Rules for finance company freezes draw fire

Commerce Minister Simon Power. Photo / Mark Mitchell

Regulations to ensure simpler and clearer disclosure by finance companies seeking moratoriums will be in place by the end of the year the Government says, but the pre-eminent architect of the scheme maintains the move is "a solution looking for a problem".

Speaking at the annual Securities Law Update in Wellington yesterday, Commerce Minister Simon Power said Cabinet agreed on Monday to develop the new moratorium regulations by the end of the year.

The new regulations would ensure key information was available to investors who are being asked to make significant decisions about their investments based on onerous and highly complex disclosure documents, Power said.

So far 11 finance companies have secured moratoriums from investors owed $1.87 billion. Generally, the structures allow firms that have defaulted to restructure their affairs and repay investors over an extended period.

However, they have been sharply criticised by investor advocates and regulators including the Registrar of Companies Neville Harris, who slated them for the lack of regulatory oversight, with matters being left with the companies, their trustees and the affected investors.

But Chapman Tripp's Roger Wallis, who has had a direct hand in drawing up roughly half of the moratorium plans to date, said the issue was being over-egged, the Registrar's criticisms were debatable and in some aspects plain wrong and new regulations were not the answer.

"Really it's a solution looking for a problem. The reality is the existing regulations require companies putting them forward to ensure that they're not misleading or deceptive, that all relevant information is disclosed to investors and in practice they follow the guidelines the Securities Commission published last December.

"The key thing is are investors getting adequate information? They have been to date in my view. The new regulations won't change that because they'll likely require the same information - it will just put into statute something that's already happening."

Wallis said the plan announced yesterday appeared to cut across work Parliament's Commerce Select Committee said it would undertake in an inquiry into failed finance companies.

Committee chairwoman Lianne Dalziel said the inquiry would examine, among other things, whether investors understood the implications of a moratorium proposal before voting.

A spokesman for Power told the Herald the minister was happy to look at anything that comes out of that select committee work that could be folded into the final work.

But Wallis and his colleagues at Chapman Tripp said the committee's thinking appeared to be woolly and queried whether the terms of reference for the inquiry were asking the right questions.

"Should not the committee also look at the ability of the regulatory agencies to enforce existing laws?"

Chapman Tripp has advised companies on several high profile moratoriums including Hanover Finance, OPI Pacific Finance, Boston Finance, North South Finance, Beneficial Finance and Orange Finance.

It argues moratoriums are a much more flexible instrument than a receivership and should generally result in investors getting more of their money back, albeit over a longer timeframe.

Power announced yesterday progress in establishing the new regulatory regime for finance company trustees.

He said Cabinet had also approved new securities regulations aimed at improving the quality of disclosure to investors, enhanced flexibility for issuers and reduced compliance costs for companies raising capital, which were recommended by the Capital Markets Development Taskforce.

QUALITY CONTROL
* New regulations to improve the quality of information provided to investors about proposed moratoriums will be in place by year's end, the Government says.
* The leading architect of the moratorium schemes, Chapman Tripp's Roger Wallis, says investors are already receiving adequate information.
* Wallis says regulators' concerns about moratoriums are in some cases "plain wrong".
* He suggests it is regulators' own shortcomings, largely a lack of resources, that are the real problem.