Welcome to Issue No. 4 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.
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| Regulatory developments | Top |
In 2009 the Government initiated a review of New Zealand's overseas investment regime, led by the Minister of Land Information with the assistance of the Treasury and the Overseas Investment Office (OIO). A Technical Reference Group was also established to advise officials on the practicality of any proposed amendments and to provide suggestions on other improvements that could be made to the regime.
This week Finance Minister Hon Bill English announced that the Government has decided not to make changes to the Overseas Investment Act 2005, noting that to do so "would cause a degree of uncertainty that would outweigh potential benefits."
However, the Government has agreed to make several changes to regulations outside the Act. These include:
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two new measures under the benefit test used to assess investments in sensitive land:
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a new "economic interests" factor allowing ministers to consider whether New Zealand's economic interests are adequately safeguarded and promoted; and
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a new "mitigating" factor enabling ministers to consider whether an overseas investment provides opportunities for New Zealand oversight or involvement;
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providing more clarity about the Government's policy on overseas investment in sensitive assets, to be set out in a new ministerial directive letter from the Finance Minister to the Overseas Investment Office (OIO). This will provide advice to the OIO about which factors in the benefit test are likely to be more or less important in assessing particular types of investments.
The "economic interests" factor and the "mitigating" factor will apply only to foreign investments in sensitive land (such as farmland greater than five hectares or land adjoining the foreshore or conservation land). In its announcement the Government states that it does not expect that relatively small parcels of land, such as land bought for lifestyle purposes, will fall within this direction.
The Government has also decided to retain the new "strategic assets test" in Regulation 28(h) of the Overseas Investment Regulations which was inserted by the previous government in 2008 to provide that the OIO must consider "whether the overseas investment will, or is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land". The Government has concluded that removing this test would "reduce their flexibility to deal with investment applications for sensitive land".
The new regulations are expected to take effect in December 2010, and only will apply to investment applications made after the new regulations come into force.
For background information on the Government's review of the overseas investment regime, see Bell Gully's article Government takes first step to implement its overseas investment review published last year. We will be publishing commentary on aspects of the current changes in the coming weeks.
Insurance (Prudential Supervision) Act Commencement Order 2010
This order brings into force, on 30 September 2010, section 244 of the Insurance (Prudential Supervision) Act 2010.
Section 244 requires the Reserve Bank of New Zealand to issue a provisional licence to an insurer if it meets certain criteria. These include the requirement that, within 3 months after the commencement of section 244, the insurer must have notified the Bank that it was carrying on insurance business in New Zealand immediately before the commencement of that section and that it intends to continue carrying on insurance business in New Zealand after 8 March 2012 (the date that is 18 months after the date of assent of the Act).
| Regulatory developments | Top |
Government is to tighten requirements for companies
Commerce Minister Hon Simon Power has announced that the Government will be introducing a bill to Parliament next year to tighten requirements around company directors and company registration. The measures are being implemented to assist protect New Zealand's company registration process against criminal activity.
The changes announced include:
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requiring all New Zealand companies to have either one New Zealand resident director or a local agent;
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making New Zealand-resident directors or agents responsible for ensuring companies provide accurate information to the Registrar of Companies and making them liable if companies breach their filing requirements under the Companies Act;
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providing the Registrar of Companies expanded powers to:
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remedy issues concerning the bona fides of directors and shareholders of companies, and to deal with compliance issues around company registration;
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take action where doubt exists about the accuracy of information about a company on the register;
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'flag' companies which are under investigation;
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remove a company from the register if an investigation shows that a company and its directors or agent have given inaccurate or misleading information, or have committed other breaches of companies legislation and prohibit any person from acting as a director for up to five years where they were a director of such a company.
Similar provisions will be put in place for limited partnerships.
| In the courts | Top |
Supreme Court refuses leave to appeal on issue of "fair value" of shares
Fong v Wong [2010] NZSC 120
In the continuing saga of Fong v Wong and the effect of section 149 of the Companies Act 1993 on the sale of shares in companies between trusts associated with the directors, the Supreme Court has refused leave to appeal the Court of Appeal's decision. (For details of the Court of Appeal's decision and the facts of the case see the article "The difference between 'fair value' and 'fair market value' may not be as big as you think" in Issue No.2 of Corporate Reporter.)
This case provides a useful reminder that section 149 of the Companies Act requires share transactions involving directors with material non-public information to be for 'fair value'. If they are not, the director is liable to the seller (or buyer) for the difference between the 'fair value' and the price at which the shares were sold, regardless of whether the parties have reached a prior express agreement on the sale price.
However, the question which this case leaves open is whether there is any difference between the concept of "fair value" and "fair market value". On the facts of this case they had been treated as two distinct concepts with the result that when asked to determine a "fair market value" for the shares rather than a "fair value" the expert valuer had applied a minority discount.
The Court of Appeal's decision raised the possibility that fair value and fair market value were the same concept, but the court had rejected this argument as a ground for appeal since expert evidence provided in the High Court that "fair value" and "fair market value" were two distinct concepts had gone unchallenged.
The Supreme Court agreed that it would be an injustice to allow an appeal to be argued on a basis which was contrary to how the case had been conducted in the High Court, but raised the possibility that determining the concepts of "fair value" and "fair market value" may be "a matter of interpretation of the agreement of the parties referring the valuation of the shares to the valuer selected by them, read in light of the statute" instead of being determined on the basis of expert evidence.
The Supreme Court has also confirmed that the fact that the directors were acquiring shares in the capacity of trustees does not exclude the application of section 149 to the transaction, noting that to hold otherwise "would allow the obvious purpose of the section to be subverted by the use of a trust associated with a director".
| Regulatory Developments | Top |
Financial Markets (Regulators and KiwiSaver) Bill
A new omnibus bill establishing the Financial Markets Authority (the FMA) has passed its first reading and has been sent to the Commerce Select Committee. The Committee is due to report back on the Financial Markets (Regulators and KiwiSaver) Bill on 28 February 2011.
The Government sees the measures contained in the Bill as being urgent for maintaining broader public confidence in New Zealand's securities markets, and considers that the benefits from implementing these measures ahead of the completion of its current full review of the Securities Act outweigh any problems that may arise from taking this fast-track approach.
Financial Markets Authority
The FMA will take over the existing functions of Securities Commission and the Government Actuary (as well as several tasks currently performed by the Ministry of Economic Development, the Registrar of Companies and the Minister of Commerce). The FMA will also have oversight of the NZX.
The Bill gives the FMA significant new powers to bring civil proceedings (or take over existing proceedings) on behalf of investors in the financial markets against certain specified classes of persons – including issuers, promoters, company directors, trustees, auditors and experts. This aspect of the Bill was being addressed as part of the current review of the Securities Act, but the Government has brought it forward as part of the Bill at the request of the FMA Establishment Board who are concerned that there will be a material risk of a mismatch between the public's expectations of the FMA and the FMA's powers if the FMA does not have the ability to take cases on behalf of investors at its establishment.
For Bell Gully commentary on these new enforcement powers see the article Increased regulatory risk profile for financial markets participants and auditors on our website.
Other key provisions
In addition to establishing the FMA and setting out the parameters of its powers and functions, the Bill also:
Securities Act amendments
Makes significant changes to the Securities Act 1978, including:introducing a new prospectus registration regime;
establishing a Register of Securities for all public offers of securities (including equity, debt, managed funds and superannuation), with search capability that will facilitate comparison between financial products; and
amending the processes around obtaining and publishing Securities Act exemptions;
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Securities Markets Act amendments
Makes amendments to the Securities Markets Act 1988 to alter the front-line regulatory functions of registered exchanges in respect of listed securities markets. This includes the establishment of a new Securities Markets Ruling Panel as an independent statutory body to adjudicate matters relating to NZX (and other registered exchanges) which will be supported by the FMA;
KiwiSaver Act amendments
Changes the regulatory regime around KiwiSaver schemes to regulate fund managers who establish and operate retail (and new non-retail) KiwiSaver schemes to make fund managers more accountable to regulators and investors. The changes will also enable trustees of these KiwiSaver schemes to be brought within the trustee licensing regime provided for in the Securities Trustees and Statutory Supervisors Bill, which is currently before the House; and
Commissioner for Financial Advisers
Provides for the disestablishment of the office of the Commissioner for Financial Advisers which will become part of the functions of the FMA.
Next steps
The detail of this Bill will require close consideration by the Commerce Select Committee and we are happy to assist clients who wish to make submissions to the Committee on any aspect of this Bill. Submissions on the Bill close on 10 November 2010.
The Bill is expected to be passed early in 2011.
Government moves to improve auditor regulation
A bill that strengthens auditor regulation has passed its first reading and has been sent to the Commerce Select Committee. The Committee is due to report back on the Auditor Regulation and External Reporting Bill on 23 March 2011.
The Bill will replace the largely self-regulatory system of auditing with a centralised licensing function, a standard-setting regime under an External Reporting Board (which will be a reconstituted form of the Accounting Standards Review Board) and an investigative and enforcement function through the new Financial Markets Authority.
Under the new enforcement provisions of the Bill, auditors of reporting entities will be subject to criminal liability for failing to comply with auditing and assurance standards "without reasonable excuse", although this will not apply to public audits under the Public Audit Act 2001 or audits of entities that are not reporting entities under the Financial Reporting Act.
For Bell Gully commentary on this new offence see the article Increased regulatory risk profile for financial markets participants and auditors on our website.
The Commerce Select Committee has called for submissions on the Bill. Submissions close on 10 November 2010.
| Securities Act class exemptions | Top |
Securities Act (Dividend Reinvestment) Exemption Amendment Notice 2010
The Securities Act (Dividend Reinvestment) Exemption Notice 1998 exempts issuers from the need to produce a registered prospectus and investment statement in respect of equity securities, units in a unit trust, or interests in a group investment fund offered under a dividend reinvestment plan only to persons who already hold securities of the issuer of the same kind as those being offered. This notice has been amended by the Securities Act (Dividend Reinvestment) Exemption Amendment Notice 2010 to:
extend the expiry date from 30 September 2010 to 30 September 2015; and
- provide an exemption from the Securities Regulations 2009 (except regulation 23) instead of the Securities Regulations 1983 (except regulation 8) (which has the same effect as the existing exemption).
| Financial adviser regime developments | Top |
Voluntary authorisation allowed under financial adviser legislation
Under the amendments made to the Financial Advisers Act 2008 (FAA) in June this year, there is no longer any requirement for persons who solely provide financial advice on category 2 products (which include a range of simple securities such as call debt securities, general insurance products and consumer credit contracts) to be authorised under the regime. The amendments were made so that the focus of the legislation was on services that are provided in relation to investments, as opposed to services that are provided solely in relation to risk or credit products. However, the amendment raised a further policy question about whether the regulatory framework should allow a person to voluntarily seek authorisation to provide financial adviser services in relation to category 2 products.
Commerce Minister Simon Power has now announced that Cabinet has agreed for regulations to be developed to allow those who only provide services in relation to category 2 products to be voluntarily authorised under the FAA. This development will be particularly welcomed by a number of insurance advisers and mortgage brokers who, under the previous wording of the FAA, had already begun to take steps towards authorisation.
Under the new regulations, an Authorised Financial Adviser (AFA) who is authorised to provide financial adviser services in relation to category 2 products would be subject to the same regulatory obligations as any other AFA. The primary distinction will be that, under the Code of Professional Conduct for Authorised Financial Advisers, an AFA authorised to provide financial adviser services in relation to category 2 products would be able to do unit standard set E (insurance specialist standards or residential property lending specialist standards) in place of unit standard set D (investment specialist standards). He or she would also be restricted from providing advisory services in respect of category 1 products.
For further background information on this development see the Cabinet paper released on the Ministry of Economic Development's website.
The regulations allowing voluntarily authorisation are expected to be passed before December.
Minister approves code of conduct for financial advisers
Commerce Minister Simon Power has approved the Code of Professional Conduct for Authorised Financial Advisers. The approval means the Commissioner for Financial Advisers can now determine when the Code can come into effect.
The Code of Professional Conduct establishes 18 standards to ensure all Authorised Financial Advisers meet the minimum standards for ethical behaviour, client care, knowledge, skills and competence, and continuing professional development. The Code is available at http://www.financialadvisercode.govt.nz/
Consultation on proposed standard conditions for Authorised Financial Advisers
The Financial Advisers Act 2008 allows the Securities Commission to authorise financial advisers for a range of specified financial adviser services for a specified period. All Authorised Financial Advisers (AFAs) will be subject to terms and conditions issued by the Securities Commission. These may also incorporate standard conditions. The Commission intends to adopt a set of standard conditions that will apply to all AFAs, unless there are exceptional circumstances requiring modifications.
The proposed standard conditions are set out in the paper Consultation - Request for Comment on Proposed Standard Conditions for Authorised Financial Advisers (AFAs).
This consultation paper is relevant for all financial advisers applying for authorisation including those advisers working within QFEs who need to be individually authorised.
Submissions close on 1 October 2010.
Once submissions have been considered, the Commission will finalise and approve the standard conditions by notice in the Gazette. These will be published on the Commission's website and will also be available in printed form. From 1 December 2010, all authorisations will be subject to the standard conditions.
Consultation on proposed standard conditions for Qualifying Financial Entities
The Securities Commission has invited submissions on proposed standard conditions for financial adviser businesses that apply for Qualifying Financial Entity (QFE) status. This follows the Commission's consultation on the licence conditions for Authorised Financial Advisers noted above.
The consultation paper sets out the content of the proposed standard conditions for QFEs. It is relevant for all QFE applicants. The Commission intends to maximise the use of standard conditions for all QFEs, unless there are particular circumstances requiring modifications. QFEs may also be subject to individual terms and conditions depending on their circumstances.
Submissions close on 22 October 2010.
| New Zealand Commerce Commission (NZCC) | Top |
Media releases
The NZCC has issued the following media releases:
Mergers and acquisitions
Scandinavian Tobacco granted clearance to merge its cigar and pipe tobacco businesses with Swedish Match
The NZCC has granted clearance for Scandinavian Tobacco Group A/S to merge its New Zealand cigar, pipe tobacco and accessories businesses with that of Swedish Match AB. The clearance is given subject to the merged entity divesting the Willem cigar brand.
Click here for more
Sanford Limited applies for clearance to acquire the Pacific Seafoods Group
The NZCC has received an application from Sanford Limited seeking clearance to acquire the Pacifica Seafoods Group of companies.
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Market behaviour
Wellington airport taxi arrangements unlikely to breach Commerce Act
The NZCC has advised complainants regarding new arrangements for taxis and shuttles at Wellington International Airport Limited that these arrangements are unlikely to breach the Commerce Act.
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Commerce Act guidelines for trade associations released
The NZCC has released guidelines to help trade associations understand their obligations under the Commerce Act. The guidelines are part of new series of guidelines and fact sheets focussing on the Commerce Act.
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Tyre traders admit price fixing on Trade Me
The NZCC has reached administrative settlements with two Trade Me sellers who admitted that they had been fixing prices for tyres, which is illegal under the Commerce Act. Between 12 and 27 January 2010, the owner of Tyre Guys Limited sent his prices via email for six tyre brands to Adens Trading Limited, who then matched those prices for three of the brands. Both traders made sales at the fixed prices.
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Telecommunications
Commerce Commission reports to Minister on compliance with Telecommunications Service Obligations
The NZCC has advised the Minister for Communications and Information Technology that Telecom Corporation of New Zealand Limited and Sprint International New Zealand Limited have complied with all their Telecommunications Service Obligations quality measures for the period 1 July 2009 to 30 June 2010.
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Backhaul services draft reports released by Commerce Commission
The NZCC has released a revised draft report on the unbundled copper local loop backhaul service and a draft report on the unbundled bitstream access backhaul service. The NZCC has been undertaking a review into whether Telecom New Zealand Limited faces competition for providing these backhaul services.
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Process for determining mobile termination rates announced
The NZCC has commenced the process for determining the wholesale price for terminating mobile calls and text messages. This follows the announcement in August 2010 by the Minister for Communications and Information Technology, Stephen Joyce, that he had accepted the NZCC's recommendation to amend the Telecommunications Act 2001 to allow the regulation of mobile termination access services.
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Consumer issues
Fines for another company peddling royal jelly using false claims
A company that admitted labelling imported royal jelly as New Zealand made, and as being of high potency when it was neither, has been fined $16,000 in the Auckland District Court. An individual associated with the company has also been fined $12,000.
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| Australian Competition and Consumer Commission (ACCC) | Top |
Media releases
The ACCC has issued the following media releases:
Mergers and acquisitions
ACCC maintains opposition to NAB acquiring AXA
The ACCC has decided to reject the proposed undertakings offered by National Australia Bank Limited (NAB) and AXA Asia Pacific Holdings Ltd (AXA). The ACCC issued its decision to oppose the proposed acquisition of AXA by NAB in April this year, and remains opposed because it would be likely to result in a substantial lessening of competition in the relevant retail investment platform market.
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ACCC not to oppose Swift Australia Pty Ltd's proposed acquisition of Rockdale Beef Pty Ltd
The ACCC has announced that it does not propose to intervene in Swift Australia Pty Ltd's proposed acquisition of Rockdale Beef Pty Ltd.
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ACCC proposes to deny authorisation for Virgin Blue – Air New Zealand alliance
The ACCC has issued a draft determination proposing to deny authorisation for an alliance between Virgin Blue and Air New Zealand on their flights between Australia and New Zealand. The ACCC accepts that the alliance is likely to result in some of the public benefits claimed by the applicants such as cost savings and efficiencies. The ACCC invites the applicants to provide further information to substantiate the public benefits claimed. The ACCC may still grant an authorisation if it is satisfied that the public benefit from the conduct outweighs any public detriment.
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ACCC delays decision on proposed BHP Billiton/ Rio Tinto joint venture at request of parties
The ACCC has agreed to a further request by BHP Billiton and Rio Tinto that the ACCC delay making a decision regarding the proposed joint venture until after the parties have had further discussions with overseas regulators and provided additional submissions to the ACCC.
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ACCC calls for comment on proposed acquisition of Franklins supermarket business by Metcash Trading Limited
The ACCC has issued a Statement of Issues on the proposed acquisition of the Franklins Supermarket Business by Metcash Trading Limited.
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ACCC grants interim approval to Virgin Blue-Etihad alliance
The ACCC has granted interim authorisation in respect of a proposed alliance between airlines Virgin Blue and Etihad. Under the alliance, Virgin Blue and Etihad have agreed to cooperate on joint pricing and scheduling of services across their networks.
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Market behaviour
ACCC objects to Sydney Airport's proposed increase in charges for regional airlines
The ACCC has issued its decision objecting to Sydney Airport Corporation Limited's proposal to increase charges for regional airlines that serve passengers travelling within New South Wales. This decision responds to a proposal by Sydney Airport to increase charges for the provision of terminal, check-in, passenger security and bag screening, runways and apron parking services to regional airlines by up to 2.9 per cent from 23 October 2010.
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Cabcharge penalised for misuse of market power
The Federal Court in Melbourne has made declarations and orders that Cabcharge Australia Limited pay A$15 million in penalties and costs for three contraventions of section 46 of the Trade Practices Act 1974.
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ACCC accepts court enforceable undertaking from ResMed Asia Pacific Limited
The ACCC has accepted a court enforceable undertaking from ResMed Asia Pacific Pty Limited following concerns that ResMed had engaged in resale price maintenance. The ACCC is concerned that between March and June 2009 ResMed is likely to have engaged in resale price maintenance by making it known to its Accredited Partners that ResMed would not supply to them unless they agreed not to advertise ResMed products at a price less than the price specified by ResMed.
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Telecommunications
ACCC proposes new simpler approach for wholesale fixed line telecommunications services pricing
The ACCC has released a draft report and draft indicative prices to apply to the regulated fixed line telecommunications services. These services are currently used by communications companies to provide voice, facsimile and broadband products to consumers and businesses over Telstra's copper network. The ACCC is yet to consider pricing on fibre access networks.
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Consumer issues
ACCC institutes proceedings against Optus over 'think bigger' and 'supersonic' broadband promotions
The ACCC has instituted legal proceedings in the Federal Court, Sydney, against SingTel Optus Pty Limited for alleged breaches of the Trade Practices Act 1974. The ACCC alleges that Optus engaged in misleading or deceptive conduct and made false representations in relation to the advertising of certain broadband plans as part of its 'Think Bigger' and 'Supersonic' promotional campaigns.
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LG Australia provides ACCC with undertaking over energy efficiency claims
LG Australia has provided the ACCC with a court enforceable undertaking after concerns that LG may have breached the Trade Practices Act 1974 by misrepresenting the Comparative Energy Consumption of various refrigerator models.
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| Electricity regulatory developments | Top |
Electricity Industry Bill passes final reading
Since being reported back from the Select Committee the Electricity Industry Bill has been the subject of four Supplementary Order Papers and passed through the remaining parliamentary stages on 23 September 2010. The start date for the new governance regime contemplated by the Bill has been delayed from the original start date of 1 October 2010 to 1 November 2010.
The first Supplementary Order Paper (number 154, dated 7 September 2010) made a number of technical amendments to the Bill and made certain changes to deal with matters relating to the jurisdiction and procedures of the Rulings Panel.
The Explanatory Note to the second Supplementary Order Paper (number 163, dated 7 September 2010) stated that "as currently drafted the Bill does not include a number of key provisions". The Supplementary Order Paper provided as follows:
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The "objective" of the new Electricity Authority (EA) is to also take account of environmental sustainability issues. The functions of the EA are to include monitoring the environmental impacts of generation and ensure an environmentally sustainable approach is taken to the development of generation.
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The EA is also to ensure that electricity is produced and delivered to all classes of consumers in a fair manner.
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The new Electricity Industry Code is to include provisions dealing with fairness of electricity pricing and the environmental sustainability of electricity generation.
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A further new matter which the EA will have to deal with in its first 12 months following 1 November 2010 is to include mechanism in the Code to enable the development of a smart grid.
The other two Supplementary Order Papers dealt with the amendments required to the Bill to deal with the change in the commencement date.
For an overview of the new governance regime for the electricity industry see the article "Update on Electricity Industry Bill and New Code" in the first issue of Corporate Reporter.
Further background material on the implementation of the new regime is also available on the Ministry of Economic Development's website at http://www.med.govt.nz/templates/ContentTopicSummary____43211.aspx
| Further commentary | Top |
In addition to the Corporate Reporter, Bell Gully also produces one-off client updates on corporate matters of particular significance. During the period covered by this issue of the Corporate Reporter we have published the following client updates:
NEED MORE INFORMATION?
| Contact us | Top |
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 Corporate or M&A teams. Alternatively, you can contact the editor Diane Graham by email or call her on 64 9 916 8849.
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