RIS and BCCS
[ Last Updated 16 November 2005 ]
Contents
Public Policy Objective
1. The Business Law Reform Bill is an omnibus bill that contains minor changes to a number of business law statutes, that in their own right would not justify a single piece of legislation. In aggregate the changes proposed in the Business Law Reform Bill will achieve the key public policy objective of ensuring that the law affecting the operation of business is clear, efficient and effective.
2. The bill represents the ongoing incremental improvement of existing business law to achieve these goals. In particular the Bill will:
- remove unnecessary compliance costs associated with some administrative processes;
- clarify various statutory provisions;
- ensure consistency between different legislative requirements;
- update various statutory provisions.
Statement of the Problem and the Need for Action
3. The Ministry of Economic Development has responsibility for the administration of a large number of technical and complex business law regulation. In total, the Ministry administers approximately 40 business law acts.
4. It is important to ensure that the legislation provided to businesses facilitates business activity, and does not impact adversely on either the ability of business to function or the effective and efficient operation of markets in which those businesses are a part. Given the amount and complexity of legislation that businesses operate under, it is inevitable that amendments will need to be made to ensure this aim continues to be met. As the business environment changes legislation must be continually updated to keep pace with developments in the marketplace.
5. Though changes effected through the Business Law Reform Bill are individually small, in totality they will have a significant and positive impact on the body of business laws that the Ministry administers.
Statement of Options for Achieving the Desired Objectives
6. No non-regulatory measures exist that would be capable of achieving the specified objectives. Since the statutes create the problems, they can only be addressed by amending the statutes.
7. Consultation with business law practitioners, enforcement agencies and the business community has revealed 92 minor changes across 14 statutes that could achieve the broader policy objectives stated above. The following commentary provides several examples that are illustrative of measures proposed for the Business Law Reform Bill.
a. Compliance Costs
As mentioned, one of the key aims of the bill is to reduce compliance costs associated with administrative processes.
An example of this is section 5 (2E) and (2F) of the Securities Act 1978 relating to employer based superannuation schemes. A number of industry participants expressed their concern at the unnecessary compliance costs associated with having to register a prospectus for employer sponsored superannuation schemes under the Act. Indeed one submissioner claimed that complying with this provision cost up to $100,000 annually. Industry participants commented that they seldom have enquiries for the prospectus and in light of the expense of preparing and publishing a prospectus, they consider that the costs outweigh the benefits. It is proposed to exempt employer based superannuation schemes from the prospectus requirements in the Act. This will greatly reduce compliance costs for the operators of such schemes.
Another example is section 97A of the Building Societies Act 1975 and Section 210 of the Companies Act 1993, where certain financial documents must be sent to all members of building societies or shareholders of companies. Consultation has revealed that in many cases the members or shareholders are not interested and indeed may not wish to receive all of the financial disclosure documents. In this instance the cost of printing and posting such documents is an unnecessary compliance cost. It is proposed that members or shareholders be able to opt out of receiving certain information.
One further example is section 10 and 12 of the Financial Reporting Act 1993, which sets out the disclosure requirements for reporting entities and exempt companies. Exempt companies are those with, among other requirements, assets of less than $450,000 and a turnover of less than $1,000,000. Exempt companies have lesser disclosure requirements than reporting entities. Consultation has revealed that in some instances exempt companies will have prepared fuller disclosure for other reasons, yet must prepare additional lesser disclosure documents under the exempt companies regime. It is proposed that exempt companies be able to opt into fuller disclosure. This will provide exempt companies with the flexibility to make compliance cost savings.
b. Clarifications
Another key aim of the bill is to improve the clarity of our existing commercial law statutes.
One example of this is section 2 of the Securities Act 1978. The Act defines "expert" as "any person who holds himself out to be of a profession or calling that gives authority to a statement made by him; and includes an accountant, engineer, valuer, quantity surveyor and geologist". It is considered that the inclusion of specific professions risks an unduly narrow interpretation being placed on this section to the exclusion of other sections. It is proposed to remove the reference to specific professions. This would avoid the costs that could be generated by businesses and regulators requiring legal advice or the courts to interpret this section.
c. Consistency
The bill also aims to remove anomalies in the law that have emerged over time.
For example section 53E of the Securities Act 1978 provides that issuers of equity securities, debt securities, life insurance policies, unit trusts and superannuation schemes must ensure that the financial statements are audited annually by a qualified auditor. In the case of participatory securities annual audits are carried out only if the statutory supervisor so requires. It is proposed that all arrangements or schemes to which participatory securities relate be audited annually to remove this inconsistency.
d. Updating the Law
This process is particularly important as among other things it allows business to take full advantage of then new information technology environment.
For example section 15(2) of the Commerce Act prescribes that meetings of the Commerce Commission be held at such times and places as the Commission determines. This does not provide the Commission with sufficient flexibility to convene meetings using teleconferencing tools. It is proposed that section 15(2) be amended to allow the Commission to take advantage of technology to convene meetings.
Statement of the Net Benefits of the Proposal
8. Amendments to business law statutes through the Business Law Reform Bill will achieve incremental improvement of business law thereby causing a net reduction in compliance costs. This incremental improvement will also ensure that the body of business law has the following characteristics:
- Clear statutory provisions where money is not spent on legal fees to establish their application to particular facts and businesses and regulators can proceed with certainty;
- Up-to-date statutory provisions, where businesses and regulators can take full advantage of information technology;
- Technically correct regulation that ensures business and the regulation thereof operate efficiently, for example regulation that avoids duplicating the requirements placed on businesses;
- Regulation that is free from redundant provisions, ensuring that the body of law is uncluttered and credible.
- Statutory provisions that are meaningful, where effect is given to the intended purpose.
Business Compliance Cost Statement
9. The Business Law Reform Bill is the outcome of the ongoing and close consultation between MED and the business sector. This consultative relationship is continually identifying areas where minor amendments will create net benefit for business and New Zealand at large. In aggregate the amendments will reduce some of the costs of compliance, thereby promoting the efficient use of economic resources, enterprise and innovation within the economy.
Consultative Programme
10. The Ministry has consulted with the Institute of Chartered Accountants, the New Zealand Law Society, the Securities Commission, the Accounting Standards Review Board, the New Zealand Society of Actuaries, the Association of Superannuation Funds of New Zealand and a number of private business law practitioners.
11. The Treasury, the Ministry of Justice, the Department for Courts, the Privacy Commissioner, the Inland Revenue Department, the Department of Prime Minister and Cabinet, the Ministry of Consumer Affairs and Te Puni KÅkiri have also been consulted.
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