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Commerce Committee Inquiry Woolly Says Law Firm

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, Aug 26 NZPA - The inquiry into finance company failures by Parliament's commerce select committee is woolly in its thinking and populist while missing areas of significance.

This is according to a report by law firm Chapman Tripp, which pulls the committee up for not investigating why New Zealand regulators are less pro-active than Australian regulators.

"Surely it is worth asking why the Australian Securities and Investment Commission stopped Bridgecorp from seeking deposits, when no New Zealand regulatory agency did the same," Chapman Tripp said in a report entitled Once More into the Breach.

Bridgecorp collapsed in July 2007 owing $459 million to 14,360 secured debenture holders.

Parliament's commerce select committee chairwoman Lianne Dalziel announced the inquiry this month and said it would be looking at gaps in the system.

But Chapman Tripp said that rather than avoiding other work streams the inquiry appeared to cut across them.

It cut across moves on finance company moratoria announced today by Commerce Minister Simon Power, the Cameron Taskforce's work on simplifying financial product disclosure, the Ministry of Economic Development's review of the Securities Act and regulations and the Law Commission's review of trust law "to name a few", Chapman Tripp said.

"Our high level view is that we are surprised at the committee's apparent pre-occupation with populist and symbolic matters, such as tracing directors' assets, when there are issues of real significance to be addressed, particularly in the enforcement area," Chapman Tripp said.

The thinking behind questions the inquiry was asking in the area of ensuring investors were well informed was woolly.

"What does it mean to ask whether marketing and advertising plays a `disproportionate' role in investors' decisions, and why would you ask? Will restricting advertising assist?"

Chapman Tripp notes that the Securities Act already gives the Securities Commission power to suspend or cancel prospectuses and advertisements.

Chapman Tripp has been involved in developing a number of moratorium plans for finance companies, and defends moratoriums in the report.

There has been criticism that shareholders have not been well informed when voting on finance company moratoriums as an option against the option of receiverships.

Chapman Tripp argued that moratoriums had some of the best features of receivership without their rigidities and disagreed that they let directors off the hook.

D uring the past three years about 30 finance companies had gone into receivership or liquidation, entered into moratoria or frozen repayments to investors.

Ms Dalziel said the committee was not going to duplicate work that was already under way.

"Rather it wishes to focus on issues that do not appear to have been identified within current work programmes, and on particular issues which may benefit from the scrutiny a select committee can bring to bear."

The issues that had been identified were:

* Ensuring investors are well-informed about investment proposals;

* Ensuring investors understand the implications of a moratorium proposal before voting;

* Ensuring advance actions can be taken to reduce the chances of failure; and

* Ensuring adequate measures or redress exist when failure occurs.

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