Business Law Reform Bill passed

The Business Law Reform Bill was passed on 6 April, earlier than expected.

Commerce Minister Hon Margaret Wilson welcomed the passing of the Bill, which amended 13 business law statutes.

"The passing of the Bill is part of the government's commitment to ensuring New Zealand has up-to-date and modern business law to support growth and innovation, by providing certainty to business and keeping compliance costs as low as possible. Taken together, the amendments have a significant and positive impact on the body of law under which businesses must operate in a rapidly changing global environment," Margaret Wilson said.

Margaret Wilson stated that the Bill was the result of close and on-going consultation with the business community and addresses what the business community has indicated were some of its concerns with business related legislation.

A summary of some of the major changes introduced by the Business Law Reform Bill is outlined below:

Companies Amendment Act (No 2) 2004

There are two important changes introduced by this Amendment Act.

Financial assistance provisions

The Amendment Act amends the application of the solvency test in the financial assistance provisions of the Companies Act 1993. This effectively brings the "entitled persons" procedure for approving financial assistance into line with the section 76 procedure.

Definition of "major transaction"

There is an amendment to the definition of "major transaction" to expressly include contingent liabilities, and guidelines are provided for determining the value of such contingent liabilities. Directors must have regard to all the circumstances that they know, or ought to know, will affect the value of a contingent liability, and may take into account the likelihood of the contingency occurring. This is an improvement on the existing section that, arguably, required contingent liabilities to be valued at their face value.

Distress and Replevin Amendment Act 2004

This Amendment Act clarifies that a landlord can distrain for rent against chattels that are subject to a security interest (as defined in the Personal Property Securities Act 1999). These chattels are deemed to be the property of the tenant or person in possession of the land for the purposes of the Distress and Replevin Act 1908. There are two exceptions to this rule:

• Motor vehicles; and
  
  
• Chattels that are the property of a tenant (or person in possession of the land), if the tenant is a company or a society incorporated under the Incorporated Societies Act 1908.

Financial Reporting Amendment Act 2004

This amends the Financial Reporting Act 1993 to ensure that statements prepared by a reporting issuer or company that contain prospective, summary or interim financial information comply with applicable financial reporting standards. This is in addition to any financial statements that are prepared at balance date or at the end of the financial year.

Personal Property Securities Amendment Act 2004

Priority in respect of accounts receivable

This amendment clarifies the uncertainty around the ability of factoring companies to obtain priority over accounts receivable in some situations. The new section makes it clear that a factoring company can obtain priority over discounted accounts receivables provided it registers a financing statement within the appropriate time frames.

Rights of assignee of an account receivable

A further change is the clarification of the rights of an assignee of an account receivable or chattel paper. In practice, this is an extremely important issue as it will determine who prevails between a bank exercising rights of set-off in relation to a deposit and a bank with a first ranking security interest in the deposit. We will provide a more detailed review of this section in the Winter 2004 issue of Financial Services Quarterly.

Securities Amendment Act 2004

There are several important changes to the Securities Act 1978 introduced by this Amendment Act:

Pre-offer advertisements

Issuers may now place advertisements seeking expressions of interest in offers of securities without having to comply with the provisions of the Securities Act. There are a number of conditions placed on such advertisements, which are aimed at ensuring that members of the public understand that the advertisement does not amount to an offer.

Wealthy or experienced investor exemption

The Amendment Act provides a disclosure exemption from the requirement to prepare an investment statement and prospectus in respect of offers made solely to investors who are wealthy or experienced. An investor is defined as "wealthy" if an independent chartered accountant certifies that the investor has either:

• net assets of at least $2,000,000; or
  
  
• had an annual gross income of at least $200,000 for each of the last two financial years.

A person is an experienced investor if an independent financial service provider determines that the person is able to assess:

• the merits of the offer;
  
  
• the value of the security;
  
  
• the risks involved in accepting the offer;
  
  
• that person's own information needs; and
  
  
• the adequacy of the information given by the person making the offer.

There is also a disclosure exemption where the minimum subscription price of the security is at least $500,000.

Superannuation scheme exemption

The Amendment Act exempts employer superannuation schemes from prospectus requirements.

Power of courts to grant relief in respect of void or voidable allotments

One of the key issues addressed by the legislation is that of void allotments. A supplementary order paper in relation to this and certain Australian Registered Managed Investment Schemes was issued in October last year and was commented on in the Summer 2004 issue of Financial Services Quarterly. The Securities Act is now amended to permit courts to grant relief in respect of contravention of certain provisions in the Act. Such relief may be granted upon the application of the issuer, if the contravention has not materially prejudiced the interests of the subscriber, or where the Court considers it just and equitable to do so.

Other Acts amended by the passing of the Business Law Reform Bill

The other Amendment Acts that have been passed consequent to the passing of the Business Law Reform Bill are:

• Building Societies Amendment Act 2004
  
  
• Commerce Amendment Act 2004
  
  
• Co-operative Companies Amendment Act 2004
  
  
• Friendly Societies and Credit Unions Amendment Act 2004
  
  
• Life Insurance Amendment Act 2004
  
  
• Securities Markets Amendment Act 2004
  
  
• Superannuation Schemes Amendment Act 2004
  
  
• Unit Trusts Amendment Act 2004

The changes introduced by these Acts are mainly procedural or regulatory in nature. Although persons dealing with Unit Trust should be aware of the thousand-fold increase of the fine for issuing or offering an interest in a Unit Trust in contravention of the provisions of the Unit Trusts Act 1960.

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.