines” as the basis for an updated reporting
regime,
whether recommendations should be reported against on the basis of an approach of “comply or explain”,
whether boards should comprise a majority of independent directors and/or an independent chairperson,
whether issuers should be required to publish their remuneration policy dealing with the remuneration of
directors and senior executives,
whether issuers should have a written policy for complying with their continuous disclosure obligations,
whether NZX should introduce any additional recommendations or best practice commentary in relation to
non-financial reporting matters (e.g., "environmental, social and corporate governance" factors),
the area of risk management, with NZX noting that this is a "significant gap in the current reporting regime",
and
the proposed adoption of the ASX Corporate Governance Council's recommendations on the provision of
information and facilities to shareholders to allow them to exercise their rights effectively.
NZX also hired TNS New Zealand to interview 15 small and medium-sized issuers to get their opinion on the
review. A copy of the TNS Report is available here.
NZX expects to be in a position to release a follow-up consultation paper in the third quarter of this year. This will
outline the proposed updated reporting requirements based on the initial feedback received in the written
submissions as well as from its targeted consultations.
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NZX publishes its inaugural Regulatory Agenda
NZX has published its inaugural Regulatory Agenda which highlights the regulatory outcomes NZX Regulation is
pursuing this year, and identifies three key strategic areas of focus for 2016. These three areas – market
infrastructure, orderly markets and market engagement – reflect NZX’s statutory obligations; the current economic
environment; and NZX’s view of the key risks and trends relevant to the regulation of its markets.
In 2016, NZX intends to commence a review of the NZX Main Board/Debt Market Rules, which is expected to
span 2016–2017.
For further details, click here.
MERGERS AND ACQUISITIONS
In the courts
Breach of Overseas Investment Act places “associate” rules in the spotlight
Chief Executive of Land Information NZ v Carbon Conscious New Zealand Ltd [2016] NZHC 558
Authors: Andrew Petersen and Glenn Shewan
In the “first case of its kind”, the High Court has ordered Australian-owned Carbon Conscious New Zealand Ltd
(CCNZ) to pay a NZ$40,000 penalty and more than NZ$6,000 in costs for breaching the Overseas Investment Act
(the Act).
CCNZ, an “overseas person” for the purposes of the Act, needed Overseas Investment Office (OIO) consent to
buy the property in question (the property meeting the definition of sensitive land under the Act). However, the
time which would have been required to obtain OIO consent under the Act posed difficulties for CCNZ in meeting
certain tree planting obligations that it owed to a third party. In an attempt to circumvent these difficulties, but
following legal advice, CCNZ had a New Zealand associate buy the property instead – and in doing so became a
party to a transaction which resulted in an overseas investment in sensitive land without OIO consent.
The purchaser was an associate because of various contractual arrangements with CCNZ (including an option for
CCNZ to acquire the land). According to the judgment “the nature of the breach in this case involved a deliberate
circumventing of the Act’s controls on overseas investment. Katey LR was incorporated so as to avoid the need
for CCNZ to obtain consent, and to disguise and distance CCNZ from the purchase of the property.”
This case demonstrates the broad reach of the “associate” provisions of the Act, and the risks involved with
seeking to structure transactions to avoid the application of the Act. While similar issues arose back in 2010,
when associates of overseas company Natural Dairy (NZ) Holdings Limited acquired various “Crafar Farms”
interests, in that case the OIO for various reasons did not seek pecuniary penalties. Accordingly, this was the first
case to grapple with quantum of pecuniary penalties for acquiring sensitive land without consent.
A copy of the decision is available here.
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Overseas Investment Office (OIO)
Regulatory update – Overseas Investment Act
The OIO has recently released guidance on its interpretation of the definition of “overseas person” under the
Overseas Investment Act 2005 (the Act) in response to queries about how to determine the level of ownership in
a company that owns sensitive land in New Zealand and whose shares are held by overseas person custodian
companies.
The definition of “overseas person” is set out in section 7 of the Act. Generally speaking, a company is an
overseas person under the Act if 25% or more of any class of securities are overseas owned.
The OIO’s guidance (as released on 4 April 2016, available here) clarifies its view that custodian companies are
usually overseas persons under the Act and therefore may need consent to invest in sensitive New Zealand
assets or in a company that holds sensitive land. There are however, exemptions available in cases where the
beneficial ownership and control of the securities held by the custodian company remains with the underlying
investors. In the OIO’s view, such an approach is “consistent with the approach of other regulators who have
granted exemptions to bare trustees who do not have any beneficial ownership or control over the securities they
hold.”
The OIO has disputed criticism that this approach is “markedly different” from the approach previously adopted. It
remains of the view that it has not changed the way it interprets the Act and in support has released in full a
number of exemption decisions, some of which relate to exemption applications by custodians.
(The exemption decisions can be viewed here.)
Regulatory developments
Minor change to the threshold for Australian non-government in-bound
investment
In 2013, trans-Tasman business investment became significantly easier with the enactment of the Overseas
Investment (Australia) Amendment Regulations 2013 which increased substantially the threshold for which nongovernment trans-Tasman investments require regulatory approval. This threshold is adjusted to a new amount
each year, if an inflation-based formula produces an amount greater than the previous year's amount.
For the period from 1 January to 31 December 2016 the Australian non-government in-bound threshold for
investments in significant business assets has been increased from NZ$496 million to $498 million. If the
investment is more than that, consent is required under the Overseas Investment Act 2005. Click here for details.
Other overseas investors require regulatory approval for business acquisitions over NZ$100 million.
Australian investors continue to face the same rules as other overseas investors under the Overseas Investment
Act for investments in sensitive land or fishing quota, and are also subject to the same rules where the proposed
investment in a ‘significant business asset’ includes sensitive land and/or fishing quota.
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COMMERCIAL
In the courts
Hidden priorities - statutory charges and the PPSA
The High Court held recently in Fisk & McCloy v Attorney-General that creditors with first-ranking perfected
security interests under the Personal Property Securities Act 1999 can be displaced by Customs under the
Customs and Excise Act 1996 (C&E Act) when there is a statutory charge on goods imported into New Zealand
in respect of unpaid duty under s 97(1) of the C&E Act. Neither the existence nor the extent of Customs’ charge
will be visible on the Personal Property Securities Register.
For more information, please see our previous briefing here.
Regulatory developments
New health and safety laws now in force
After much anticipation, the Health and Safety at Work Act 2015 and regulations relating to worker engagement,
participation and representation came into force on 4 April 2016.
For more information, please see our previous briefings on the new health and safety legislation:
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New health and safety laws passed by Parliament,
Australian Court determines project manager is not an “officer”,
Health and Safety at Work Regulations 2016 now available, and
Worker participation duties for PCBUs with voluntary workers.
Also, view Bell Gully partner Tim Clarke's video on what the new health and safety legislation means for your
business here.
The New Zealand Business Number Bill has been enacted
The New Zealand Business Number Act 2016 was enacted last week.
The Act allows New Zealand Business Numbers (NZBNs) to be allocated to all businesses in New Zealand by the
end of 2016. This includes state sector entities, incorporated societies, charitable trusts, limited partnerships, sole
traders and other unincorporated entities. All companies registered in New Zealand have had NZBNs since 2013.
The NZBN is a key initiative of the Government’s Better for Business programme. NZBNs are unique identifiers
for businesses which are intended to reduce the time and energy businesses spend providing government the
same information in different ways. In the future a change to NZBN information will change the same information
on other databases held by government.
For more information, visit the NZBN website here.
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Targeted consultation on the intellectual property chapter of TPP
The Ministry of Business, Innovation and Employment has conducted a targeted consultation on the intellectual
property changes that will be required for inclusion in the Trans-Pacific Partnership (TPP) implementation bill.
These include changes to New Zealand’s Copyright Act 1994, Patents Act 2013 and Trade Marks Act 2002 which
will need to be in place before New Zealand can ratify the TPP. A copy of the consultation paper released for this
consultation is available here.
The consultation covered discussion on the TPP intellectual property obligations to provide:
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civil and criminal prohibitions against people circumventing technological protection measures,
an extension of the patent term to compensate the patent owner for any unreasonable delay in the grant of a
patent,
an extension of the patent term, in respect of a pharmaceutical substance that is the subject of a patent, to
compensate the patent owner for any unreasonable curtailment of the effective patent term as a result of
Medsafe’s marketing approval process,
a more extensive regime for performers’ rights, including what exceptions and limitations should be provided
for in relation to those rights, and
customs with the power to detain suspected infringing goods on its own initiative (ex officio), without first
having accepted a border protection notice from a rights holder.
The consultation did not cover those obligations where there is little or no flexibility for individual countries in the
implementation approach. These include copyright term extension, additional protection for rights management
information, new protections for encrypted program-carrying satellite and cable signals, providing a 12-month
patent “grace period” and the additional damages and remedies for infringement under the Trade Marks Act.
Opportunities to provide submissions on these areas were provided as part of the consideration of the TPP text
and TPP National Interest Analysis by the Foreign Affairs, Defence and Trade Committee. A further opportunity
will be available when the TPP implementation bill is examined by a Parliamentary select committee.
Free Trade Agreement with Korea
The long awaited Free Trade Agreement (FTA) between New Zealand and the Republic of Korea took effect on
20 December 2015. But its importance for New Zealand seems to have been lost in the shadows of Christmas
and the Trans-Pacific Partnership.
The New Zealand-Korea FTA covers goods and services trade as well as investment. It also allows for more
cooperation in the areas of agriculture, education, trade facilitation, science and technology, and film and
television.
For Bell Gully’s commentary on the FTA, read our article: Lost in the shadows of TPP - Korea/NZ free trade
agreement now effective.
A copy of the New Zealand-Korea FTA is available here.
Technical documents released for second phase of the NZ ETS review
The second phase of the Government’s current review of the New Zealand Emissions Trading Scheme (NZ ETS),
which covers matters relating to the future direction of the NZ ETS, is due to close on 30 April 2016. To assist this
phase, the Ministry for the Environment has released the documents The New Zealand Emissions Trading
Scheme (ETS) Review 2015/16: Forestry Technical Note and the Operational Matters Technical Note. The
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Forestry technical note seeks feedback on the way the ETS and forestry sector interacts and how it will contribute
to New Zealand meeting its future international targets. The second document covers administrative issues
including compliance requirements, exemptions under the Climate Change Response Act 2002, and the public’s
access to information.
The first phase of submissions for this consultation closed in February and addressed those matters identified as
priorities for consideration (such as the current ‘one-for-two’ surrender obligations for non-forestry participants,
along with managing the cost of moving to ‘full surrender’ obligations). A copy of the consultation document is
available here.
For more information, please see our previous briefing here.
New law for businesses that sell food
The Food Act 2014 came into force on 1 March 2016. It applies to all new food businesses from that date but
transition provisions are in place for food businesses that existed prior to 1 March. To view a timetable of when
each type of food business has to transition to the new regime: click here.
By 28 February 2019, all food businesses will be operating under the new Act.
COMPANY LAW
News from the Companies Office
Company status description ‘struck off’ has changed to ‘removed’
The Companies Office has changed the terminology for companies that are no longer registered from ‘struck off’
to ‘removed’.
This brings the company status description into line with section 317 of the Companies Act 1993, which refers to a
company being ‘removed’ from the register.
COMPETITION AND CONSUMER LAW
New Zealand Commerce Commission (NZCC)
Speeches
The NZCC has issued the following speech:
Broadband Summit – 2 March 2016
Telecommunications Manager, Melanie Smith, presented to attendees at the 2016 Broadband Summit in
Auckland.
Click here for more
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Downstream 2016
Deputy Chair, Sue Begg, presented on regulation and the future impact of emerging technologies at the
Downstream 2016 conference.
Click here for more
Media releases
The NZCC has issued the following media releases:
Industry regulation and regulatory control
NZCC releases final amendments to airport land valuation rules
The NZCC has released its final decision on the application of the airport land valuation rules as part of the input
methodologies review.
Deputy Chair Sue Begg said the draft amendments released for consultation in November last year remain
broadly unchanged in the NZCC’s final decision. The amendments are designed to reduce ambiguity in the
application of the market value alternative use (MVAU) valuation methodology for airport land, including the steps
involved in determining MVAU, as well as special assumptions and practical valuation requirements.
Click here for more
NZCC releases final report on dairy sector competition in New Zealand
The NZCC has released its final report on the state of competition in New Zealand’s dairy industry. The review
began in June last year at the request of the Minister for Primary Industries as required under the Dairy Industry
Restructuring Act 2001.
Click here for more
NZCC will not undertake gas metering inquiry
The NZCC has decided against initiating an inquiry into whether gas metering services should be regulated at this
time.
Click here for more
Mergers and acquisitions
NZCC clears Rheem to acquire Peter Cocks
The NZCC has given clearance for Rheem New Zealand Limited to acquire the business and assets of Peter
Cocks (2010) Limited. Both Rheem and Peter Cocks are involved in the manufacture and supply of hot water
heaters to plumbing and building merchants.
Click here for more
NZCC clears Spark’s acquisition of 2300MHz spectrum
The NZCC has given clearance for Spark New Zealand Limited to acquire the management rights to 70MHz of
radio spectrum in the 2300MHz band from Craig NZ and Woosh NZ.
Spark intends to use the spectrum to extend its fixed wireless product offerings. The NZCC separately
considered whether the acquisition would affect competition for urban and rural broadband customers.
Click here for more
H B Fuller applies for clearance to acquire Advanced Adhesives
H. B. Fuller Company Australia Pty Limited has applied to the NZCC for clearance to acquire the business and
assets of Advanced Adhesives (New Zealand) Limited.
Click here for more
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Statement of preliminary issues for H. B. Fuller’s acquisition of Advanced Adhesives
The NZCC has published a statement of preliminary issues relating to an application from H. B. Fuller Company
Australia Pty Limited to acquire the business and assets of Advanced Adhesives (New Zealand) Limited.
Click here for more
Fletcher Building seeks clearance to acquire Higgins Group
The NZCC has received an application from Fletcher Building Holdings New Zealand Limited seeking clearance
to acquire Higgins Group Holdings Limited, including 50% of shares in the Horokiwi Quarries Limited.
The NZCC has released a statement of preliminary issues in relation to this transaction.
Click here for more
NZCC clears Coty’s acquisition of P&G fragrance and cosmetics
The NZCC has given clearance for Coty Inc. to acquire a significant part of the global hair care, colouring and
styling, colour cosmetics and fragrance businesses of The Procter and Gamble Company.
Click here for more
NZCC declines Tennex Capital’s acquisition of San-i-pak
The NZCC has declined an application from Tennex Capital Limited, owners of International Waste, to acquire the
medical and quarantine waste business of San-i-pak Limited.
Click here for more
Market behaviour
Jetstar gives enforceable undertakings to end opt out pricing
Jetstar has given court enforceable undertakings to the NZCC ending its preselection of ‘opt out’ services when
selling airline tickets to New Zealand customers online.
The NZCC believes the practice of preselecting optional extra services during an online sales process can
mislead consumers over the price of the product or service they are buying and can cause them to purchase
something they did not intend to. Jetstar has been preselecting luggage, seat selection and travel insurance
during its online booking process, at an extra cost to the advertised flight price. Customers needed to ‘opt out’ of
these extras if they did not want them.
Click here for more
NZCC begins consultation on review of non-price terms for Chorus’ UBA service
The NZCC has released a consultation document on the non-price terms of the Unbundled Bitstream Access
(UBA) Standard Terms Determination. The paper seeks views on the key issues the NZCC intends to address in
the review, as well as the proposed process.
Click here for more
NZCC signs cooperation agreement with Canadian Competition Bureau
NZCC Chairman Dr Mark Berry has signed a mutual cooperation arrangement with Canadian Competition Bureau
Commissioner John Pecman to further enhance their collaboration on cross-agency competition matters.
Click here for more
Telecommunications
NZCC releases report on standard form contract terms in the telco sector
The NZCC has released a report detailing the findings of its review of standard form consumer contracts in the
telecommunications sector. The review was completed to assess the sector’s compliance with the unfair contract
terms provisions of the Fair Trading Act introduced in March 2015.
Click here for more
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NZCC releases research on business mobile market
The NZCC has released independent research aimed at providing greater insight into the factors affecting
competition in the high value business segment of the mobile market.
Click here for more
Consumer issues
Charges laid over alpaca and cashmere claims
Two businesses and four associated individuals face charges for making false or misleading claims about the
origin and composition of their cashmere and alpaca products.
Click here for more
Westpac to compensate customers $4 million over debit card fees
Westpac New Zealand has reached a settlement agreement with the NZCC and Financial Markets Authority
(FMA) to repay over $4 million dollars to over 100,000 past and present customers who were overcharged debit
card fees when withdrawing money from Westpac ATMs in Australia.
Click here for more
First mobile trader sentenced following NZCC’s mobile trader report
Mobile trader Flexi Buy Limited has been fined $50,000 in the Auckland District Court. A further $3,480 was
awarded in damages to affected customers.
Flexi Buy is one of two companies the NZCC identified as being under continued investigation in a report on the
mobile trader industry released last year. While no longer trading, it previously sold electronic and household
goods door to door on credit.
Click here for more
NZCC investigating whether steel mesh complies with standard
Brilliance Steel Ltd and Euro Corporation Limited have agreed to stop selling some steel mesh products while the
NZCC further investigates concerns that they may not comply with the Australia/New Zealand standard (AS/NZ
4671:2001).
The NZCC welcomes Steel & Tube’s decision not to sell SE seismic steel mesh until the mesh has been through
a dual testing process and the company has test results that demonstrate compliance with the standard.
Click here for more
New animations campaign aims to empower borrowers
The NZCC has launched an original animated series to raise awareness of consumer rights. It’s All Good features
New Zealand’s sharpest legal advisor Aunty and her nephew Herman Faleafa, with their debut appearance
targeted at raising awareness of borrowers’ rights following the introduction of new credit laws in 2015.
Click here for more
Australian Competition and Consumer Commission (ACCC)
Selected ACCC media releases
The ACCC has issued the following media releases:
Industry regulation and regulatory control
Lack of competitive pressure facilitates high profit margins at airports
The ACCC has released its annual Airport Monitoring Report for 2014-15, finding that the monitored airports at
Brisbane, Melbourne, Perth, and Sydney continue to enjoy high profit margins in both aeronautical and car
parking activities.
Click here for more
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Mergers and acquisitions
ACCC will not oppose Coles’ proposed acquisition of five Supabarn supermarkets
The ACCC has decided not to oppose Coles’ proposed acquisition of five Supabarn supermarkets in NSW and
the ACT. Coles is owned by Wesfarmers. “The ACCC’s review focussed on two main issues. These were the
effect of the acquisition upon competition between supermarket chains in the Canberra region and the effect upon
each of the individual local markets in which the Supabarn stores operate,” ACCC Chairman Rod Sims said.
Click here for more
ACCC will not oppose Pact’s proposed acquisition of Power Plastics
The ACCC will not oppose the proposed acquisition of Power Plastics Pty Ltd by a subsidiary of Pact Group
Holdings Limited.
Click here for more
Market behaviour
ACCC appeal upheld in air cargo case
The Full Court of the Federal Court, by majority, upheld an appeal by the ACCC in relation to air cargo cartel
allegations.
Click here for more
ACCC reauthorises Qantas-American Airlines Alliance
The ACCC has issued a final determination re-authorising Qantas and American Airlines to continue to coordinate
their operations on trans-Pacific routes for a further five years.
Click here for more
Consumer issues
Chrisco ordered to pay $200,000 penalty for making a false or misleading lay-by representation
The Federal Court has ordered Chrisco Hampers Australia Ltd to pay a pecuniary penalty of $200,000 for making
a false or misleading representation that customers could not cancel a lay-by agreement after making their final
payment, in proceedings brought by the ACCC.
Click here for more
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AUCKLAND
WELLINGTON
VERO CENTRE, 48 SHORTLAND STREET
PO BOX 4199, AUCKLAND 1140, NEW ZEALAND
DX CP20509
TEL +64 9 916 880 FAX +64 9 916 8801
171 FEATHERSTON STREET
PO BOX 1291, WELLINGTON 6140, NEW ZEALAND
DX SX11164
TEL +64 9 916 880 FAX +64 9 916 8801
CORPORATE REPORTER – 21 April 2016
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