New powers for trustees of finance companies

The law has been changed to strengthen the position of trustees of finance companies. The changes, which came into force in September, are intended to assist trustees
in performing their supervisory roles in the interests of investors.

Many of the changes were already set out in the Trustee Corporations Association guidelines and in some trust deeds, but some deeds did not contain all of the powers that trustees needed. The Securities Commission met with all finance company trustees before proposing the changes.

The Securities Commission's acting Chairman stated that "it is important that trustees have up-to-date and reliable information about the companies they supervise". The changes have been made to ensure that all trust deeds provide trustees with robust powers to get the information they need to carry out their duties in investors' interests.

Summary of changes

Finance companies must:

• provide the trustee with regular reports about the issuer's financial position;

• regularly certify compliance with the trust deed;

• keep the trustee informed on matters relevant to the trustee's duties;

• have the borrowing group's half-yearly financial statements audited (unless this requirement is waived by the trustee, in which case they must be reviewed);

• copy to the trustee the borrowing group's annual and half-yearly financial statements;

• consult the trustee on the appointment of auditors and advise the trustee if an auditor declines appointment or reappointment or resigns; and

• include specific conditions in the terms of appointment of auditors, giving the auditors responsibilities to the trustee.

The trustee will have power to:

• appoint an independent auditor; and

• appoint an expert to assist the trustee to determine the true financial position of an issuer.

The changes automatically become part of all finance company trust deeds (including existing deeds).

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.