March 2006 Version 1.1 Contents PART A: OVERVIEW OF FINANCIAL POWERS FRAMEWORK .........................................................3 Introduction........................................................................................................................3 Purpose and Status of this Guide ..................................................................................................3 Scope of Financial Powers Framework..........................................................................................3 Objectives of the Core Provisions..................................................................................................4 Application of the Core Provisions .................................................................................................4 Entity Coverage.........................................................................................................................4 Mechanisms to Provide Authority and Exceptions to the Core Provisions ...............................5 Crown Entity Subsidiaries .........................................................................................................6 Organisations Named or Described in Schedule 4 of the Public Finance Act 1989.................6 Commencement and Transitional Provisions ................................................................................6 Synopsis of the Core Provisions .....................................................................................7 Authority to Act and Approval of Financial Powers.....................................................10 Ultra Vires and Validity.................................................................................................................10 Determining a Crown Entity’s Financial Powers ..........................................................................10 Ministerial Approval......................................................................................................................10 Which Minister?.......................................................................................................................10 Process and Information Requirements..................................................................................10 Gazetting and Effective Date of Approvals .............................................................................11 PART B: CORE FINANCIAL POWERS AND RELATED PROVISIONS – FULLER INFORMATION .........12 Bank Accounts: Section 158 ..........................................................................................12 Two Categories of Banks .............................................................................................................12 Current and Former Default Provisions Compared......................................................................12 Accounts at Registered Banks or Registered Building Societies.................................................12 Basic Authority ........................................................................................................................12 Definitions ...............................................................................................................................12 Minimum Requirement for a Bank Account ............................................................................13 Credit-Rating Test: Rationale and Application........................................................................13 Specified Tests: Ratings by Standard & Poor’s and Moody’s.................................................14 Specified Tests: Ratings by Other Credit-Rating Organisations.............................................15 General Approvals: TSB Bank Limited and Registered Building Societies ............................15 Requests for Approval: Relevant Considerations ...................................................................15 Foreign Currency Accounts.....................................................................................................16 Accounts at Banks Outside New Zealand....................................................................................16 Minimum Requirement............................................................................................................16 Mechanisms for Approval........................................................................................................16 Approvals Given to Date .........................................................................................................17 Monitoring Credit Ratings and Approvals: Period of Grace .........................................................17 Day-to-Day Banking Procedures..................................................................................................17 Gifted Money................................................................................................................................18 Bank Account Flowcharts.............................................................................................................18 Acquisition of Securities: Section 161 ..........................................................................20 Restrictions on Acquisition of Securities ......................................................................................20 Definitions.....................................................................................................................................21 Crown Entities Act 2004: Guide to Financial Powers Provisions | 1 Current and Former Default Provisions Compared......................................................................21 Scope of “Acquisition of” Securities .............................................................................................22 Debt Securities.............................................................................................................................22 Specified Credit-Rating Test ...................................................................................................22 Monitoring Credit Ratings: Period of Grace ............................................................................23 Equity Securities...........................................................................................................................23 Distinction between Sections 96, 100 and 161.......................................................................23 Process Requirements and Other Interests: Sections 96 and 100.........................................24 Requests for Ministerial Approval to Acquire Securities ..............................................................24 Securities Not Permitted by Section 161(1)............................................................................24 Relevant Considerations and Supporting Information ............................................................24 Joint Ministerial Approvals to Date..........................................................................................25 Gifted Securities...........................................................................................................................25 Securities Flowchart.....................................................................................................................26 Borrowing: Section 162...................................................................................................27 Restrictions on Borrowing ............................................................................................................27 Current and Former Provisions Compared ..................................................................................27 Meaning of Borrowing ..................................................................................................................27 Authority Given by Regulations and Ministerial Approvals ..........................................................28 Requests for Ministerial Approval to Borrow................................................................................28 Borrowing Flowchart.....................................................................................................................29 Giving of Guarantees and Indemnities: Section 163....................................................30 What are Guarantees and Indemnities? ......................................................................................30 Restrictions on Guarantees and Indemnities ...............................................................................30 Current and Former Provisions Compared ..................................................................................30 Permitted Guarantees and Indemnities........................................................................................31 Guarantees .............................................................................................................................31 Indemnities..............................................................................................................................31 Requests for Ministerial Approval to Give Guarantees or Indemnities ........................................32 Guarantees and Indemnities Flowchart .......................................................................................33 Use of Derivatives: Section 164 .....................................................................................34 What is a Derivative? ...................................................................................................................34