CORPORATE REPORTER

17 September 2019

ITEMS IN THIS ISSUE INCLUDE:

• The joint NZX/FMA sponsored Capital Markets 2029 Report

• The Reserve Bank and FMA report back on life insurers’ responses to conduct and culture review

• Consultation on KiwiSaver default funds

• Consultation on measures to support the new financial advice regime

• Final decisions on improvements to the NZ ETS

• New trusts law in 2021

• The latest media releases from the New Zealand Commerce Commission and the Australian Competition and Consumer Commission

WELCOME to issue No.60 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.

For more information on any of the cases, articles and features in Corporate Reporter, please email [email protected] or call on +64 9 916 8849

CONTENTS CORPORATE REPORTER

CONTENTS PAGE

Capital Markets 3

Capital Markets 2029 Report Venture Capital Fund Bill Consultation on KiwiSaver default funds Consultation on new financial advice regime exemptions FMA will start accepting transitional financial advice provider licence applications in November RBNZ and FMA report back on life insurers’ responses to conduct and culture review Financial Markets Conduct (Managed Funds – Loan Disclosure Requirements) Exemption Notice 2019 RBNZ issues a class authorisation and guidance notes for overseas banks Financial market infrastructures law one step closer to reality Derivatives margin and benchmarking reforms FMA releases guidance for the Asia Region Funds Passport regime FMA’s Strategic Risk Outlook and Annual Corporate Plan KiwiSaver changes provide savings access for people with shortened life expectancy Australian Government pushes for faster implementation of the Financial Services Royal Commission recommendations

Mergers & Acquisitions 8

Takeovers Code (Charitable Trusts) Exemption Notice 2019 Takeover Panel releases new guidance on compulsory acquisitions Latest Code Word from the Takeovers Panel

Commercial 9

Trusts Act 2019 receives Royal assent Final decisions on improvements to the NZ ETS Government consults on new ways to reduce waste Productivity Commission releases draft report on technological change and its impact on work Corporate trustee AML/CFT annual reporting requirements 2019 AML/CFT Supervisors update Customer Due Diligence guidance Auditor Amendment Regulations 2019

Corporate Law 12

Supreme Court clarifies aspects of the voidable transaction requirements Select Committee reports back on fix-it Bill for companies and limited partnerships IoD and FMA release te reo Māori directors’ guide

Competition and Consumer Law 14

Government to introduce additional measures to tackle predatory lending ASIC loses landmark responsible lending case – implications for New Zealand lenders The latest media releases from the New Zealand Commerce Commission The latest media releases from the Australian Competition and Consumer Commission.

Disclaimer: This publication is necessarily brief and general in nature. Any case summary may only discuss some, not all, aspects of a case. 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 publication 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.

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Capital Markets 2029 Report

The NZX and the Financial Markets Authority (FMA) sponsored review of New Zealand’s capital markets, initiated in January this year, has been completed and the findings published. The Growing New Zealand's Capital Markets 2029 report is timely. It is ten years since the Capital Markets Development Taskforce released its report which has been the blueprint for many of the regulatory changes introduced in the sector in the intervening years. This report sets out to deliver a new ten-year vision and growth agenda for the sector based on 42 wide- ranging recommendations aimed at: • raising the level of individual participation and engagement in New Zealand’s capital markets, • offering more choice of investment for individuals, both within KiwiSaver and more generally, • growing the base of companies that can access the public capital market, reducing the barriers to listing where possible and increasing motivation for public companies to remain listed, • growing the private capital ecosystem in New Zealand, • using the capital markets to fund infrastructure in New Zealand, and • creating greater wealth for New Zealanders. Martin Stearne, the chair of the industry-led working group that was tasked with the review, acknowledges that the group did not expect to find “silver bullets to materially enhance” New Zealand’s capital markets. As he notes in his foreword to the report, in some cases they have had to be satisfied with only identifying the sources of constraint. In areas where they have made recommendations, they have also identified the relevant capital markets participants which the group considers to be in the best position to implement the recommendations. With regulatory reforms featuring as a key component of many of the recommendations, much will depend on the Government’s response to the report. Commerce and Consumer Affairs Minister Kris Faafoi noted in his announcement of the release of the report that there are a number of areas identified in the report where work is already underway and that “the recommendations made by the working group will be taken into account as work progresses”. This includes: • the monitoring programme (due to be completed in 2022) which assesses whether the Financial Markets Conduct Act 2013 (FMC Act) is meeting intended objectives, • the review currently underway to consider options around the investment mandate for KiwiSaver default providers (which the working group has made some submissions on), and • the Venture Capital Fund Bill which is currently with the select committee for consideration. NZX has said it will report on the progress it makes in respect of the relevant recommendations, with a first assessment in 18 months’ time. The recommendations that the report identifies as likely to have the most impact in the next ten years include: • allowing KiwiSaver members to self-direct and invest with multiple providers, • replacing the KiwiSaver default provider status with a default fund setting (that considers price, asset allocation, financial education and support) and allowing all KiwiSaver providers to opt in to meet the default fund requirements, • moving the KiwiSaver regime from a TtE model (i.e., where income is taxed when it is first earned (T); more lightly taxed as it accumulates within a fund (t); but not taxed when it is withdrawn and spent (E), meaning exempt) with an EET model (i.e., where ‘E’xempt income contributed; ‘E’xempt income in the fund; ‘T’axed when withdrawn), to provide for a lower overall level of taxation, • simplifying the disclosure requirements for retail audiences of regulated offers under the FMC Act, • removing the requirement to provide prospective financial information for IPOs, rather than retaining the current opt-out framework,

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• undertaking a review of the continuous disclosure liability settings, • excluding New Zealand listed bodies corporate from the definition of overseas person under the overseas investment regime if no one overseas person (including any associates) holds more than 25% of the shares in the New Zealand listed entity, • considering local government reform by central Government to ensure local councils assess all funding options for necessary infrastructure, • increasing the development of a more active growth capital sector based in New Zealand, • greater promotion and education of the alternative pathways to the listed market, and • developing a collaborative capital markets ICT plan.

Venture Capital Fund Bill

Submissions are being called on a Bill establishing a venture capital fund to be managed and administered by the Guardians of New Zealand Superannuation. The Venture Capital Fund Bill is proposed to provide a fund of $300 million to help New Zealand firms expand and increase productivity levels. After a period of 15 years, all of the assets of the fund will be returned to the Crown to fund superannuation. Click here to read the Bill, and for information on how to make a submission. Submissions close on 23 September 2019.

Consultation on KiwiSaver default funds

The Ministry of Business, Innovation and Employment (MBIE) and the Treasury have released a joint consultation on KiwiSaver default fund provider arrangements. The term for the nine current providers of default funds expires on 30 June 2021. MBIE and the Treasury anticipate that the procurement process for appointing new providers will start in early 2020, and ahead of that they are reviewing the policy settings that underpin the appointment of new providers and the terms on which those providers are appointed. The consultation seeks feedback in relation to the current default provider settings which will be used to inform recommendations to Ministers on the default settings. Some of the options that are being considered include: • what, if any, changes should be made to the terms of appointment for providers of default funds, • whether the current conservative investment mandate of default KiwiSaver funds should be changed to invest in more growth assets, • the options for reducing fees charged to default members, • whether responsible investment requirements should be imposed, and • whether default settings should be used to support the development of New Zealand’s capital markets. Submissions close on 18 September 2019.

RBNZ and FMA report back on life insurers’ responses to conduct and culture review

The Reserve Bank of New Zealand (RBNZ) and the FMA have released a joint announcement on the responses they received from life insurers regarding the regulators’ conduct and culture feedback requests. In January this year, the RBNZ and the FMA published a joint report on their findings from a thematic review of conduct and culture issues present in the practices of sixteen life insurers operating in New Zealand. This was the second phase of the regulators review of conduct and culture in the financial services industry (having previously published a report on retail banks), prompted by the Australian Royal Commission (ARC) into Misconduct in the Banking, Superannuation and Financial Services Industry last year. The report highlighted similar problems to those identified in the ARC report, although on a smaller

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CORPORATE REPORTER scale. This included “extensive weaknesses in the life insurers’ systems and controls” which left the industry vulnerable to misconduct, and a lack of focus on whether products were suitable for customers. Following the report, all sixteen life insurers were given feedback and had until 30 June 2019 to respond to the regulators. This included: • developing an action plan to address the review feedback, • explaining how the expectations of the regulators regarding staff incentives and commissions for intermediaries would be met, and • completing a systematic review of the insurers existing life products and policy-holder portfolios covering at least the past five years. The regulators’ joint announcement indicates that there has been wide variance in both the comprehensiveness and maturity of the plans provided by the life insurers, as well as in the quality and depth of the systematic review of policyholders and products. There has also been mixed responses to the regulators’ concerns on sales incentives and commissions for intermediaries in the industry. Insurers that did not undertake comprehensive systematic reviews of policyholders and products have been asked to complete further reviews of their systems to identify issues, and to develop mature plans to respond and remediate any of their findings. These plans must be completed by December 2019.

Consultation on new financial advice regime exemptions

The FMA is consulting on proposed exemptions for the new regulatory regime for financial advice (introduced under the Financial Services Legislation Amendment Act 2019). The consultation considers whether relief that is available under the current financial adviser regime should be continued under the new regime for: • Australian licensees (which facilitates Trans-Tasman provision of financial services where compliance with the New Zealand licensing regime would result in dual regulation and be disproportionate to the limited services being provided from Australia). • Overseas custodians (which allows overseas custodians to obtain assurance engagements prepared by overseas auditors who are subject to auditing standards and oversight that are broadly equivalent to those that exist in New Zealand). • Australian qualified advisers (which would be subject to a review of whether continued recognition of Australian adviser qualifications is appropriate under the new financial advice regime). The consultation also seeks confirmation that it is no longer necessary to retain the following existing exemption support granted to: • recognise the Certified Investment Management Analyst program as an alternative to certain competency requirements under the current Code of Conduct, • permit the co-mingling of client money and property with broker money and property, and • provide personalised digital advice services to retail clients under the Financial Advisers Act 2008.

FMA will start accepting transitional financial advice provider licence applications in November

The FMA will start accepting transitional licence applications for the new financial advice regime from 4 November 2019. From June 2020 financial advisers will only to be able to give advice to retail clients if they operate under a transitional financial advice provider licence. The full licence process will be open from June 2020. A detailed FMA guide on who will need a licence to provide financial advice is available here. For those advisers who are unsure on how they want to operate under the new regime, the FMA has created an online tool to guide advisers through some of the options. It covers some of the more straightforward ways an adviser can operate.

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FMA has also published an application guide here to explain how to complete an online licence application, which includes details on the information that will be required. Details of the licensing fees are available on MBIE’s website here.

Financial Markets Conduct (Managed Funds – Loan Disclosure Requirements) Exemption Notice 2019

This notice exempts managers of managed funds that invest in first ranking registered mortgages over property from having to name individual borrowers in the fund’s Disclose registry entry and in a fund update. Instead, the manager must include the following alternative information: • a description of the principal property secured as either residential, commercial or rural, together with its geographical region, and • specified information around the composition of the fund’s assets, the composition of loans by geographical region, the value of any impaired loans, and maximum loan-to-value ratios.

RBNZ issues a class authorisation and guidance notes for overseas banks

To provide greater certainty and transparency about how unregistered overseas banks wishing to use restricted words in New Zealand are treated, the Reserve Bank of New Zealand (RBNZ) has issued a class authorisation and published two guidance notes.

Class authorisation For the last 18-24 months, the RBNZ has been reviewing how it allows non-registered banks with “bank” in their name to operate in New Zealand. Up until now, overseas banks needed to seek bank registration in New Zealand or obtain a non-objection letter from the RBNZ. In August, the RBNZ gazetted a class authorisation allowing eligible overseas banks that don’t have a place of business in New Zealand to use a name or title that includes a restricted word (“bank” and its derivatives) in respect of: • its wholesale banking activities, • its wholesale lending activities, • activities connected with the provision of financial user services for wholesale customers, • the operation of debt or equity capital markets, • activities as a trustee, security trustee, registrar, paying agent, offshore listing agent, or clearing system custodian that is connected with or results from a capital markets issue, • activities where it is investing or trading in New Zealand financial products on its own account, • activities associated with entering into foreign exchange, derivative transactions and transactions relating to emission units with wholesale customers, and • activities associated with acting as a custodian, a clearing participant, or a prime broker in relation to derivatives for wholesale customers. The authorisations are subject to: • prior notification to the RBNZ of intention to carry on activities using a name that includes a restricted word in reliance on the authorisations, • maintenance of a New Zealand authorised agent for service, and • carrying on only those activities specified in the notice. The authorisation comes into force on 23 September 2019. Guidance Notes The RBNZ has also published two guidance notes on the use of restricted words by unregistered overseas banks carrying on activities in New Zealand.

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The first guidance note for overseas banks on limitations on the use of restricted words explains how the RBNZ will assess whether an overseas bank is carrying on an activity in New Zealand, and therefore require a section 65(1) authorisation to use restricted words in New Zealand without registering as a bank here. The second guidance note on the RBNZ’s approach to section 65 authorisations for overseas banks sets out how the RBNZ will assess when to authorise an unregistered overseas bank, or class of unregistered overseas bank, to use a restricted word while carrying on an activity in New Zealand.

Financial market infrastructures law one step closer to reality

The RBNZ has released an exposure draft of the Financial Market Infrastructures Bill. The draft Bill proposes a significant change to the (relatively light-handed) current regulation of financial market infrastructures. It is anticipated that the Bill will be introduced into Parliament later this year. Click here for more information. Submissions close on 26 September 2019.

Derivatives margin and benchmarking reforms

Financial markets legislation which accommodates foreign margin requirements for derivatives and provides for the licensing of financial benchmark administrators was enacted in August to bring New Zealand in line with international reforms. Part 1 of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019 (which provides for amendments to various statutes with regards to derivative margins) is now in force. The amendments relating to financial benchmarks will come into force on 30 August 2020 or earlier by one or more Orders in Council. Click here for more information.

FMA releases guidance for the Asia Region Funds Passport regime

FMA’s guide is for foreign passport fund operators wanting to offer interests in regulated collective investment schemes in New Zealand under the Asia Region Funds Passport regime. The guidance note explains how to apply to the FMA for entry under the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019 (which were enacted recently to give effect to the Asia Region Funds Passport regime in New Zealand). It also discusses foreign passport fund operators’ ongoing compliance obligations. For details on the Asia Region Funds Passport regime refer to our previous issue of the Corporate Reporter here. A copy of the guidance note is available here.

FMA’s Strategic Risk Outlook and Annual Corporate Plan

The FMA has published its Strategic Risk Outlook and Annual Corporate Plan for 2019. Both documents signal a continuation of the direction of travel apparent in the FMA and RBNZ's Conduct and Culture Reviews of the Banking and Life Insurance sectors, reforms to financial advice regulation, and MBIE's proposals for a new conduct regulation regime. Specifically, there are indicators of: • increased regulatory expectations that go beyond the strict letter of the law and/or apply to activities that have not previously been a focus of the FMA, and • a more robust FMA enforcement response if those expectations are not met. For our commentary on these documents click here.

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KiwiSaver changes provide savings access for people with shortened life expectancy

Commerce and Consumer Affairs Minister Hon Kris Faafoi has announced that the Government is changing the KiwiSaver rules so that people with congenital life-shortening conditions can withdraw their savings when they retire.

Click here for more information.

Australian Government pushes for faster implementation of the Financial Services Royal Commission recommendations

On 19 August 2019, the Australian Government released its Financial Services Royal Commission (FSRC) Implementation Roadmap setting out how it will deliver on its comprehensive response to the Royal Commission.

The Implementation Roadmap (available here) summarises the actions that the Australian Government has taken to date in response to the Royal Commission’s recommendations and sets out how it will deliver on its previous commitments to address issues raised in the FSRC Final Report. The Australian Government’s implementation timetable is ambitious. Excluding the reviews that are to be conducted in 2022, under the Implementation Roadmap close to 90 per cent of its commitments will have been implemented by mid-2020. By the end of 2020 remaining Royal Commission recommendations requiring legislation will have been introduced.

Takeovers Code (Charitable Trusts) Exemption Notice 2019

The Takeovers Panel has granted an exemption for persons who increase their voting control in a code company as a result of changes to a charitable trust’s trustees. The notice grants a class exemption from the fundamental rule that prevents a person from acquiring a holding of more than 20 per cent in a company governed by the Takeovers Code (i.e., Rule 6(1)) for persons who are or become trustees of a registered charitable trust if: • the change of trustees is, or is part of, a bona fide reorganisation of the trust, or results from an event beyond the trustees’ control, and • the increase in voting control is not a collateral purpose of the change, and • the new trustee (in the case of an appointment) did not hold or control voting rights in the code company immediately before the appointment.

Takeover Panel releases new guidance on compulsory acquisitions

The Takeovers Panel has published a guidance note which explains the compulsory acquisition process in Part 7 of the Takeovers Code. This includes details of the various notices that must be sent in accordance with the compulsory acquisition process, the consideration payable for the outstanding securities and the objection rights that may apply for outstanding security holders. The guidance note is available here.

Latest Code Word from the Takeovers Panel

The Takeovers Panel has published Issue 49 of Code Word. In this issue the Panel discusses: • The Takeovers Code (Charitable Trusts) Exemption Notice 2019 noted above.

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• The changes to its guidance notes on schemes of arrangement (regarding schemes that involve only immaterial changes in the holding or control of voting rights in a Code company) and on defensive tactics (to clarify when delays in obtaining information from targets relating to overseas investment consent may constitute a prohibited defensive tactic). • A new guidance note on compulsory acquisition. • The Panel’s expectations regarding correcting inaccurate public documents and statements.

Trusts Act 2019 receives Royal assent

The Trusts Act 2019 will come into force on 30 July 2021, with retrospective effect. The Act, which replaces the Trustee Act 1956 and the Perpetuities Act 1964, will impact on existing and new trusts, including those established for use in both retail and wholesale banking and capital markets transactions. It is intended to clarify trusts law and make it more accessible, particularly for those involved in traditional discretionary private and family trusts. Some key changes introduced by the Trusts Act include: • setting out mandatory trustee duties, • setting out default trustee duties (some of which may be modified or excluded), • specifying trustees’ powers, • specifying trustees’ obligations for managing and disclosing trust information, • restricting the use of indemnity and exemption clauses, • allowing the removal and appointment of trustees; • setting out rules for the termination and variation of trusts at the request of beneficiaries, and • abolishing the perpetuities rule and replacing it with a simpler rule that the maximum duration of an express trust is 125 years. The Act applies to all express trusts governed by New Zealand law. This includes trading trusts, commercial trusts and security trusts, as well as retail and wholesale investment funds, securitisation trusts, bond trusts and other trusts used in capital markets transactions. Courts will also be able to deem the Act to apply to any non-express trust - including resulting trusts and constructive trusts – where "necessary or appropriate". Certain provisions of the Act can be expressly modified or excluded by the trust instrument. Accordingly, financial markets participants will want to investigate whether appropriate amendments are required - and whether they are permitted - to existing trust deeds, and will need to factor the reforms into any proposed new transactions. The Act provides that certain provisions will not apply to legacy “specified commercial trusts”, and may be contracted out of in respect of future “specified commercial trusts”. The term “specified commercial trusts” includes qualifying: • commercial/trading trusts, • wholesale trusts, and • security trusts. In our view, this should apply to the majority of trusts used in financing and capital markets transactions. However, unless the trust instrument expressly contracts out of the new law (to the extent permitted), the Act will largely apply to these “specified commercial trusts”.

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Final decisions on improvements to the NZ ETS

The Government has announced a final round of decisions about the changes it will make to the New Zealand Emissions Trading Scheme (NZ ETS) settings. These changes will be made through a future amendment to the Climate Change Response Act 2002. The decisions complete tranches one and two of the proposed changes to the NZ ETS made by the Government in December 2018 and May 2019 (see details on those here). The latest decisions include: • Industrial allocation: Phasing down existing industrial allocation levels over time through two complementary proposals:

o a minimum phase-down rate (of 1% for the period from 2021-2030; 2% for the period from 2031- 2040; and 3% for the period from 2041-2050), applied equally for all industrial activities, and

o a legislated process which could set further phase-down rates for particular industrial activities that are at low risk of emission leakage. This will not affect the 95% free allocation to the agriculture sector. • Cancelling and replacing units from the first commitment period of the Kyoto Protocol: Cancelling New Zealand-issued Assigned Amount Units in private accounts and replacing them with an equivalent number of New Zealand Units. All other privately held Kyoto units from the first commitment period of the Kyoto Protocol will be cancelled. • Forestry:

o averaging accounting will be an option available to forests registered from the beginning of 2019, and mandatory for forests registered from 2021 onwards, but forests registered in the NZ ETS before 2019 will not be able to transition to averaging accounting,

o foresters using averaging accounting can offset their liabilities by planting an equivalent forest elsewhere,

o foresters using averaging accounting won’t have to pay back NZUs after adverse events, o having a number of ways that Permanent Forest Sink Initiative members could transition to the ETS. The Government has also decided to: • confirm that a new surrender / repayment penalty announced in May 2019 will be a cash penalty set at three times the carbon price, and • resolve a technical problem that was preventing some NZ ETS participants with late or amended emissions returns from accessing the fixed price option. Further details on the proposed changes are available here.

Government consults on new ways to reduce waste

The Government is exploring using regulated product stewardship schemes (a tool under the Waste Minimisation Act 2008) to help manage classes of products that can cause environmental harm on disposal. Product stewardship is when people and businesses take responsibility for the life-cycle impacts of their products, either voluntarily or in response to regulatory tools. This initial consultation sets the framework for the co-design of regulated product stewardship schemes. The proposed framework has two parts. The first declares the priority products being targeted (tyres, agrichemicals, refrigerants, e-waste, farm plastics and packaging). The second sets common ministerial guidelines for the contents and expected effects of product stewardship schemes dealing with those products. Further information is available here. Submissions close on 4 October 2019.

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Productivity Commission releases draft report on technological change and its impact on work

The New Zealand Productivity Commission has released a draft report for consultation on its inquiry into how New Zealand can maximise the opportunities and manage the risks of disruptive technological change, and its impact on the future of work and the workforce. This is the first of four reports that will be published on the inquiry. The Productivity Commission will be providing further analysis and advice in three upcoming reports: Employment, labour markets and income in October, Education and skills in November, and Preparing New Zealand for the future in December. This draft report addresses the following aspects of the inquiry’s terms of reference: • Defining technology, technological change and disruption, • What factors affect technology adoption and diffusion? • What are the labour-market effects of technology diffusion to date? • What might future technology adoption and labour market change look like? • Preparing for an uncertain future. The report’s draft findings conclude that: • There is little, if anything, in the available data to suggest imminent disruption to work. • The likely pace and scale of technological change in New Zealand will depend to a significant extent on developments overseas. • Technological and labour-market trends in New Zealand will tend to lag behind those overseas and will be more muted, if recent history is anything to go by. • New Zealand needs to embrace technology, not treat it as a threat. The due date for submissions on this report and on the three subsequent draft reports is 20 January 2020. The Commission will deliver a final report to the Government in March 2020.

Corporate trustee AML/CFT annual reporting requirements 2019

The Ministry of Justice is considering granting a class exemption for situations in which a corporate trustee company is a subsidiary of a law firm, accounting practice or trust and company service provider (TCSP) that is a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. The exemption relates only to the requirement for the corporate trustee company to submit an annual report to their supervisor. In the interim, the Department of Internal Affairs (DIA) has waived the annual report obligations for the period 1 July 2018 to 30 June 2019 for all corporate trustee companies whose AML/CFT obligations are being fulfilled by a parent law firm, accounting practice, TCSP that is a reporting entity in New Zealand. The waiver also applies to corporate trustee companies wholly owned by one of the following: • an accountant in public practice, and practising in partnership, that is a partner. • a solicitor in public practice, and practising in partnership, that is a partner. • a solicitor in sole practice. • an accountant in sole practice While the Ministry of Justice is considering the class exemption application, the DIA has announced that it is not processing any Designated Business Groups (DBG) notifications from law firms, accounting practices or TCSPs relating to their corporate trustee companies. Instead, all such corporate trustee companies will be treated as though they are part of a DBG with their parent law firm, accounting practice or TCSP that is a reporting entity in New Zealand. The parent reporting entity will be responsible for ensuring that all AML/CFT requirements of the corporate trustee company are met.

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AML/CFT Supervisors update Customer Due Diligence guidance

The FMA and other AML/CFT Supervisors have issued various updates to their guidance on Customer Due Diligence under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 regime. See the links below: • Guidance on Expired Passports as Identification for Customer Due Diligence • AML/CFT customer due diligence: companies fact sheet • AML/CFT customer due diligence: trusts fact sheet • AML/CFT customer due diligence – sole traders and partnerships fact sheet • AML/CFT customer due diligence: clubs and societies fact sheet • AML/CFT customer due diligence: co-operatives fact sheet

Auditor Amendment Regulations 2019

These regulations, which come into force on 1 October 2019, amend the Auditor Regulations 2012 to: • require a New Zealand Business Number for a registered audit firm (if any) to be included in the register of licensed auditors and registered audit firms, and • allow the register to be searched by reference to a New Zealand Business Number of a registered audit firm (if any).

Supreme Court clarifies aspects of the voidable transaction requirements

The Supreme Court has confirmed that liquidators do not need to prove that a payment has had the effect of diminishing the assets available to creditors in addition to the statutory requirements set out in section 292 of the Companies Act 1993. Section 292 of the Companies Act allows a liquidator to clawback payments made by a company to its creditors if the payment is deemed to be an “insolvent transaction” and is made within two years of the liquidator’s appointment. An “insolvent transaction” is a transaction by a company that: • is entered into at a time when the company is unable to pay its due debts, and • enables another person to receive more towards satisfaction of a debt owed by the company than the person would receive, or would be likely to receive, in the company’s liquidation. In Robt. Jones Holdings Limited v Anthony John McCullagh and Stephen Mark Lawrence [2019] NZSC 86, the creditor accepted that the payment in dispute was an insolvent transaction under section 292, and would be voidable by the liquidator if no more were required. However, the creditor argued that in addition to the requirements specified in section 292 itself, it is a requirement (founded in the common law) that a payment that would otherwise be an insolvent transaction must have the effect of diminishing the pool of assets available to the unsecured creditors of the company in liquidation. On the facts of the case, the creditor argued that the pool of assets was not diminished because the payment in dispute was made to the creditor by a subsidiary of the company and that as a result: • the subsidiary was deemed to have advanced the sum paid to the creditor to the company, • the subsidiary was deemed to have then paid on the company’s behalf that sum to the creditor, and • that meant that the sum owing to the creditor ceased to be a debt owed by the company to the creditor, but the company immediately incurred a debt (in the form of a loan) for exactly the same amount to the subsidiary; and therefore, given that one creditor had simply been substituted for another, the assets available to the creditors of the company had not diminished. Whether or not this was a correct analysis, was not necessary for the Court to resolve. This became a redundant issue following the Court’s unanimous rejection of the creditor’s argument that the liquidator

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• On an orthodox approach to statutory interpretation, there is nothing in the wording of section 292 to indicate that the definition of “insolvent transaction” is other than a complete definition of that phrase. There is no room to believe that even if a common law diminution requirement applied under section 292’s predecessor (as was argued by the creditor) that it continued to apply in relation to section 292. • The complexity that an additional common law diminution requirement would introduce into the Companies Act clawback regime would compromise the objective of simplicity in the regime, reflected not only in the Law Commission Report that preceded the Companies Act, but also in the long title to the Act. • There is nothing in Australian, United Kingdom or Canadian cases that would lead to a conclusion that a diminution requirement should be read into section 292 in a case involving antecedent debt.

Select Committee reports back on fix-it Bill for companies and limited partnerships

The Select Committee has reported back on the omnibus Regulatory Systems (Economic Development) Amendment Bill (No 2) which makes a number of changes to the Companies Act 1993 and the Limited Partnerships Act 2008 (as well as other statutes) to clarify and update provisions. The committee has recommended only one change to the amendments proposed to the Companies Act and none for the changes proposed for the Limited Partnerships Act. The change to the Companies Act recommends removing the proposed additions to the criteria that prohibit people from being appointed as a liquidator since these are now addressed under the Insolvency Practitioners Regulation (Amendments) Act 2019. The proposed changes to the Companies Act under the Bill include: • allowing documents to be sent by email to overseas companies and bodies corporates, • allowing the notice for a shareholders’ meeting to extend the deadline in which electronic votes and proxies must be received, and • amending the disqualification criteria for directors to include where the Court has prohibited a discharged bankrupt from being a director or being concerned in the management of a company. The proposed changes for the Limited Partnerships Act include: • amending the disqualification criteria applicable to general partners, • providing that section 328(3)(a) of the Companies Act applies to give public notice of the restoration of limited partnerships to the register, and • amending the information requirements on general partners who are resident in an enforcement country. A copy of the select committee’s report on the Bill is available here.

IoD and FMA release te reo Māori directors’ guide

The Financial Markets Authority (FMA) and the Institute of Directors (IoD) have released a te reo Māori translation of the September 2018 publication “The Essentials of Being a Director”, coinciding with Māori Language Week. To access a copy click here.

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Government to introduce additional measures to tackle predatory lending

Following submissions on the Credit Contracts Legislation Amendment Bill in the select committee phase, the Government has announced that it will introduce further measures to the Bill to protect vulnerable consumers. The measures announced include: • setting an interest rate cap of 0.8 per cent per day (which is in addition to the cap on the total cost of borrowing that is already provided for in the Bill), • requiring all mobile traders who sell goods on credit to be subject to responsible lending and disclosure obligations, and • requiring payment reminders to include contact details for financial support services. Further details are available in the Commerce and Consumer Affairs Minister Kris Faafoi’s announcement here. The Credit Contracts Legislation Amendment Bill responds to issues identified by MBIE following its review of the consumer credit sector in 2018, and introduces significant changes to reduce “problem debt” (see details of those changes here). The Bill is expected to pass this year, and will come into effect, in stages, starting in March 2020.

ASIC loses landmark responsible lending case – implications for New Zealand lenders

Must loan approval assessments be based on an individual borrower’s declared expenses? In a landmark judgment, the Australian Federal Court answered that question with a resounding “no”, in part because a borrower’s declared expenses are not necessarily reflective of affordability. The judgment limits the scope of responsible lending legislation, and may be welcome relief for lenders in a climate of intense regulatory scrutiny. While the judgment turned on the particular statutory test under Australian law, it is likely to be influential when similar issues are tested before the New Zealand courts. Click here for more information.

Industry regulation and regulatory control

NZCC releases draft report on retail fuel market competition The NZCC has released its draft report on retail fuel market competition. Subject to further consultation, the draft report sets out the NZCC’s preliminary findings, with the final report due to be published in early December 2019. The draft report comes after the Government asked the NZCC to undertake a market study in 2018, examining the factors affecting competition for the supply of retail petrol and diesel used for land transport in New Zealand. The submissions the NZCC received on the draft report are available here.

NZCC releases draft report on Fonterra’s milk price The NZCC has released its draft report on Fonterra’s base milk price calculation for the 2018 / 2019 dairy season, as required under the milk price monitoring regime in the Dairy Industry Restructuring Act. NZCC Deputy Chair, Sue Begg, said the review did not reveal any new major areas of concern, with the base milk price calculated at $6.35 per kilogram of milk solids for the 2018 / 2019 dairy season. The report does not cover Fonterra’s forecast 2019 / 2020 price of $6.25-$7.25 which it announced in May.

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NZCC releases 2019/20 priorities Speaking at the NZCC’s competition and regulation conference, Competition Matters 2019, in Auckland, NZCC Chair, Anna Rawlings, said there were four broad groups of priorities for the NZCC this year – enduring priorities, focus areas, connecting and legislative change.

Mergers and acquisitions

Cardrona seeks clearance to acquire the Treble Cone ski field The NZCC has received an application from Cardrona Alpine Resort, seeking clearance to acquire either the shares of Treble Cone Investments Limited or the assets it uses to operate the Treble Cone ski field near Wanaka. Cardrona Alpine Resort is part of the Wayfare group of companies and owns and operates the Cardrona ski field located above the Cardrona township between Wanaka and Queenstown. Both the Cardrona and the Treble Cone ski fields offer a mix of trails for skiing and snowboarding, catering for beginners through to experts, as well as offering equipment sales and hire, food and beverage services, and sightseeing.

Statement of preliminary issues released for the Queenstown Bungy/Taupo Bungy acquisition The NZCC has published a Statement of Preliminary Issues following a clearance application by Queenstown Bungy to acquire the Taupo based bungy and swing operations owned and operated by Taupo Bungy Limited, a wholly owned subsidiary of Taupo Tourism Holdings. The statement outlines the key competition issues the NZCC considers important in deciding whether or not to grant clearance. The NZCC is scheduled to make its determination by 25 October 2019.

NZCC grants clearance for Infratil to acquire shares in Vodafone The NZCC has granted clearance for Infratil to acquire up to 50% of the shares in Vodafone New Zealand. The NZCC focused on the possible impact of the proposed acquisition in the national markets for the retail supply of broadband and mobile services. NZCC Chair, Anna Rawlings, said the NZCC was satisfied Infratil’s proposed shareholding in both Vodafone and Trustpower would not substantially lessen competition in any of the markets it assessed.

Market behaviour

NZCC seeks input into updated authorisation guidelines The NZCC has released updated draft authorisation guidelines and application forms for consultation. The authorisation guidelines explain how the NZCC assesses applications for authorisation of mergers and restrictive trade practices under sections 58 and 67 of the Commerce Act 1986. The draft guidelines include changes that reflect developments in the NZCC’s approach and the guidance it has received from the courts since 2013. This includes developments in how the NZCC assesses benefits and detriments.

Consumer issues

NZCC alleges UDC charged unreasonable default fees The NZCC has filed High Court proceedings against UDC Finance, alleging that its dishonour fees and late payment fees were unreasonable in that they exceeded UDC Finance’s reasonable costs and estimate of losses. In the period covered by the proceedings, the NZCC says UDC Finance offered consumer loans of $10,000 or more over terms of one to five years, typically secured against assets such as vehicles.

NZCC warns women involved with Women’s Gifting Circle The NZCC has warned four women for likely breaching the law by promoting and operating Women’s Gifting Circles, which the NZCC considers is likely to be an illegal pyramid scheme. The NZCC says individuals typically join the scheme after being invited by a trusted friend or family member and are asked to pay a “gift” of around US$5,000 in return for empowerment, wisdom and sisterhood. The NZCC says the scheme also promises US$40,000 to the women, should they reach the circle’s top status of leader or “Lotus”.

Commission alleges irresponsible lending by Pretty Penny The NZCC has commenced High Court proceedings against Quadsaa (trading as Pretty Penny) alleging that it has breached the lender responsibility principles contained in the Credit Contracts and Consumer Finance Act 2003 (the CCCFA). The NZCC’s proceedings relate to Pretty Penny’s conduct between September 2016 and June 2017. The NZCC alleges that during this time Pretty Penny offered loans of

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CORPORATE REPORTER between $50 and $550 for terms of between 1 and 92 days with an annual interest rate of 365%, or 1% per day with interest compounding daily.

Westpac refunding $7 million to affected customers for incorrect fees The Financial Markets Authority (the FMA) and the NZCC have formally agreed with Westpac the steps it must take to refund fees to some 93,000 customers being overcharged $7 million. Westpac did not correctly discount fees on a number of different banking packages and self-reported the issue to the FMA and NZCC in December 2017. Westpac identified more impacted customers over the following 12 months. Westpac has agreed to refund all fees and charges that were incorrectly charged and to take all reasonable steps to reach impacted customers.

$45,000 fine for supplying unsafe toy pig Importer and wholesaler 1st Mart Limited has been fined $45,000 after it pleaded guilty to a charge under the Fair Trading Act 1986 (the FTA) for supplying 540 units of an unsafe toy car and pig figure to various retailers. Testing undertaken in the NZCC’s investigation revealed the toy was a choking hazard to young children because various small parts became separated from it.

NZCC files charges against Global Fibre8 and owner Tangi Tuake The NZCC has filed a total of eight representative charges under the FTA against building product company Global Fibre8 and its sole director and shareholder Tangi Tuake, for various representations made between July 2015 and August 2018 about K3T, a wall panel system. The NZCC alleges that the defendants represented that a CodeMark certificate issued for K3T in July 2015 certified the compliance of K3T with the New Zealand Building Code, when it did not.

2 Cheap Cars fined $438,000 for “blatantly untrue and misleading” documents and ads “tantamount to devious” Used motor vehicle dealer, 2 Cheap Cars, has been fined $438,000 for its use of warranty waiver documents that Judge Ronayne said were blatantly untrue and misleading, and for its liquidation sale and 84% off advertising claims that the Judge said were “deliberately misleading” and “tantamount to devious”.

Online holiday rental booking platform charged with misleading consumers Bachcare is facing two charges under the FTA for misleading conduct that occurred between June 2017 and September 2018. The NZCC alleges that Bachcare removed negative comments from some consumer reviews before publishing them and did not publish any reviews with ratings of less than 3.5 out of 5. The NZCC says this conduct was liable to mislead consumers by creating artificially positive impressions about certain properties.

Telecommunications providers face charges for billing customers after contracts finished The NZCC has laid 13 charges against CallPlus Services (trading as Slingshot), Flip Services and Orcon, alleging the companies issued invoices which included charges to customers for the period after the agreed termination date in their contracts. The NZCC says this misrepresented the companies’ rights to payments because their customers only owed payment for the services provided prior to the agreed termination date.

Finance company to refund customers $2.7 million Aotea Finance has accepted that between June 2015 and February 2016 its credit contracts did not include all the key information it was required to disclose to consumers under the CCCFA. Aotea Finance entered a settlement with the NZCC and, as a result, nearly $2.7 million will be credited or refunded to thousands of borrowers.

Telecommunications

NZCC releases key inputs for Transpower’s price-quality path The NZCC has issued its decisions on key inputs and approach for calculating the maximum revenue Transpower may recover and the minimum quality standards it must meet under its individual price-quality path (IPP) for the period from 2020 to 2025. NZCC Deputy Chair, Sue Begg, said that the decisions on expenditure and quality standards were a key step towards the NZCC’s final determination, due in November 2019. Transpower owns and operates New Zealand’s national grid, transmitting electricity to major users and local lines companies that distribute it to homes and businesses.

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NZCC recommends deregulating Spark’s resale copper voice services The NZCC has released its final report recommending that Spark’s resale copper voice services be removed from Schedule 1 of the Telecommunications Act (which acts as a backstop in case competition is found to be too weak and regulation is needed quickly). Telecommunications Commissioner, Dr Stephen Gale, said the NZCC is satisfied that retailers can provide voice services to almost all New Zealanders over fibre and other networks, and that competition no longer depends on the resale of copper voice services from Spark. C

Industry regulation and regulatory control

Holistic, dynamic reforms needed to address dominance of digital platforms The ACCC has released its final report from its Digital Platforms Inquiry. According to the report, the dominance of the leading digital platforms and their impact across Australia’s economy, media and society must be addressed with significant, holistic reform. The report contains 23 recommendations, spanning competition law, consumer protection, media regulation and privacy law, reflecting the intersection of issues arising from the growth of digital platforms.

Weak Australian dollar sees petrol prices at highest level in four years The ACCC’s latest report on the Australian petroleum market for June quarter 2019 shows that the annual average retail petrol price in 2018 / 2019 was the highest (in real terms) in four years according. The report shows that in the five largest cities, Sydney, Melbourne, Brisbane, Adelaide and Perth, the average annual petrol price in 2018 / 2019 was 141.2 cents per litre, nearly 7.0 cents per litre higher than last year.

Mergers and Acquisitions

ACCC will not oppose Wesfarmers’ proposed acquisition of Catch The ACCC has decided not to oppose the proposed acquisition of online retailer Catch Group by Wesfarmers. Wesfarmers, through its Kmart and Target stores, and Catch both retail a variety of products to consumers, ranging from clothing and general merchandise to homewares and electronics. The ACCC’s review of the proposed acquisition examined both physical and online retail competition, as well as whether there would be any potential impact on third-party marketplace sellers.

Market Behaviour

Cartel immunity policy strengthened, whistleblowing tool launched The ACCC has strengthened its cartel immunity and cooperation policy to enhance its transparency and clarify its scope. The updated immunity policy, which has been informed by experience gathered during key criminal investigations, will come into effect on 1 October 2019. It will continue to cover cartel conduct such as price-fixing, market sharing, bid rigging and customer allocation, and will clarify that the policy does not cover anti-competitive concerted practices.

Global shipping company Wallenius Wilhelmsen charged with criminal cartel conduct Following continuing investigations by the ACCC, Wallenius Wilhelmsen, a Norwegian-based global shipping company, has been charged with criminal cartel conduct for alleged conduct concerning the international shipping of certain vehicles to Australia between June 2011 and July 2012.

Consumer Issues

Significant concerns with customer loyalty schemes The ACCC has released a draft report on customer loyalty schemes for comment. According to the report, customer loyalty schemes, including frequent flyer, supermarket and credit card operators, must ensure they are not misleading consumers. The draft report raises concerns about the opaque terms and

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Telecommunications

Underperforming broadband services still a problem for some consumers The ACCC has released the sixth Measuring Broadband Australia report, revealing that 12.4 per cent of consumers continue to experience underperforming services that rarely come close to reaching their maximum plan speed. The report says these services achieve less than 75 per cent of the advertised speeds in almost all speed tests.

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