Welcome to Issue No. 12 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:



Regulatory developments Top

Significant changes on the horizon for New Zealand's financial reporting statutory framework

The Government has released its remaining policy decisions on its 2009/2010 review of the statutory framework for financial reporting, and has announced that it intends to introduce a Financial Reporting Amendment Bill to Parliament in the first quarter of 2012, with a view to it being enacted in 2013.

In addition, the External Reporting Board (XRB) has released three discussion documents outlining proposals for a new Accounting Standards Framework.


Two years ago the Ministry of Economic Development (MED) released a discussion document on the Statutory Framework for Financial Reporting with a view to creating a financial reporting framework that is "coherent, complete and consistent" and balancing "the benefits of financial reporting against the compliance costs". The review also promoted New Zealand-Australia financial reporting convergence. The review found that the framework was overly costly and not meeting users' needs or expectations, particularly for small and medium-sized businesses and registered charities.

The discussion document included a controversial proposal that stakeholder interest warranted greater public disclosure of the financial performance of large non-issuers. However, following business concerns on the proposal, Commerce Minister Hon Simon Power made an early announcement in February 2010 that the Government had decided that large non-issuer companies would not be required to file their financial statements with the Registrar of Companies. For further details of that decision see our article Early announcement on financial reporting changes.

The MED's discussion document was released simultaneously with a companion discussion document by the Accounting Standards Review Board (now replaced by the XRB) entitled Proposed Application of Accounting and Assurance Standards under the Proposed New Statutory Framework for Financial Reporting. This document outlined how the board would respond if Parliament were to enact the changes proposed by the MED.

Summary of proposed financial reporting changes

The new legislative framework for financial reporting which has been approved by Cabinet will involve a number of significant changes from the status quo. The changes will reduce the number of companies required to prepare general purpose financial reporting from 460,000 to less than 10,000, and they are expected to cut business compliance costs by $90 million a year. However, the current financial reporting requirements for issuers are to be retained (as modified by the Auditor Regulation Act 2011).

The following table outlines some key changes for non-issuer companies, limited partnerships, partnerships, and credit unions. Changes to the Financial Reporting Act 1993 will also require the XRB to set financial reporting requirements for registered charities, and for other not-for-profit entities that have reporting obligations. Further information about these changes can be found in two Cabinet papers on the MED website.

Class of entity

Current status


Large companies (to be defined as companies with either annual revenue of $30 million or more or assets of $60 million or more) that are not overseas-owned or incorporated Required to prepare and distribute audited General Purpose Financial Reports (GPFR) to shareholders. Status quo to be retained (but note the change in the definition of companies considered to be 'large'. Currently, this is $20 million revenue, $10 million assets and 50 employees.)
Large companies that have 25% or more overseas ownership Same as large companies but with a requirement to file audited financial statements with the Registrar of Companies. Status quo to be retained.
Non-large companies All companies are required to prepare GPFR namely, financial statements in accordance with the Framework for Differential Reporting (medium) or the simple format reporting requirements of the Financial Reporting Order 1994 (small) and distribute them to shareholders. An auditor must be appointed unless the shareholders unanimously decide not to appoint one. Replace the current requirement with the following:

  • For companies with 10 or more shareholders, a default of GPFR preparation, and assurance by a Chartered Accountant or licensed auditor, but with the ability for shareholders to opt-out of (i) assurance, or (ii) assurance and preparation, if shareholders representing no less than 95% of the voting shares who choose to vote agree to an opt-out proposal.

  • For companies with fewer than 10 shareholders, a default of no GPFR preparation, but with the ability for shareholders to opt in to (i) preparation, or (ii) preparation and assurance if shareholders representing at least 5% of the voting shares by value who choose to vote support an opt-in proposal.

  • Non-large companies that no longer have an obligation to prepare GPFR will be required to prepare simplified accrual-based special purpose financial reports (SPFR) for tax purposes under the Tax Administration Act 1994. SPFR preparation is seen as being necessary for tax purposes to determine taxable income, to assist debt collection and to satisfy information requirements under international treaties.
    Non-large companies that have 25% or more overseas ownership Required to prepare GPFR, but they have no filing obligations. They must appoint an auditor but can opt out if shareholders unanimously agree. Replace the current requirements with the same 10 shareholder default and opt-out or opt-in rules noted above for domestically-owned non-large companies.
    Overseas incorporated companies that carry on business in New Zealand As a general rule, this class of companies is required to prepare and file audited GPFR. They must file:

  • Audited consolidated financial statements, where the legal entity is part of a group of companies;

  • Audited financial statements for the legal entity; and

  • Audited financial statements for the New Zealand business of the company as if it was a stand-alone entity.
  • Status quo to be retained for large overseas incorporated companies*, and legal entity financial statements will still need to be prepared and filed, but only if there is a preparation requirement in the overseas company's home jurisdiction. This would mean that the Registrar of Companies' exemption power could be consequentially repealed.
    For non-large overseas incorporated companies, the current requirements are to be removed.

    * Note that "large" is determined by whether its New Zealand business, not the company as a whole, is large.
    Limited partnerships The general partners must prepare GPFR and disclose them to the other partners. Audit and publication are not required. Large limited partnerships will have requirements to prepare GPFR, have them audited and distributed to the owners. However, filing will not be required for commercial, confidential and privacy reasons.

    The preparation requirements for non-large limited partnerships are to be removed.
    Partnerships There are no financial reporting obligations under the Partnership Act 1908. Large partnerships are to be required to prepare GPFR, have them audited by a chartered accountant or a licensed auditor and distribute them to all partners. However, filing will not be required for commercial, confidential and privacy reasons.

    There will be no changes for partnerships that are not large.
    Credit unions All credit unions must file audited GAAP-compliant financial statements. The Registrar of Friendly Societies and Credit Unions is required to examine the financial statements, with a particular emphasis being placed upon the auditors' reports and the solvency position of the credit union. Retain the requirement to file audited financial statements but remove the requirement on the Registrar to monitor them and report to Parliament because credit unions are now prudentially regulated by the Reserve Bank.

    Other proposals

    For reporting entities still subject to GPFR obligations, there are also proposals to:

    • Change the deadlines for financial reporting for issuers and companies: Currently, the financial statements of a reporting entity must be completed within five months after the balance date of the entity. Those that have filing requirements must file the audited financial statements within another 20 working days. The Financial Reporting Act is to be amended to reduce the timeline from five months to three months of the balance date (with 20 days to file). This will mean some reporting entities may have to change their year-end reporting processes in order to meet the challenge of the shorter deadline.

    • Remove the requirement for parent company financial statements: A company that has one or more subsidiaries is required to prepare consolidated financial statements and parent-only financial statements. The consolidated financial statements are considered essential as they provide information about the overall scale of the company and the resources under its control. However, as part of these reforms the Government is proposing that the parent company reporting obligation be removed. Instead, it will be left to the XRB to determine what parent entity information, if any, will need to be disclosed in the notes to the consolidated financial statements.

    XRB now consulting on a multi-standard accounting framework

    Following the Government's announcement on changes to the financial reporting framework, the XRB released three documents outlining proposals for New Zealand's standards framework for general purpose financial reporting. The three documents are:

    The consultation papers outline specific proposals for the number of tiers, the criteria for allocating entities to tiers, the accounting standards that will apply to each tier, and the process and timing for adopting the new frameworks in each sector. For for-profit entities, the XRB's proposals include:

    • A two tier structure and the removal of the current exemption that allows small and medium companies to use "old GAAP" (as these entities will for the most part no longer be required to comply with XRB standards);

    • The application of full NZ IFRS harmonised with Australia for Tier 1 for-profit entities (which will include all issuers, registered banks, deposit takers, registered superannuation schemes and large for-profit public sector entities); and

    • The adoption of a Reduced Disclosure Requirements (RDR) version of NZ IFRS harmonised with Australia for Tier 2 for-profit entities. The proposed RDR are based on the premise that for-profit entities in Tier 2 would apply the same recognition and measurement requirements as for Tier 1 but with significantly reduced disclosures. The proposals would result in very few differences between the New Zealand and Australian requirements.

    The closing date for submissions on both the consultation papers is 16 December 2011. For further information visit the XRB website: www.xrb.govt.nz.

    New anti-money laundering code sets out best practice for ID verifications

    The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) which comes fully into force on 30 June 2013, places obligations on New Zealand's financial institutions and casinos to detect and deter money laundering and terrorism financing. This includes requiring reporting entities to obtain identity information about their customers and to verify that information.

    A new code (the Identity Verification Code of Practice 2011) provides a suggested best practice for all reporting entities conducting name and date of birth identity verification on customers (that are natural persons) they have assessed to be low to medium risk.

    Although the code is not mandatory, a reporting entity that fully complies with the code is deemed to be compliant with the relevant parts of the AML/CFT Act.

    New regulatory reform reports

    To keep the public and industry informed, the Ministry of Economic Development has announced that it will release annual reports to show progress on the Government's goal of Better Regulation, Less Regulation.

    The first report Regulatory reform: changes affecting compliance costs for business and citizens, released on 8 September 2011, covers changes to legislation from November 2008 to April 2011. It covers both changes already implemented as well as those approved by Cabinet and being carried out.

    Consumer credit insurance provided by a non-life insurer

    Following stakeholder consultation, the Insurance (Prudential Supervision) Amendment Regulations 2011 have been issued to amend the Insurance (Prudential Supervision) Regulations 2010 by declaring certain consumer credit insurance contracts, where issued by a non-life insurer, not to be life policies for the purposes of the Insurance (Prudential Supervision) Act 2010.

    The Regulation came into effect on 1 October.



    Regulatory developments Top

    Changes approved for company registration

    Last year Commerce Minister Hon Simon Power announced that the Government would be introducing a bill to Parliament to tighten requirements around company registration and company directors to assist protect New Zealand's company registration process against criminal activity from overseas jurisdictions. Further information on what is likely to be included in this bill has been made available with the release last month of a Cabinet Paper which outlines the Minister's recommendations for amending the Companies Act 1993.

    Over the past five years, New Zealand agencies have been advised of cases of serious offending in overseas jurisdictions involving around 150 New Zealand registered companies. Further, the Reserve Bank of New Zealand has identified around 1000 New Zealand registered companies and limited partnerships potentially involved in financial frauds in overseas jurisdictions. The paper indicates that there are four broad groups of proposals that could be implemented relatively quickly to address this misuse of the current incorporation process in New Zealand. These are:

    • New Zealand resident director or resident local agent
      requiring all New Zealand companies to have either one New Zealand resident director or a resident local agent (which would make it easier to confirm the bona fides of those behind a company);

    • Director date and place of birth information
      requiring directors to supply date and place of birth information (to improve the ability of the Registrar of Companies to ensure that he is dealing with the correct individual);

    • Mandatory IRD numbers
      requiring all companies to apply for an IRD number as part of their registration application process (to provide a disincentive to those seeking to take advantage of New Zealand's international standing, but which do not intend to carry out lawful business in New Zealand); and

    • Enhanced powers for the Registrar of Companies
      providing the Registrar of Companies expanded powers to enable him to undertake effective investigation and consequent administrative action, including allowing the Registrar to:

      • require companies, directors, shareholders and/or local agents to confirm or correct existing information on the Companies Register;
      • 'flag' companies which are under investigation;
      • remove a company from the Companies Register in certain circumstances;
      • remove a director from a company if that person is disqualified under the Companies Act;
      • extend the criteria for the imposition of management banning orders to include persistent non-compliance with the filing and reporting obligations of the Companies Act and the Financial Reporting Act or where they have provided inaccurate information to the Registrar; and
      • to the extent necessary, extend the Registrar's investigation powers to matters where a company or its directors have not complied with the disclosure requirements of the Companies Act.

    Exemptions for New Zealand resident director

    The proposal to require all New Zealand companies to have at least one resident director is consistent with the approach taken in Australia and other comparable jurisdictions. The paper indicates if this proposal was introduced there would be certain exemptions, particularly for Australian-owned New Zealand companies and potentially for jurisdictions where there are reciprocal information sharing arrangements.

    However, there is a small risk that the proposal to require a New Zealand-resident director and to exempt "approved jurisdictions" from that requirement will be challenged as being inconsistent with New Zealand's obligations under international trade agreements.

    Issues with resident local agent requirement

    The paper suggests that there may be some difficulties introducing the local agent proposal as it is a new concept to New Zealand law. In particular, the Minister notes that the rights and obligations on a local agent (who would be a natural person) would need to be carefully considered to ensure that they are confined to being administrative in nature and not so onerous as to constitute de facto directors' duties. It is envisaged that the local agent would be required to accept service of legal proceedings and ensure that the company meets its disclosure and maintenance of records obligations under the Companies Act. They would be liable for any penalties imposed on the company for any breach by the company of the Companies Office filing requirements under the Act.

    Limited partnerships

    The Minister is also recommending that similar provisions be introduced for limited partnerships under the Limited Partnerships Act 2008, although the paper notes that more work needs to be done to identify the necessary adjustments to the proposed Companies Act amendments.

    Timeline for changes

    There has been no official announcement on when these proposed changes will be introduced, but we understand that Cabinet has agreed to a number of the Minister's proposals and that an amendment bill is currently in the drafting stage.

    New class exemption for Australian issuers' financial reporting requirements

    The Financial Reporting Act (Australian Parent Entity Financial Statements) Exemption Notice 2011 came into force on 16 September 2011. The notice exempts directors of companies incorporated in Australia (with one or more subsidiaries) that are issuers from various provisions of the Financial Reporting Act 1993.

    Subject to certain conditions, the exemption notice allows Australian issuers to register consolidated financial statements for the group and summary information on the parent entity that comply with the preparation and audit requirements of Australia. This will mean that:

    • the issuer will not need to prepare, have audited, and register full separate parent entity financial statements because this is no longer required under Australian law; and

    • the consolidated financial statements of the issuer, and the associated audit report, will comply with generally accepted accounting practice in Australia and Australian requirements for audit reports.

    In the courts Top

    D&O insurance policies: will your defence costs be covered?

    In a recent High Court decision* concerning a claim by the receivers of Bridgecorp against the Bridgecorp directors, the court ruled section 9 of the Law Reform Act 1936 gave Bridgecorp a charge over all insurance money payable under a directors and officers (D&O) liability insurance policy, and that the charge had priority over any claim by the Bridgecorp directors to defence costs under the policy.

    In practice this means that in the event of a significant civil claim in excess of a D&O policy's limit of liability, directors may be precluded from relying on the policy to pay their defence costs where the policy covers both the directors' defence costs and liability to third party claimants.

    One way for directors to avoid this problem is for the company to take out a separate policy – such as a statutory liability policy or a separate D&O policy – that contains sufficient cover for defence costs but does not cover claims for damages and compensation. Insurance money under such a policy will not be subject to a charge in favour of a third party claimant under the Law Reform Act. Alternatively, directors should ensure that they have sufficient cover under their D&O policy for all likely claims and defence costs.

    Click here to read Bell Gully commentary on this decision.

    * Disclosure: Bell Gully acted for Bridgecorp in this proceeding



    Takeovers Panel Top

    Takeovers Panel Code Word – Issue No.29

    The Takeovers Panel issued a new Code Word in September. This issue includes coverage of the following:

    • Developments in takeovers law and the Takeovers Panel's practices arising from the unsuccessful partial offer for Horizon Energy Distribution Limited made by Marlborough Lines Limited in September 2009;

    • The new class exemption in relation to partial takeover offers which came into effect on 12 August 2011;

    • The Panel's expectations for disclosures in an offer document relating to the requirement in clause 14 of Schedule 1 to include a statement "as to the general nature of any material changes likely to be made by the offeror in respect of the business activities of the target company and its subsidiaries";

    • An outline of the amendments to the Takeovers Code and Takeovers Act included as part of the Regulatory Reform Bill 2010, which is currently awaiting its second reading; and

    • Recent appointments to the Panel (including the appointment of Carl Blanchard and Bell Gully partner David Flacks in August 2011) and changes within the Panel's executive team.

    To read this issue click here.



    Regulatory developments Top

    Regulations in support of the Securities Trustees and Statutory Supervisors Act

    The following regulations have been made in support of the new licensing regime for trustees and statutory supervisors:

    New requirements for trust deeds for debt securities and trust deeds for unit trusts and KiwiSaver schemes

    The Securities Amendment Regulations (No 2) 2011 prescribe matters and terms to be included in trust deeds to help ensure that trustees have the powers they need to properly fulfil their role under the new regime. They amend the Securities Regulations 2009 to:

    • Require trust deeds for debt securities to include provisions which specify the following matters (but note that there is a 1-year period within which trust deeds registered before 1 October 2011 must be amended to specify these matters):

      • the corporate form of the issuer and any additional governance requirements that apply to it;

      • the frequency with which the issuer must provide periodic reports to the trustee and the contents of those reports;

      • the frequency of, the procedure for convening and holding, the business to be conducted at, and the voting rights at meetings of holders of debt securities;

      • the terms relating to the appointment and removal from office of the trustee; and

      • the trustee's powers and duties.

    • Prescribe further clauses that are deemed to be contained in trust deeds for debt securities, including:

      • a duty on the issuer to notify the trustee of any actual or potential breach of the trust deed or the terms of the offer;

      • the power of the trustee or statutory supervisor, with consent of the issuer, to make amendments to the trust deed that do not adversely affect investors;

      • the power of the trustee or statutory supervisor to engage an expert to review the systems and governance of the issuer;

      • the power of the trustee to obtain information relevant to the issuer's obligations under the trust deed; and

      • the trustee's right to enforce duties of the issuer on behalf of investors.

    • Prescribe clauses that are deemed to be contained in trust deeds for unit trusts and KiwiSaver schemes (other than restricted schemes). The clauses require the relevant trustee to exercise reasonable diligence to ascertain whether or not any breach of the terms of the deed or of the offer of securities has occurred, and to do all of the things that it is empowered to do to cause any breach of those terms to be remedied (except if the breach will not materially prejudice the interests of the securities holders). These duties already apply to trustees of debt securities under Schedule 15 of the Securities Regulations.

    The Securities Trustees and Statutory Supervisors Act 2011 and the associated regulations came into effect on 1 October.

    For further details on the new licensing regime for securities trustees and statutory supervisors visit the Ministry of Economic Development's website here.

    Financial Markets Authority (FMA) Top

    New council to support close co-operation between financial regulators

    A new Council of Financial Regulators has been established to foster cooperation between financial and prudential regulators in New Zealand. The permanent members of the Council are the Reserve Bank and the FMA. Associate members are The Treasury and the Ministry of Economic Development.

    The Council's objectives include the sharing of information, identifying important trends and issues and coordinating responses to those issues, and ensuring appropriate coordination arrangements are in place to respond to events and developments. The regulators expect that the arrangement will enable them to identify and respond more quickly to emerging common concerns in the financial system.

    The Council held its inaugural meeting on 9 September.

    For further details click here.

    FMA publishes its enforcement policy

    The FMA has published its enforcement policy which is intended to guide and inform financial market participants rather than be an exhaustive or legally-binding document. It will be revised from time to time as the FMA's regulatory objectives and priorities change.

    As has been indicated previously, the FMA is committed to enforcement action which targets conduct that harms or presents the greatest likelihood of harm to the function of open, transparent, efficient capital markets. The FMA does not intend to pursue every breach that comes to its attention.

    Some early enforcement priorities that have been highlighted by the FMA include:

    • compliance with new legislation (such as the licensing of financial advisors and trustees and statutory supervisors);
    • misconduct in KiwiSaver sales and distribution practices;
    • conduct in traded securities markets; and
    • policies and procedures that credit and financial institutions will use to assess and manage the risks of money laundering and terrorist financing from 30 June 2013.

    The enforcement policy also sets out the FMA's approach to:

    • the use of its formal functions and powers;
    • third party accountability;
    • the publication of enforcement action;
    • early intervention to prevent market failure;
    • pursuing civil and criminal sanctions; and
    • its use of section 34 of the FMA Act 2011, which allows the FMA to 'stand in the shoes' of another person's right to take action against a third party.

    In addition to this enforcement policy, the FMA intends to issue a model litigant policy that outlines its intended approach to litigation, and a policy on its intended approach to conducting investigations.

    A copy of the FMA's Enforcement Policy is available here.

    FMA provides update on finance company investigations

    The FMA has announced that investigations into 16 collapsed finance companies involving an estimated $3.45 billion of losses to investors were continuing, with decisions on the most advanced cases likely before the end of 2011.

    FMA has also identified six cases it will not pursue at this stage because further investigation would not be in the public interest.

    Click here to read the full press release.

    FMA requests submissions on proposed Securities Trustees and Statutory Supervisors Licensing Guidance Note

    The FMA has called for submissions on a draft Securities Trustees and Statutory Supervisors Licensing Guidance Note which it intends to publish to assist licence applicants in compiling and submitting their licence applications for the new licensing regime introduced under the Securities Trustees and Statutory Supervisors Act 2011.

    The Guidance Note sets out who needs to be licensed and when applications need to be received. It then sets out the licensing criteria, by stating the Act requirement, the corresponding requirement of the regulation (if there is one) and providing the detail of the documentation applicants will be required to provide with their licence application.

    The closing date for submissions is 6 October 2011.

    NZX developments Top

    Securities Act (NZX–NZAX Market) Exemption Notice 2011

    The Financial Markets Authority has carried forward the provisions of the Securities Act (NZX–NZAX Market) Exemption Notice 2005 with the issue of the Securities Act (NZX–NZAX Market) Exemption Notice 2011.

    The effect of the 2005 notice, which expired on 1 June 2010, was to exempt NZAX issuers from the requirement to provide an investment statement to prospective investors before they subscribed for equity securities, including in respect of previously allotted securities, and instead to require NZAX issuers to register a prospectus with an alternative schedule of contents.

    This notice carries forward the effect of the 2005 notice, with a number of minor changes to reflect the introduction of the Securities Regulations 2009, more accurately reflect the way information is displayed by NZAX issuers, and provide for transitional arrangements.

    The notice came into force on 30 September 2011 and will expire on 30 September 2016.

    NZX Futures and Options Rules discontinued

    As indicated by NZX Market Supervision in May this year, the NZX Futures and Options Rules have been discontinued with effect from 30 September 2011. The designation of all Futures and Options Participants accredited under the rules was also revoked on the same day.

    This follows on from the launch of the NZX Derivatives Market in October 2010 which is governed by the NZX Derivatives Market Rules and related procedures. These rules also govern the conduct of participants on other futures and options exchanges and in respect of facilitating trades off-market.

    Click here for further details.

    In the courts Top

    Sentencing of the Nathans Finance directors

    The High Court has handed down its decision on the penalties to be imposed on three of the directors of Nathans Finance Limited: R v Moses (High Court, Auckland, CRI 2009-004-1388, 2 September 2011). In an earlier decision, the High Court had found that the directors had contravened section 58 of the Securities Act 1978 on several counts associated with the distribution of prospectuses and advertisements containing untrue statements about Nathans' business and its actual financial position. For a detailed analysis of this decision see our earlier article: Further clarity for directors' duties: The Moses case and the Steigrad case (aka Nathans and Bridgecorp).

    In summary, Justice Heath sentenced:

    • Mr Young, who the judge regarded as the least culpable of the four directors, to a period of 9 months home detention, 300 hours community work and payment of reparation in the sum of $310,000;

    • Mr Moses, chairman of Nathans Finance, to a term of imprisonment of 2 years and 2 months and ordered him to pay reparation in the sum of $425,000; and

    • Mr Doolan, whose culpability was considered by the judge to be slightly greater than that of Mr Moses, given his oversight of the management committee, company finances and his more direct involvement in the day-to-day management and operations of the companies, to 2 years 4 months imprisonment, together with a reparation order of $150,000.

    Under the Securities Act, the maximum penalty for each of the offences committed by the directors is a period of five years imprisonment or a fine not exceeding $300,000.

    The key factors Justice Heath took into account in considering the penalties to be imposed on the directors included the seriousness of the offences (which Justice Heath concluded fell within the gross negligence category) and the need for general deterrence.

    Justice Heath observed in the course of extensive reasons for his decision that the following aspects of the directors' performance were particularly troubling to him:

    • their failure to consider, in any meaningful way, whether the prospectus and investment statements conveyed materially accurate information to investors that was required for the investor to make a proper decision about investment risks;

    • their undue reliance on professionals and senior management personnel, to the extent that their functions and responsibilities of directors in determining whether the prospectus and investment statement conveyed accurate information was seemingly abdicated; and

    • their apparent belief that there was nothing wrong in using moneys solicited from members of the public for the purpose of Nathans Finance' business being diverted to the parent company to allow it to honour a guarantee given to another VTL Group Limited finance company (although this did not form part of the charges which came to light during evidence).

    In an earlier decision the fourth director, John Hotchin, was sentenced to 11 months home detention, ordered to do 200 hours community work and pay $200,000 reparation after pleading guilty to the charges against him.

    The Court of Appeal has dismissed both Mr Moses' and Mr Doolan's appeals from their sentences.



    New Zealand Commerce Commission (NZCC) Top


    The NZCC has issued the following speech:

    Regulation of Telecommunications: The lessons learned over the last 25 years and their application in a broadband world
    On 5 August 2011, Dr Ross Patterson, Telecommunications Commissioner, gave a speech to the 22nd Annual Workshop of the Competition Law and Policy Institute of New Zealand, outlining New Zealand's approach to telecommunications regulation over the last 21 years.
    Click here for more

    Media releases

    The NZCC has issued the following media releases:

    Industry regulation and regulatory control

    Commission releases approach for setting starting prices for gas pipeline businesses
    The NZCC has released a discussion paper outlining a proposed approach to the setting of starting prices for gas pipeline businesses subject to default price-quality paths under Part 4 of the Commerce Act 1986.
    Click here for more

    Commission reaches preliminary view to authorise a proposal to restrict the sale of refrigerants
    The NZCC has reached a preliminary view that the Refrigerant License Trust Board's proposal to restrict sales of refrigerants to trained and certified people is not likely to lessen competition in any market. The Commission has published its draft determination on the application for authorisation made under section 58 of the Commerce Act for wholesalers of refrigerants to enter into a voluntary agreement.
    Click here for more

    Mergers and acquisitions

    GEA granted clearance to acquire Nu-Con
    The NZCC has granted clearance for GEA Process Engineering A/S to acquire 100 percent of the shares in Nu-Con Limited. The Commission considered that competition from existing participants in the milk powder handling systems market and the milk powder packaging systems markets was likely to be sufficient to constrain the merged entity.
    Click here for more

    iSite granted clearance to acquire billboard assets of O.T.W. Advertising
    The NZCC has granted clearance for Infratil Outdoor Media Limited, the owner of iSite Limited, to acquire up to 100 percent of the billboard assets of O.T.W. Advertising Limited. The Commission was satisfied that the proposed acquisition would not have, or would not be likely to have, the effect of substantially lessening competition in regional or the metropolitan markets of Auckland, Wellington and Christchurch where most billboards are located.
    Click here for more

    Commerce Commission receives authorisation application from Fonterra
    Fonterra Co-operative Group Limited has applied to the NZCC seeking authorisation for a limited partnership agreement with Silver Fern Farms Limited to create Kotahi Logistics. Kotahi Logistics will coordinate domestic and international freight services for the two entities, with other importers and exporters being invited to become partners and customers in the future.
    Click here for more

    Matariki Forests granted clearance to acquire the Canterbury forest assets of Selwyn Plantation Board
    The NZCC has granted clearance for Matariki Forests to acquire the Canterbury forestry assets of the Selwyn Plantation Board. The Commission was satisfied that the proposed acquisition will not substantially lessen competition in the mid and north Canterbury markets for the supply of pulp logs, industrial logs and structural logs.
    Click here for more

    Market behaviour

    Commerce Commission to proceed with air cargo price-fixing case
    The NZCC persuaded the Auckland High Court that inbound air cargo services were supplied in a market in New Zealand, and that the Court had jurisdiction to hear the Commission's case alleging air cargo price fixing in full (the Court rejected Commission arguments regarding the interpretation of sections 4 and 30 of the Commerce Act).
    Click here for more


    Competition for wholesale broadband services remains limited says Commerce Commission
    The NZCC has published its review of access to competitive broadband services and concluded that Telecom faces limited competition in this market. As a result wholesale broadband access will remain subject to the terms of the unbundled bitstream access Standard Terms Determination.
    Click here for more

    Commission's draft decision results in small price reductions for Unbundled Copper Local Loop Service
    The NZCC has published a corrected version of its draft review of prices for the Unbundled Copper Local Loop Service. In this version there are corrections to the four unbundled bitstream access prices.
    Click here for more

    First mobile monitoring report shows encouraging early trends
    Four months after cutting wholesale termination rates for mobile calls and text messages, the NZCC has released a mobile monitoring report, showing a small increase in calls and text messages between mobile networks.
    Click here for more

    Commerce Commission releases draft decision for the Low Frequency Voice Service
    The NZCC has published its draft determination on the price and non-price terms for the Unbundled Copper Low Frequency Voice Service. This service will enable telecommunications companies to provide a voice service to their customers using the low frequency band in Telecom's copper local loop network.
    Click here for more

    Consumer issues

    Insurance company to refund customers after Fair Trading Act breach
    Protecta Insurance admitted breaching the Fair Trading Act by failing to adequately disclose that an administration fee would be charged for cancelling private vehicle insurance. The company acknowledged its mistake and will refund approximately $44,471 to affected policy holders.
    Click here for more

    Commerce Commission cautions sunbed industry over claims
    Following a complaint from Consumer NZ and the Cancer Society the NZCC has put sunbed operators and distributors on notice about the risks of making false or misleading claims about the health benefits and risks of sunbed use.
    Click here for more

    Commission executes search warrants in 'Made in New Zealand' crackdown
    NZCC staff executed a number of search warrants in Rotorua and Auckland in relation to an ongoing Fair Trading Act related investigation in the tourism souvenir sector. The investigation is part of a current NZCC focus on souvenirs being sold to tourists as Made in New Zealand when they are not.
    Click here for more

    Prepaid phone card company fined $100,000 for misleading posters
    A company that misled consumers about what it would really cost them when they used their prepaid phone cards has been fined $100,000 in the Auckland District Court for breaches of the Fair Trading Act. Tel.Pacific New Zealand Limited pleaded guilty to 33 charges of breaching the Fair Trading Act through its marketing of five prepaid phone cards throughout New Zealand from November 2008 to March 2010.
    Click here for more

    Bed company fined over $69,000 for misleading consumers about cancellation rights
    A company that sold high-priced "sleep systems" at invitational seminars has been fined $69,935 for misleading consumers about the right to cancel their contracts. Wenatex breached the Fair Trading Act by misleading customers about their cancellation rights under the Door to Door Sales Act. When products are sold door to door or in other high pressure sales situations, such as invitational seminars, the Act recognises that consumers can make poor purchase decisions and gives them a "cooling off" period.
    Click here for more

    Australian Competition and Consumer Commission (ACCC) Top

    Selected ACCC media releases

    The ACCC has issued the following media releases:

    Mergers and acquisitions

    ACCC proposes to authorise Qantas and American Airlines Joint Business Agreement
    The ACCC has issued a draft decision proposing to grant authorisation for a Joint Business Agreement between Qantas and American Airlines. Under the JBA, the airlines will coordinate operations on services between Australia/New Zealand and the United States, and on their respective services which support the trans-Pacific routes.
    Click here for more

    ACCC authorises management services agreement for private health fund
    The ACCC has issued a final determination granting authorisation to allow Lysaght Peoplecare Limited to provide Reserve Bank Health Society with services relating to operational matters under a Management Services Agreement. Some of the services include marketing, product development, hospital contract management and other governance services.
    Click here for more

    ACCC appeals Metcash judgment
    The ACCC announced it is appealing against the Federal Court's judgment dismissing the ACCC's application to prevent Metcash from acquiring the Franklins supermarket business. Subsequently the ACCC entered an interim injunction restraining the proposed acquisition, which the Federal Court denied.
    Click here for more

    Market behaviour

    ACCC exposes construction bid rigging
    The Federal Court in Brisbane has found that three Queensland based construction companies engaged in price fixing and misleading or deceptive conduct in tendering for Government public works projects in Queensland.
    Click here for more

    ACCC does not oppose revised price increases by Airservices Australia
    The ACCC has decided to not object to a revised proposal from Airservices Australia to increase its prices for services such as air traffic control. In its view on Airservices' previous proposal, which was released on 8 September 2011, the ACCC was concerned that proposed price increases would see Airservices over-recover its costs.
    Click here for more


    ACCC invites comment on geographic exemptions for declared fixed line telecommunications services
    The ACCC has commenced a public inquiry into varying the geographic exemptions from regulation for Wholesale Line Rental, Local Carriage Service, and PSTN Originating Access services. At the time of making final access determinations for these services in July 2011, the ACCC foreshadowed that it would conduct a public inquiry on varying the final access determinations in relation to the exemption provisions.
    Click here for more

    Consumer issues

    Energy Watch provides undertakings to the Federal Court
    Energy Watch Pty Limited has undertaken to the Federal Court that it will not make a number of representations in any media until the ACCC's proceedings against it are finalised or until further order of the Court. Energy Watch offers an energy price comparison service and on 26 August 2011 the ACCC commenced proceedings in the Federal Court in Melbourne against it, alleging contraventions of the Australian Consumer Law by making false or misleading representations.
    Click here for more

    South Australian rainwater tank retailer admits misleading customers
    Tank Broker Pty Limited has paid three infringement notices totalling $19,800 issued by the ACCC for failing to prominently state the full price of rainwater tanks. Among other things, Tank Broker advertised rainwater tank kits for sale by comparing 'Now' prices with 'Was' prices despite the 'Now' price being the current price for the tank kits.
    Click here for more

    Brazilian Blowout 'formaldehyde-free' representations likely to mislead
    The ACCC has accepted a court-enforceable undertaking from Privity Pty Limited (trading as Haircare Australia) for representing that the hair straightening product 'Brazilian Blowout' did not contain formaldehyde. Independent testing found formaldehyde levels to be 50 times greater than the safe limit.
    Click here for more

    Court decision on Google clarifies misleading advertisements
    The Federal Court has dismissed allegations by the ACCC that internet search engine Google engaged in practices likely to mislead consumers. The ACCC alleged that by failing to adequately distinguish advertisements from search results, Google had engaged in misleading or deceptive conduct. However the Court held that the presentation of Google's search results did not breach consumer law as most users would have appreciated that "sponsored links" were in fact advertisements.
    Click here for more

    ACCC takes court action against publishing companies
    The ACCC has instituted proceedings in the Federal Court against four publishing companies and their sole director for alleged misrepresentations and harassment. The companies offered mostly small businesses the opportunity to take out advertisements in the companies' community magazines representing that 500 copies of the magazines would be distributed to various organisations. The ACCC alleged the companies never intended to and never did distribute 500 copies of any of their magazines as represented.
    Click here for more



    ETS developments Top

    NZ ETS Review 2011 – the final report

    The Emissions Trading Scheme Review Panel's final report, "Doing New Zealand's Fair Share" Emissions Trading Scheme Review 2011 was released last month. 

    The Panel recognises that the future of international climate change negotiations and associated agreements is likely to continue to be uncertain in the short-to-medium term. However it believes it is in New Zealand's long-term economic interests to continue to change behaviour to reduce emissions.

    The Panel has made 61 recommendations to Government, and in doing so has stated that it: "has sought to strike the right balance between mitigating the short-term costs and competitiveness risks that the ETS may raise, and providing certainty on the clear long-term direction that New Zealand must take."

    Some of the key recommendations made by the Panel in its report are:

    • No changes should be made at this stage in relation to the administration of the ETS across Government.

    • The Government should urgently consider whether HFC CERs (offshore projects which are created then mitigated to reduce green house gasses, which results in no real reduction) pose a significant risk and whether a time limit should be imposed on their eligibility into the NZETS.

    • The price cap should be retained after 2012, but should increase by $5 per annum from 2013 to 2017, starting at $30 per NZU in 2013 and reaching $50 per NZU in 2017.

    • The next review of the ETS should consider whether a price cap is needed after 2017.

    • An ETS price floor should not be introduced.

    • For the liquid fossil fuels, stationary energy and industrial processes sectors, the one ‐for ‐two surrender obligation should scale up to a full surrender obligation progressively from 2013 to 2015, increasing at equal intervals per annum, that is to 67 percent in 2013, 83 percent in 2014, and 100 percent in 2015 (rounded to the nearest percentage).

    • The price cap should be available to all the new sectors entering the scheme after 2012, including the agriculture, synthetic greenhouse gases and waste sectors.

    • Participants in the synthetic greenhouse gases and waste sectors should have access to a 67 percent obligation in 2013 and an 83 percent obligation in 2014, and should assume full surrender obligation from 2015.

    • The current phase-out rate of 1.3 percent per annum of the previous year's allocation should be revised to an annual reduction of 1.3 percentage points, to clarify the exact phase ‐out rate and the year in which the free allocation of NZUs will cease.

    • Agriculture remains within the ETS on the timetable that is currently legislated, with mandatory reporting beginning in 2012 and surrender obligations beginning in 2015.

    • The point of obligation for agriculture should be at the farmer level rather than the processor level.

    • Participants in the agriculture sector should have an one-for-two surrender obligation in 2015 and 2016, a 67 percent obligation in 2017, and an 83 percent obligation in 2018, and should assume full surrender obligation from 2019.

    • The Government should make a hard-headed assessment of the Panel's recommended changes to the domestic ETS forestry rules after 2012, taking account of the international position, the potential fiscal impact/risk and financial impact/benefit to foresters and other stakeholders, with a view to changing the ETS forestry rules along the lines recommended, if necessary unilaterally.

    • Pre-1990 forestry offset planting should be introduced, within the rules for pre-1990 forestry from 2012.

    • The Government should introduce a claw-back provision for the second tranche of the pre-1990 forestry allocation, if offset planting is introduced into the ETS and taken up by a participant.

    Further information is available on the Ministry for Environment's climate change website here.

    Consultation on Proposed Regulations Restricting the Use of HFC-23 and N2O CERs in the NZ ETS

    In response to a recommendation made by the Emissions Trading Scheme Review Panel in its final report (discussed above), the Government is consulting on a proposal to ban the surrender of Certified Emission Reduction units (CERs) generated from HFC-23 and N 2O industrial gas destruction projects, by participants in the NZ ETS. The Government is also seeking views on two options for the timing of the proposed ban:

    • applied to surrendered units that enter the New Zealand Emission Unit Register (NZEUR) from 1 January 2012; and
    • applied to surrendered units that enter the NZEUR from 1 January 2013.

    The proposed change may affect the following:

    • All NZ ETS participants with obligations to surrender emissions units;
    • All removal (post-1989 forestry and other removal activities) participants who have opted to join the NZ ETS or who are considering opting into the NZ ETS;
    • Allocation recipients; and
    • New Zealand carbon traders and others intending to sell units into the NZ ETS.

    The deadline for submissions on the consultation paper is 31 October 2011. Further details are on the Ministry for Environment's climate change website here.

    Resources sector Top

    Exclusive Economic Zone Bill introduced

    On 24 August 2011, the Government introduced the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Bill into Parliament.

    The stated purpose of the legislation is to achieve a balance between the protection of the environment and economic development in relation to activities in the Exclusive Economic Zone and on the continental shelf by:

    • requiring decision makers to take into account a number of specified matters when making certain decisions under the Bill (as described below);
    • requiring them to take a cautious approach in decision making if information is uncertain or inadequate; and
    • requiring the adverse effects of activities on the environment to be avoided, remedied or mitigated.

    The Government has also proposed certain interim measures to manage the environmental effects of activities before the Bill is enacted.

    For more details and commentary on this Bill see our earlier article: Unlocking New Zealand's resources potential?

    Meeting the energy challenge – the New Zealand Energy Strategy

    On 30 August 2011, the Acting Minister of Energy and Resources, Hon Hekia Parata, released the New Zealand Energy Strategy and the New Zealand Energy Efficiency and Conservation Strategy (NZEEC Strategy).

    The role of the New Zealand Energy Strategy is to set out the strategic direction for New Zealand's energy sector, including the role that energy will play in New Zealand's economy from 2011 – 2021. The NZEEC Strategy acts as a companion to the Government's primary statement of energy policy set out in the New Zealand Energy Strategy and outlines practical actions that encourage energy consumers to make efficient energy decisions. It is effective from 2011 – 2016.

    The New Zealand Energy Strategy states that the Government's goal is for New Zealand to make the most of its abundant energy potential, for the benefit of all New Zealanders. The Government plans to achieve this through the environmentally responsible development and efficient use of New Zealand's energy resources. This specifically includes enabling investors to optimise the development of resources.

    There are four stated priorities on which the New Zealand Energy Strategy is based in order to support New Zealand to optimise its energy potential: diverse resource development, environmental responsibility, efficient use of energy and secure and affordable energy. Each of the four priorities has specific areas of focus in order to support the relevant priorities.

    Some of the key points to note from the New Zealand Energy Strategy are:

    • the Government's retention of the target that 90 percent of New Zealand's electricity generation be from renewable sources by 2025;

    • the reiteration of the Government's focus on ensuring New Zealand is a highly attractive global destination for petroleum exploration and production investment by:

      • reviewing the fiscal and royalty framework to ensure the Government receives a fair return whilst providing sufficient incentives for investment;

      • investing in data acquisition; and

      • developing a fit for purpose legislative framework for the petroleum sector;

    • the emphasis on ensuring best practice in environmental management for energy projects, including best practice in developing energy resources and best practice in the environmental effects of energy use;

    • a target of a 50 percent reduction in New Zealand's greenhouse gas emissions from 1990 levels by 2050;

    • a focus on improving the efficiency of energy use, particularly in the transport sector and by businesses and consumers;

    • promotion by the Government of the achievement of secure and affordable energy through competitive energy markets, including the electricity market, the gas market and by overseeing oil markets;

    • the recognition that long-term security and reliability of electricity supply require regulatory certainty and effective and balanced rules;

    • a focus of attention on resource management issues that inappropriately affect investment in electricity infrastructure; and

    • the Government's goal of seeking to improve the quality of information on gas reserves and encouragement of gas exploration and development.

    The NZEEC Strategy promotes the use of a range of Government measures to suit different opportunities and stakeholders, including providing information, incentives, codes and standards and research and development. Its energy efficiency target is for New Zealand to continue to achieve a rate of energy intensity improvement of 1.3 percent per annum (where energy intensity is the energy used per unit of GDP). In addition, the NZEEC Strategy sets out sector specific objectives and targets for each of the following areas: transport, business, homes, products, the electricity system and the public sector.

    A copy of the New Zealand Energy Strategy and the NZEEC Strategy can be found here.



    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:

    • Late payment fees – are you causing IRD significant fiscal risk?
      A Tax Bill introduced to Parliament yesterday deals with a number of matters including whether GST is payable on late payment fees. If your business charges such fees this Bill is important for you. Read on

    • The continuing pursuit of deterrence
      In competition law circles, cartel criminalisation has had the limelight this year as the Government continues to ponder the costs and benefits of that particular legislative proposal. All the while, however, Parliament has been progressing other legislation to add to the regulator's competition law armoury. The Court too has been playing its part in continuing to up the ante in competition law enforcement. Read on

    • Decision places banks between a rock and a hard place
      Reasonable suspicion of dishonest assistance does not provide sufficient grounds for a bank to refuse to carry out customer instructions, the Supreme Court ruled last week. Read on

    • Unlocking New Zealand's resources potential?
      On 24 August 2011 the Government introduced into Parliament the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Bill. The Bill is a welcome development given the national interest in ensuring appropriate protection of the offshore marine environment. Read on

    • D&O Insurance Policies: Will your defence costs be covered?
      A directors and officers liability insurance policy typically serves two purposes. It insures directors for losses arising out of their wrongful acts, and it pays directors their defence costs in defending any claims to which the insurance applies. But what happens when a third party claimant sues the directors for an indemnifiable loss under the policy, and the directors also seek the payment of their defence costs under the policy? Whose claim has priority? Read on



    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.


    This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

    Links to third party websites in this document are not monitored or maintained by Bell Gully. We do not endorse these websites and are not responsible for their content. We accept no responsibility for any damage or loss you may suffer arising out of access to these websites. Please read all copyright and legal notices on each website prior to downloading or printing items to ensure that such actions are permitted under the third party website's copyright notices, legal notices and/or terms of use.

    © Bell Gully 2011