Corporate Reporter 29 JUNE 2017

WELCOME to Issue No. 46 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.

IN BRIEF Items in this issue include:

• Bell Gully’s 2017 Takeovers Market Practice Report

• A new NZX Corporate Governance Code

• FMA considers exemption to facilitate early adoption of personalised robo-advice services

• New measures for NZX listed companies’ annual reports outlined

• Changes proposed for the Commerce Act

• NZX class waiver for accelerated rights entitlement offers

• Submissions called on Bill for changes to credit unions

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

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CONTENTS CAPITAL MARKETS

• Cabinet approves regulations for modernising annual report requirements • Cabinet approves enhanced oversight over financial market infrastructures • FMA designates shares in some investment companies as managed investment products • Class exemption for debt issuers completing wind-ups • FMA considers measures for early adoption of robo-advice services • Consultation on substantial product holder notices • Exemption proposed for MIS managers of ‘bundled unit trusts’ • KiwiSaver fees disclosure methodology • Overview of licensing financial services providers • New NZX Corporate Governance Code • NZX issues class waiver for accelerated rights entitlement offers • Insider trader sentenced • High Court confirms the FMA was correct to de-register Financial Service Provider

MERGERS & ACQUISITIONS

• The Bell Gully Takeovers Market Practice Report • New class exemptions from the Takeovers Code • Takeovers Panel releases future performance targets • Takeovers Panel releases new Code Word • Updated Takeovers Panel Guidance Notes

COMMERCIAL

• Select Committee calls for submissions on changes for credit unions • Bell Gully's guide to the Contract and Commercial Law Act 2017 • Government launches review of the Copyright Act 1994 • Court of Appeal reviews penalty doctrine

COMPANY LAW

• Insolvency Working Group issues its second report • MBIE consults on a director identification number • Supreme Court dismisses appeal in Ponzi scheme case

COMPETITION AND CONSUMER LAW

• Fees section revised in the Responsible Lending Code for CCCFA • Changes proposed for the Commerce Act • Key questions remain before the court on peer-to-peer lending and the CCCFA • The latest media releases from the New Zealand Commerce Commission • The latest media releases from the Australian Competition and Consumer Commission.

NEED MORE INFORMATION? 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 Capital Markets, Commercial, M&A or Competition teams. Alternatively, you can contact the editor Diane Graham by email or call her on 64 9 916 8849. Disclaimer This publication is intended to merely highlight issues and not to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. You should take legal advice before applying the information contained in this publication to specific issues or transactions.

© Bell Gully 2017

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CAPITAL MARKETS

Regulatory developments

Cabinet approves regulations for modernising annual report requirements Last year the Companies Act 1993 was amended to provide companies classified as ‘FMC reporting entities’ under the Financial Markets Conduct Act 2013 (FMC Act) with an alternative process prescribed in regulations for making their annual reports available to shareholders. Cabinet has now agreed the terms of this alternative process which will be made through amendments to the Financial Markets Conduct Regulations 2014 (FMC Regulations).

The alternative process set out in the FMC Regulations will be mandatory for FMC reporting entities that are NZX listed issuers of equity securities, but optional for other FMC reporting entities. Under the alternative process, companies will be required to make their annual reports publicly available on either their own website or on another website maintained by or on behalf of the company. As part of the process, companies will be required to notify shareholders at least once to ask whether they wish to receive the annual report free of charge either in hard copy or electronically by email. That notice:

• could be electronic if the shareholder has previously elected to receive communications electronically, and

• will be able to be sent by a share registrar on behalf of the company (including, as part of a notice relating to another company, or on another matter concerning the same company).

The annual report must remain available on the website for at least five years.

Currently companies, including NZX listed companies, are required to send to each shareholder each year either a copy of the annual report or a notice asking the shareholder if they would like to receive a copy of the report (known as the “Section 209 Notice”). The notice or annual report can be sent electronically, but only if the shareholder has opted-in in accordance with the relevant legal requirements.

The regulations are expected to be in place later in 2017. To enable companies which fall within the mandatory category to make the necessary systems changes, there will be a short lead-in time before those companies have to comply with the new provisions.

For further details view a copy of the Cabinet decision here.

Cabinet approves enhanced oversight over financial market infrastructures Cabinet has agreed to a new legislative regime intended to provide enhanced oversight over financial market infrastructures (FMIs).

FMIs, frequently referred to as the “plumbing” of the financial system, have come under increased regulatory scrutiny globally following the GFC – largely due to their ability to create, transmit, or exacerbate instability.

FMIs are multilateral systems among participating institutions used to clear, settle, or record payments, securities, derivatives or other financial transactions. They include payment systems, securities settlement systems, central securities depositories, central counterparties, and trade repositories.

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Under the proposed new regime, the Reserve Bank of New Zealand and the Financial Markets Authority will see their current oversight powers for payment and settlement systems both strengthened and extended to new entities.

For more information see our earlier update here. For a copy of the Cabinet paper click here.

Financial Markets Authority (FMA)

FMA designates shares in some investment companies as managed investment products The FMA has issued a class notice which designates shares in certain investment companies as managed investment products (MIPs), and the company which issues them as a managed investment scheme for the purposes of the Financial Markets Conduct Act 2013 (FMC Act) regime. See the Financial Markets Conduct (Shares in Investment Companies) Designation Notice 2017 as amended by the Financial Markets Conduct (Shares in Investment Companies) Designation Amendment Notice 2017.

The intention behind the designation is to provide greater protection to investors in such companies from the resulting enhanced disclosure, governance and licensing requirements for MIPs when compared to the rules governing shares. This includes having a licensed manager and a licensed supervisor, who have a statutory duty to act in the best interests of investors.

What are the tests for the designation?

The notice designates shares as MIPs where they fall within this three step test:

1. the shares are issued by an investment company,

2. there are reduced powers of shareholders and/or unreasonably entrenched key service provider arrangements, and

3. the shares are not quoted on the NZX Main Board or on the ASX.

For the purposes of the designation, an ‘investment company’ is a company:

• whose principal business consists of investing in investment property, and/or

• that holds itself out as being a company whose principal business consists of investing in investment property.

‘Investment property’ covers a broad range of investment asset types usually held by managed investment schemes. These include any FMC Act financial products, commodities, foreign currencies and real property (e.g., land or buildings).

Prohibitions on types of offers

The notice also declares that an offer of shares (to which the designation applies) that could otherwise be made as an unregulated offer in reliance on the exclusion in Schedule 1 of the FMC Act for offers made through a licensed intermediary (e.g., a licensed crowd funding service provider) is required to be made as a regulated offer.

Shares to which the designation applies will also not be eligible to be offered into New Zealand by unlisted Australian issuers in reliance on the mutual recognition of securities offerings regime.

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New FMA information sheet on the designation

The FMA has issued an information sheet to explain the class notice and to explain when the FMA will consider individually designating particular shares to be issued by an investment company as managed investment products.

Click to view the ‘June 2017 Information Sheet: Shares to MIPs’ here.

Class exemption for debt issuers completing wind-ups The FMA has granted an exemption from the new on-going requirements of the Financial Markets Conduct Act 2013 (FMC Act) for companies that issued debt under the Securities Act regime, where they commenced (but had not completed) winding-up before the FMC Act transition period ended on 1 December 2016.

See the Financial Markets Conduct (Companies Being Wound Up – Debt Securities Allotted under Securities Act 1978) Exemption Notice 2017.

FMA considers measures for early adoption of robo-advice services Last year Cabinet signed-off on legislative changes to the Financial Advisers Act 2008 (FAA) which will allow entities to provide personalised financial advice generated by a computer programme or algorithm (robo-advice) as part of the reform of New Zealand’s financial advisers’ regime. However, these reforms are not expected to be in force before 2019.

As an interim measure, the FMA is considering granting a class exemption under the FAA to facilitate robo-advice prior to the legislative changes. If granted, robo-advice providers would be exempted from the requirement under the FAA that personalised advice to retail clients must be provided by a natural person, subject to various limitations and conditions to safeguard consumers. Class robo-advice, or generic recommendations based on characteristics such as age and risk profile, can already be provided under the current law.

Further details on the proposed exemption are set out in a consultation paper available here. The FMA is seeking feedback on the proposal by 19 July 2017. It hopes to have the exemption in force by late 2017.

Consultation on substantial product holder notices The FMA recently completed a consultation on proposed guidance for substantial product holder (SPH) disclosures. The guidance is aimed at ensuring there is more consistency in the disclosures made by SPHs, and particularly in the way fund management firms make an SPH disclosure.

The requirements for SPH disclosures are contained in Part 5 of the Financial Markets Conduct Act 2013 (FMC Act) and the Financial Markets Conduct Regulations 2014. These require directors, senior managers and people who have a substantial holding in a listed company to disclose certain changes to their ownership in a company with a view to promoting an informed market and to deter insider conduct, market manipulation, and secret dealings in potential takeover bids.

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If the guidance is introduced in its proposed form, individuals who manage funds will need to make SPH disclosures when:

• they have the power to acquire, dispose of, or exercise the votes attaching to 5% or more of financial products in a listed issuer which is held in a fund they manage, regardless of whether or not they have a personal holding in the same listed issuer; or

• they have a personal holding in a listed issuer, and the power to acquire, dispose of, or exercise the votes attaching to financial products in the same listed issuer which is held in a fund they manage, and that power to control the firm’s holding together with their personal holding reaches the 5% threshold.

According to the FMA this outcome is consistent with a natural interpretation of the FMC Act provisions. However, the FMA also acknowledges that there are arguments against this interpretation and that there may be practical challenges in applying the proposed guidance. Further, the FMA’s proposed guidance will result in a different approach to SPH disclosures being taken by fund management firms in Australia and New Zealand.

For further details refer to the consultation paper here.

Exemption proposed for MIS managers of ‘bundled unit trusts’ Under the Financial Markets Conduct Act 2013 regime, managers of managed investment schemes (MIS) operating unit trusts under a ‘bundled unit trust’ structure have to prepare financial statements for the registered scheme, consolidating the results of all of the constituent unit trusts. The FMA sees this requirement as an unnecessary cost for fund managers, with no added benefits to investors and, therefore is considering an exemption from this obligation. If the exemption is granted, managers will still be required to prepare financial statements for each unit trust.

The FMA expects to have any exemption in force by mid to late July 2017, and it would be effective for registered schemes with a balance date of 31 March 2017.

A copy of the consultation paper is available here. Submissions closed on 9 June 2017.

KiwiSaver fees disclosure methodology When proposed changes to the Financial Markets Conduct Regulations 2014 are enacted, KiwiSaver providers will be required to include in their annual statements to investors (from 31 March 2018) the total fees each investor has paid during the previous year.

In preparation of this proposed change, the FMA consulted on how those fees should be calculated and disclosed, with a view to ensuring that all KiwiSaver providers calculate the dollar figure for individual fees in the same way. Following this consultation the FMA has decided to issue a methodology notice to help KiwiSaver scheme providers calculate the total fees charged to each investor.

Initially KiwiSaver scheme providers that cannot calculate the actual fees charged to each investor for the relevant period will have the option to use either a cent per unit formula (CPU methodology) or a total annual fees calculation (TAFC methodology) to calculate total fees. However, the FMA would prefer the CPU methodology to be used as it is more accurate. The FMA will decide whether to remove the option to use the TAFC methodology following a review period after the regulations come into force.

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A draft of the methodology notice and corresponding draft amendments to the FMA’s ‘Guidance note – Fee disclosure by managed funds’ were released for consultation until 23 June 2017.

Further details are available here.

Overview of licensing financial services providers The FMA has released a review report of the regulator’s first two and a half years of licensing financial services providers. The report includes examples and suggestions for new applicants and a guide to the FMA’s future focus for monitoring licence holders.

Issues uncovered during the period covered by the report included a lack of understanding of the licensing requirements, over reliance on consultants, a lack of formalised processes and some off-shore companies seeking a licence who didn’t have genuine business activities in New Zealand.

A copy of the ‘Licensing Overview Report’ is available here.

The FMA has also published a Key Steps guide to assist future applicants.

NZX Limited (NZX)

New NZX Corporate Governance Code NZX has published its final NZX Corporate Governance Code (NZX Code) following a year-and-a-half long review process. A copy of the NZX Code is available here.

The NZX Code will apply for all reporting periods from 1 October 2017, making it required reporting for the 31 December 2017 year end period. A NZX Regulation Class Ruling also allows issuers to report against the NZX Code in annual reports prior to the NZX Code coming into effect on a voluntary basis.

The relevant amendments to the NZX Main Board and Debt Market Listing Rules (Rules) which give effect to the new NZX Code will come into force on 1 October 2017. To view a marked-up copy of those amendments click here. The existing mandatory corporate governance provisions set out in the Rules will continue to apply.

What are the key changes?

New tiered approach

The NZX Code follows a new three-tiered approach:

• The top tier sets out eight principles, which are closely based on those contained in the Financial Markets Authority's 2014 "Corporate Governance in New Zealand Principles and Guidelines" handbook for directors, executives and advisers, to help ensure that there is a more consistent approach between the respective regimes.

• The second tier sets out recommendations which will apply on a "comply or explain" basis. This differs from NZX's current approach, which requires an explanation of how an issuer's corporate governance practices materially differ from the NZX Code but not necessarily an explanation why.

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• The final tier contains commentary which explains how issuers can meet each recommendation and outlines additional optional guidance for issuers in areas where NZX thinks the suggested approaches reflect good practice.

Flexibility

The reporting obligations relate only to the recommendations set out in the NZX Code and may be disclosed in the annual report or on the issuer's website. The "comply or explain" requirement provides flexibility for an issuer to adopt other corporate governance practices considered by the board to be more appropriate – for example, due to its size or stage of development. This regime allows shareholders to decide whether the set of standards applied by an issuer are appropriate. If a shareholder does not accept the explanation, the shares can be sold – creating a market sanction rather than a legal one.

New focus areas

The NZX Code reflects developments in financial markets since the original code was published in 2003. NZX has focused on four areas which have gained increased importance for investors in recent years. This includes:

• environmental, social and governance (ESG) reporting,

• reporting on board diversity,

• health and safety risk management, and

• director and CEO remuneration reporting requirements.

NZX issues class waiver for accelerated rights entitlement offers NZX Regulation has granted a class waiver for issuers undertaking accelerated rights entitlement offers under the NZX Main Board Listing Rules.

The class waiver allows issuers undertaking the most common types of accelerated entitlement offers (such as AREOs and SAREOs ) to conduct them more efficiently by removing various requirements, including requirements relating to shareholder approval and various timing and notification periods. The waiver will also reduce the compliance costs for issuers associated with such offers.

For a copy of the waiver click here.

In the courts

Insider trader sentenced Last week, the District Court sentenced a former employee of NZX-listed transport technology company EROAD Limited to serve six months’ home detention after he plead guilty to disclosing inside information and tipping a former employee to sell shares in the company. It is the first prosecution and sentence since the introduction of criminal liability for insider trading and tipping in 2008.

The case confirms the Financial Market Authority’s public indications that insider trading and market manipulation are a key strategic risk to efficient markets, and it will be prepared to use criminal proceedings to deter and sanction serious misconduct that is either intentional or reckless.

For a summary of the relevant legal principles, the court’s decision, and the key takeaways from the case see our earlier article on this case here.

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High Court confirms the FMA was correct to de-register Financial Service Provider The High Court has dismissed an appeal against a decision by the Financial Markets Authority (FMA) to direct the Companies Office, as the registrar of the Financial Services Provider Register (FSPR), to de-register a company incorporated in New Zealand (ISL) from the FSPR.

Since 2014, the FMA has had the power to direct the registrar to de-register a company from the FSPR where the registration is likely to create a false or misleading impression that the company provides financial services in New Zealand, that it is regulated in New Zealand or the company’s registration otherwise damages the integrity or reputation of New Zealand’s financial markets. This case is the third appeal against a FMA decision to direct deregistration from the FSPR, all of which have been dismissed by the courts (with one being initially granted by the High Court but later overturned in the Court of Appeal). To date, the FMA has directed the registrar to deregister 68 companies1.

Background to this case

ISL has been registered in New Zealand as a Financial Services Provider (FSP) since December 2012. It was incorporated in New Zealand as a subsidiary of a company registered in the United Kingdom which is jointly owned by two Hungarians based in Budapest. Since its registration its only function has been to provide administrative and compliance services in New Zealand for the purposes of the financial services it, or its subsidiaries or related companies, provide to clients abroad (mainly in the Russian Federation, Kazakhstan, Ukraine, Bulgaria and Uzbekistan). None of the services it provided in New Zealand included the provision of financial advice to clients or any other core business services of a FSP. However, ISL maintains that it was established in New Zealand with a view to offering financial services to clients in New Zealand, Australia and Asia. In support of this, ISL argued that it had applied for a discretionary investment management services (DIMS) licence in 2015, and only withdrew its application in January 2016 following notification from the FMA that its application was likely to be declined. ISL contends that it is working towards being in a position to re-apply for a DIMS licence.

Court’s decision

The High Court held that the FMA was correct to determine that the registration of ISL is or is likely to create a false or misleading appearance that it is an FSP in New Zealand, its financial services are provided from New Zealand and that the provision of services from New Zealand to overseas clients are regulated by New Zealand law when clearly this is not the case.

In reaching this conclusion the High Court noted that:

• none of the services provided by ISL from its office in New Zealand constituted “financial services” for the purposes of the Financial Services Providers (Registration and Dispute Resolution) Act 2008. Further, ISL provided very limited information as to how it and its related offshore entities were regulated overseas,

• it would be contrary to the purpose of the legislation if the FMA’s ability to seek de-registration was required to be suspended indefinitely pending the possibility of ISL applying for a DIMS licence at some future date,

• complaints about process cannot alter the FMA’s essential conclusions as to the appropriateness of deregistration, and

• the FMA was entitled to draw on its expert knowledge of financial markets in New Zealand and overseas. It was in the best position to assess matters such as damage to the reputation of financial markets and whether registration would create a misleading appearance.

A copy of the High Court decision is available here. 1 See the FMA’s media release on 8 June 2017 here.

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MERGERS & ACQUISITIONS

Recent developments

The Bell Gully Takeovers Market Practice Report Bell Gully recently published a Takeovers Market Practice Report, which is the first in-depth analysis of New Zealand takeovers data since the introduction of the Takeovers Code in 2001.

The report finds that takeovers which share a combination of two factors – board backing and a price that meets or beats the independent adviser's valuation range – have almost always been successful. It also reinforces that preparation is critical to success. Securing an advance commitment from shareholders or holding a pre-bid stake substantially increases the likelihood of an offer succeeding.

Click here to view the full report.

New class exemptions from the Takeovers Code Further class exemptions from the Takeovers Code came into effect on 12 June 2017 under amendments to the Takeovers Code (Class Exemptions) Notice (No 2) 2001.

The Takeovers Code (Class Exemptions) Notice (No 2) 2001 Amendment Notice (No 2) 2017 amended the principal notice by including new exemptions from the Takeovers Code rule requiring a takeover offer to contain any additional information that was contained in the takeover notice (i.e., rule 44(1)(d)(iii)), and from the rule requiring an offer to be on the same terms and conditions as those contained in the draft offer document accompanying the takeover notice (i.e., rule 44(1)(b)).

New clause 25D grants an exemption from rule 44(1)(d)(iii) where any of the additional information is erroneous or outdated, or where it is reasonable to omit any of the additional information in consequence of the omission of other additional information that is erroneous or outdated.

New clause 25E grants an exemption from rule 44(1)(b) in respect of variations to the terms and conditions contained in the draft offer document accompanying the takeover notice to correct obvious technical errors that are minor in nature. However, this exemption is subject to the conditions that:

• the person has requested the prior written approval of the directors of the target company for the variation, and

• the directors of the target company have not, within one working day of the request being made, given their prior written approval for the variation under rule 44(1)(b)(ii), and

• the Takeovers Panel has given its prior written approval for the variation.

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Takeovers Panel

Takeovers Panel releases future performance targets The Takeovers Panel’s Statement of Intent 2017/2018 – 2021 and Statement of Performance Expectations 2017/2018 are now on the Panel’s website. These provide information on the future operating intentions of the Takeovers Panel for the period from 1 July 2017 to 30 June 2021, and details of the Panel’s planned performance standards and performance measures for 2017/2018 (as well as its estimated outcomes for 2016/2017).

During the next four years the Panel expects there to be a fairly robust takeovers market and, unless a reduced level of transactions occurs, the Panel intends to focus more on monitoring and enforcement than on policy and public education.

The Panel’s aim is to ensure that it maintains full compliance with the Takeovers Code based on two measures. First, that no Code-regulated documents are withdrawn under a section 32 enforcement action, due to non-compliance with the Code. Secondly, that no acquirer or Code company are required under a section 32 enforcement action to publish new or corrected information to shareholders. To help ensure these outcomes are reached the Panel intends to continue with its ‘soft’ enforcement actions, such as the Panel’s staff giving informal advice on Code compliance and reviewing draft documents.

The Panel is also aiming for all Code company scheme applicants under Part 15 of the Companies Act 1993 to seek a ‘No-objection Statement’ from the Panel. If this is achieved, it will mean that, for every Code company scheme, the Panel will have been satisfied with the proposed scheme process, with the quality of the information for shareholders, and that the interest classes, for the purposes of voting on the scheme, have been properly identified.

Takeovers Panel releases new Code Word Items in the Takeovers Panel‘s latest Code Word include:

• recent amendments to the Takeovers Act 1993 and the Takeovers Code which transfer the role of primary adjudicator of reimbursement disputes to the Panel,

• clarification about the breadth of rule 47(4) and rule 19A(2) of the Takeovers Code with regards to which information provided to offerees should also be sent to the Panel,

• issues relating to the dating of target statements, and

• the application of rules 42A and 42B of the Takeovers Code in relation to conditional rights to issue equity securities.

Click here to view Code Word 44.

Updated Takeovers Panel Guidance Notes The Takeovers Panel’s Guidance Notes for ‘Offer Documents’, ‘Independent Advisers’ and ‘Target Company Statements’ have been updated to reflect the Panel’s expectation of clear, concise and effective disclosure in Takeovers Code documentation.

Copies of the updated guidance notes are available here.

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COMMERCIAL

Regulatory developments

Select Committee calls for submissions on changes for credit unions The Finance and Expenditure Select Committee has called for submissions on the Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill.

Under the current legislation, credit unions have a very complex supervisory and oversight regime. They are unable to incorporate, and must have internal trustees to hold property and conduct business. They are also not able to lend to SMEs that are related to their members.

Measures set out in the Bill include:

• provision for incorporation,

• ability to have all the powers of a natural person,

• permission to lend to SMEs that are owned or closely associated with a member,

• simplification of the statutory objects to cover conduct of activities for the benefit of members and as authorised by rules, and

• reduction of the number of members needed for an association.

For details on how to make a submission to the select committee click here. Submissions close on 20 July 2017.

Bell Gully's guide to the Contract and Commercial Law Act 2017 The Contract and Commercial Law Act 2017 (CCL Act), which comes into force on 1 September 2017, will modernise 11 New Zealand statutes relating to contracts, the sale of goods, electronic transactions, the carriage of goods, and various other commercial matters, including mercantile agents and bills of lading.

To assist you navigate the CCL Act see Bell Gully's Guide to the Contract and Commercial Law Act 2017. This guide provides a summary of:

• the practical changes that may need to be made to contracts,

• minor amendments to the relevant legislation, and

• the framework for assurance that the CCL Act does not make any substantive changes to the applicable law.

Government launches review of the Copyright Act 1994 The Minister of Commerce and Consumer Affairs has released a terms of reference to launch a review of the Copyright Act 1994.

The objectives for the review are to:

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• assess the performance of the Copyright Act against the objectives of New Zealand’s copyright regime,

• identify barriers to achieving the objectives of New Zealand’s copyright regime, and the level of impact that these barriers have,

• formulate a preferred approach to addressing these issues (including amendments to the Copyright Act), and the commissioning of further work on any other regulatory or non-regulatory options that are identified.

An issues paper for public consultation is expected to be released in early 2018.

A copy of the terms of reference is available here. For further details click here.

In the courts

Court of Appeal reviews penalty doctrine A recent Court of Appeal case (Wilaci Pty Ltd v Torchlight Fund) provides a helpful guide to the current approach to the penalty doctrine (i.e., the principle that contracts should not allow parties to punish one another disproportionately), and sends a reassuring message to commercial lenders that the courts will be slow to intervene in loans between sophisticated parties.

For commentary on this case see our earlier update here. A copy of the decision is available here.

COMPANY LAW

Regulatory developments

Insolvency Working Group issues its second report Last month the Ministry of Business, Innovation and Employment released the second and final report of the Insolvency Working Group (a panel of experts set up by the Government in November 2015 to examine aspects of corporate insolvency law) and called for feedback on the working groups’ recommendations.

The report proposes two main changes to the current voidable transactions regime in the Companies Act 1993. First, it recommends that the ‘gave value’ part of the test in the creditor’s defence should be repealed. This would increase the protection provided to creditors as a whole by restoring a creditor’s defence to one that only operates where a creditor, in good faith and without suspicion of insolvency, relies on the payment itself. Second, it recommends that the period of vulnerability for voidable transaction clawbacks should be reduced from two years to six months prior to the commencement of the liquidation where the debtor company and creditor are not related parties.

The report also considers potential ways that insolvency law and the Property Law Act 2007 might better protect the interests of investors in Ponzi schemes. However, no recommendations have been made in light of the fact the Supreme Court had not released its decision in McIntosh v Fisk2 (involving the Ponzi scheme run by Ross Asset Management founder, David Ross) at the time the report was prepared.

2 [2017] NZSC 78. See the discussion on this case in the item “Supreme Court dismisses appeal in Ponzi scheme case” in this issue of Corporate Reporter.

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Other recommendations made by the working group include:

• reducing the deadline for liquidators to file claims from six to three years,

• simplifying the continuing business relation rule by removing the subjective element relating to the parties’ intentions,

• providing that recoveries from reckless trading claims are not to be distributed to secured creditors,

• introducing a new preferential claim for gift cards and vouchers, ranking equally with an existing preference for layby sales, and

• limiting the existing preferential claims for taxes and customs and excise duties to six months from the date the debt.

A copy of the report is available here. Further details on the consultation, which closed on 23 June 2017, are available here.

MBIE consults on a director identification number The Ministry of Business, Innovation and Employment is considering whether the government should introduce a unique identification number for existing and future directors to make it easier for creditors and regulators to identify and trace the activities of a director. This follows on from a recommendation made in the Insolvency Working Group’s first report covering the regulation of insolvency practitioners and voluntary liquidations in 2016.

For further details on this see the Ministry’s consultation paper here. Submissions closed on 23 June 2017.

In the courts

Supreme Court dismisses appeal in Ponzi scheme case

McIntosh v Fish [2017] NZSC 78

The Supreme Court has confirmed the decisions in the High Court and the Court of Appeal that an investor (Mr McIntosh) in a Ponzi scheme could retain his initial investment because he was able to satisfy the creditor’s defence under the voidable transactions regime in the Companies Act 1993, but he should repay the fictitious profits earned on the investment to the liquidators for the benefit of all creditors.

The decision arises from the collapse of a group of companies, including Ross Asset Management Limited (RAM), that were run by David Ross as a Ponzi scheme. Prior to the collapse of the group, Mr McIntosh cashed out his investment and received a total of $954,047 from RAM. RAM said that this comprised of his initial investment of $500,000 and profits on that investment of $454,047. In fact these “profits” were entirely fictitious.

After the scheme collapsed, the liquidators of RAM sought to recover the amounts that Mr McIntosh received as a voidable transaction under the Companies Act 1993 and as a disposition prejudicing creditors under the Property Law Act 2007.

For a discussion on the Supreme Court’s decision see our earlier update here.

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COMPETITION AND CONSUMER LAW

Regulatory developments

Fees section revised in the Responsible Lending Code for CCCFA The Government has released an updated version of the Responsible Lending Code, which gives guidance on how the lender responsibility principles under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) may be implemented by lenders. A copy of the updated code (Responsible Lending Code (June 2017)) is available here.

The updated code, which comes into effect from 6 July 2017, contains amendments to the fees section. The changes provide increased guidance on how the Government expects lenders to set the fees they charge to consumers for borrowing which is used or intended to be used wholly or predominantly for personal, domestic or household purposes.

These changes follow on from the release of the Supreme Court decision in Commerce Commission v Sportzone3 which considered how the Courts assess whether a fee is reasonable under the CCCFA. See our previous update of that decision here.

The changes generally reflect the Supreme Court's approach in Sportzone by emphasising that in order for a lender to recover its costs through a fee, those costs must be closely connected to the activity for which the fee is charged. In practical terms, this means that a detailed line-by-line assessment of tasks and the associated costs will likely be required to determine the appropriate fee level.

For further details on these changes see our earlier update here.

The current Responsible Lending Code (March 2015) remains in effect to 5 July 2017.

Changes proposed for the Commerce Act The Minister of Commerce and Consumer Affairs, Hon Jacqui Dean, has announced changes to the Commerce Act.

The Government is recommending that:

• the Commerce Commission be given market studies powers,

• the 'cease-and-desist regime' be repealed, and

• settlements are able to be registered as court-enforceable undertakings.

However, potential changes to section 36 of the Commerce Act, around misuse of market power, have been deferred yet again, with officials to report back in mid-2018.

For further discussion on this announcement see our earlier client update here. A copy of the media release is available here.

3 [2016] NZSC 53. The Code was initially introduced in 2015 while that matter was still before the courts.

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In the courts

Key questions remain before the court on peer-to-peer lending and the CCCFA Last year the New Zealand Commerce Commission commenced a proceeding against peer-to-peer lender Harmoney Limited (Harmoney), seeking guidance from the High Court on how the Credit Contracts and Consumer Finance Act 2003 (CCCFA) applied to consumer loans entered into with Harmoney. The proceeding was commenced as a "case stated" – that is, a shortcut route to obtain a court determination on questions of law. The High Court has recently released its decision refusing Harmoney's request to strike out the Commerce Commission's case stated against it4. The decision leaves three key issues before the Court for determination, including whether Harmoney is a creditor for the purpose of the CCCFA and whether the fees it charges are credit fees.

For further details see our earlier update here.

New Zealand Commerce Commission (NZCC)

Media releases The NZCC has issued the following media releases:

Industry Regulation and Regulatory Control Average gas bills to drop under final revenue reset The NZCC has released its final decisions on the default price-quality paths for gas pipeline services. These paths set the revenues and minimum quality standards that the four gas distributors and one gas transmission business must comply with for the five-year regulatory period beginning 1 October 2017. Click here for more

Performance summaries released for electricity lines companies The NZCC has published one-page summaries of key performance measures for each of New Zealand’s 29 electricity lines companies. Click here for more

Next steps outlined for the NZCC’s decision on Powerco’s application for $1.32 billion in lines network investment The NZCC has released a process paper detailing the next steps for assessing lines company Powerco’s application proposing price increases to meet the cost of its planned $1.32 billion investment in its electricity lines network. Click here for more

Mergers and Acquisitions NZCC declines NZME/Fairfax merger The NZCC has released its final decision declining authorisation for NZME and Fairfax to merge their media operations in New Zealand. Click here for more

4 See Commerce Commission v Harmoney Limited [2017] NZHC 1167.

CORPORATE REPORTER – 29 June 2017 17

Telecommunications

Consumers of broadband and mobile services get better value for money The NZCC’s latest annual telecommunications monitoring report has found that New Zealand consumers are receiving increased value for money across a range of telecommunications services. Click here for more

Wholesale broadband price drop passed through to consumers The NZCC has released a study showing that 90% of the recent reductions in Chorus’ regulated wholesale broadband prices have flowed through to consumers. Click here for more

Consumer Issues Retailers put on alert about using misleading pricing The NZCC published an open letter to retailers, highlighting pricing practices which might breach the Fair Trading Act, and providing guidance on how to avoid them. Click here for more

“Made in New Zealand” bee pollen was Chinese A health supplement company and its owner have been fined a total of $526,500 for breaching the Fair Trading Act by claiming bee pollen was New Zealand-made, when in fact it was produced and processed in China. Click here for more

NZCC’s alpaca case brings total fines to $1.5 million A company and two individuals have been fined a total of nearly $194,000 for claiming that duvets were "pure alpaca wool" or "100% cashmere", when they contained little or no such fibres. Click here for more

Cash to You Loans banned from lending Napier loan company Cash to You Loans Limited has been banned indefinitely from operating as a lender, after charging borrowers unreasonable fees and excess interest and failing to correctly disclose fees charged. Click here for more

Update on steel mesh investigations As part of the NZCC’s investigation into steel mesh, 29 charges have been filed against Steel and Tube for making false and misleading representations about their steel mesh product known as SE62. Click here for more

Pre-school to pay $265,500 for misleading parents about ECE funding Kowhai Montessori Pre-School Limited was ordered to pay a total of $265,500 after pleading guilty to charges that it misled parents about the amount of funding it was receiving under the Government’s early childhood education scheme. Click here for more

Aunty and Herman return to raise awareness of consumer rights New Zealand’s sharpest legal advisor Aunty and her nephew Herman Faleafa have returned to raise awareness of consumer rights in the Commerce Commission’s animated series It’s All Good. The It’s All Good series debuted in 2016 to provide consumers with information on borrowers’ rights following the introduction of new credit laws. Click here for more

Finance company fined $22,000 and returns $10,000 to borrowers Christchurch finance company Acute Finance Limited has been fined $22,000 and says it has taken steps to return $10,000 to borrowers, after pleading guilty to four charges under the Credit Contracts and Consumer Finance Act. Click here for more

CORPORATE REPORTER – 29 June 2017 18

Australian Competition and Consumer Commission (ACCC)

Selected ACCC media releases The ACCC has issued the following media releases:

Industry Regulation and Regulatory Control

ACCC finalises regulation of non-NBN high-speed internet services The ACCC has finalised its decision on the regulation of high-speed internet services supplied by non-NBN fixed line networks. Click here for more

Mergers and Acquisitions ACCC will not oppose Caltex's proposed acquisition of Milemaker The ACCC has decided to not oppose the proposed acquisition by Caltex Australia Petroleum of a chain of Victorian service stations from Milemaker Petroleum. Click here for more

ACCC releases statement of issues on proposed merger between APN Outdoor Group Limited and oOh!media Limited The ACCC has released a Statement of Issues expressing preliminary concerns about the proposed merger between APN Outdoor Group Limited and oOh!media Limited. Click here for more

ACCC won't oppose proposed merger of Dow and DuPont in Australia The ACCC will not oppose the proposed merger of The Dow Chemical Company and E.l. Du Pont de Nemours and Company. Click here for more

Market Behaviour Penalties ordered against Yazaki for collusive conduct The Federal Court has imposed penalties against a Japanese company, Yazaki Corporation, for engaging in collusive conduct with a competitor when supplying wire harnesses to Toyota Motor Corporation in Australia. Click here for more

ACCC grants authorisation to fly-in fly-out airline alliance The ACCC has granted authorisation to a Charter Alliance Agreement between Virgin Australia Airlines, Virgin Australia Regional Airlines, and Alliance Aviation Services. Click here for more

Consumer Issues E-cigarette companies to pay penalties The Federal Court has ordered three online e-cigarette retailers The Joystick Company Pty Ltd, Social-Lites Pty Ltd and Elusion Australia Limited (in liquidation) to pay penalties for breaching the Australian Consumer Law. The ACCC understands that this is the first time any regulator globally has successfully taken action for false and misleading claims about the presence of carcinogens in e-cigarettes. Click here for more

ACCC takes action against NIB The ACCC has instituted proceedings in the Federal Court against NIB Health Funds Limited, alleging it contravened the Australian Consumer Law by engaging in misleading or deceptive conduct, unconscionable conduct and making false or misleading representations. Click here for more

CORPORATE REPORTER – 29 June 2017 19

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