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Role Of Trustees In Finance Company Failure To Be Reviewed

Fuseworks Media
Fuseworks Media
Simon Power
Simon Power

Wellington, March 25 NZPA - The role corporate trustees played in finance company failures is to be addressed as part of a "significant review" of the Securities Act, Commerce Minister Simon Power said today.

Last week NZPA reported that Companies Registrar Neville Harris had painted a picture of multiple failures and dodgy practices among directors, management, trustees, receivers and auditors.

Mr Harris said in the report for a parliamentary committee that trustees who were meant to take a supervisory role had failed.

There are five trustee companies in New Zealand and at least 25 of the failed companies had used just two trustee companies -- Perpetual Trust and Covenant Trustee.

"This degree of involvement raises issues to the quality of due diligence ... and in particular the extent to which they accepted circumscription of their powers."

Covenant and Perpetual "were slow to detect adverse financial issues" and too timid in their response.

The companies did not have staff to deal effectively with "widespread failure" within the finance companies.

Trustees had only notified the Registrar of finance companies breaching their trust deeds as receivers were moving in.

Mr Power said the Economic Development Ministry had recently started work on a comprehensive review of the Securities Act, and the role of corporate trustees would form a significant part of that review.

"I have asked for advice on the timing of the review, in particular opportunities to advance elements of the review more quickly," Mr Power said.

"One option I am considering is fast-tracking the development of a trustee supervisory model."

The role of corporate trustees is also likely to be considered by the Capital Market Development Taskforce which is due to report to Mr Power later this year.

"I also welcome a select committee inquiry into the failure of the finance companies, however, the terms of reference will need to be carefully considered," Mr Power said.

"I am particularly keen to ensure any inquiry does not cut across civil and criminal proceedings being undertaken by regulatory authorities against a number of finance companies.

"Many hard-working New Zealanders have lost money in failed finance companies, and given the scale of loss involved, there is a strong public interest in seeing that those who have broken the law are held to account."

The Trustee Corporations Association (TCA) said it was pleased Mr Power had ordered a full review of securities legislation.

"We are certainly keen to work with the minister on identifying the most effective way of strengthening rules governing investor protection," TCA chairman Clynton Hardy said

"We acknowledge that thousands of investors have suffered in the wake of finance company failures and we are determined to play our part in rebuilding the industry so investors can have greater confidence that their interests will be looked after."

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