Trustees to face more rigorous regime

Simon Power. Photo / Mark Mitchell

The Government is introducing measures to ensure trustees are qualified to do the job and have the right systems to protect investors, after a string of finance company failures.

Other changes announced by Commerce Minister Simon Power in a speech in Wellington today were around improving transparency when finance companies use moratoria - an alternative to receivership - and for disclosure information around investments.

Power said the Government was bringing in a new regime for corporate trustees and statutory supervisors, who supervise debt issuers and some collective investment schemes.

"The collapse of a large number of finance companies in recent years has raised some fundamental issues around the role of corporate trustees, and in particular the competency and accountability of some trustees," he said.

"These measures will ensure trustees are suitably qualified and have rigorous systems and processes in place to protect the interests of investors."

The new regime removes the automatic right for the six statutorily approved trustee corporations to supervise issuers of debt and some collective investment schemes. It also requires trustees to be licensed by the Securities Commission.

"The commission will have the power to tailor licences so trustees have processes in place that are in proportion to the level of risk associated with the issuers they supervise," Power said.

"The commission will take into account matters such as the trustee's competence, systems and processes for supervising issuers, and financial strength."

Other measures include enhanced enforcement against trustees who fail to comply with their duties; greater prescription around matters that must be addressed in trust deeds; mandatory reporting to the Securities Commission by trustees when issuers may be nearing default on securities; giving the commission the power to direct trustees to take action against issuers.

"These measures will also contribute to ensuring that trustees' supervision of debt issuers and some collective investment schemes is effective and protects investors while not imposing unnecessary compliance costs," Power said.

"Mandatory reporting by trustees to the Securities Commission will help ensure proactive action is taken to protect investors' interests."

Legislation was expected to be ready for introduction to Parliament by the end of the year.

Power also planned to introduce regulations simplifying and clarifying disclosure obligations for finance company moratoria by the end of the year.

Moratoria are an alternative to receivership for struggling companies that issue debt and unable to pay their investors.

Moratoria may involve capital restructuring or repayment plans. So far, 12 finance companies are in moratoria with approximately $2 billion involved.

"I am concerned that disclosure currently provided by finance companies does not provide investors with the appropriate information to make sound decisions," Power said.

"These regulations will ensure the right information is made available in a transparent and easy-to-understand way."

The regulations would require debt issuers to provide clear investment statements about moratoria proposals, independent expert advice, trustees' views and the considerations of the company directors.

Power said Cabinet had also approved new securities regulations aimed at improving the quality of disclosure to investors, improving flexibility for issuers and reducing compliance costs.

- NZPA