Govt to improve moratoria disclosure, trustee supervision

Wednesday 26th August 2009

The government plans to improve finance companies' disclosure around moratoriums after 12 firms, with some $2 billion in funds, delayed repayments to stave off receivership.

It also wants to tighten trustee supervision after a report by the Companies Registrar highlighted a lack of trustee competence in monitoring complex financial offerings

Commerce Minister Simon Power told a conference in Wellington "that disclosure currently provided by finance companies does not provide investors with the appropriate information to make sound decisions."

The new rules for finance companies seeking a moratorium will require "clear and concise investment statements" about the proposed terms to freeze funds, along with independent advice and the views of trustees and company directors.

The new regulations are expected to be in place by the end of the year.

Power's discontent with the "highly complex disclosure documents" associated with moratoriums extended into trustees' roles in the distressed finance company sector.

Power included trustees in his review of the Securities Act after a March report by Companies Registrar Neville Harris slammed finance companies for acting like "Ponzi schemes" and raised concerns about trustee diligence and accountability.

"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. Parliament is expected to pass legislation by the end of the year that will require trustees be licensed by the Securities Commission.

It will also remove the automatic right for the six statutorily approved trustees to supervise issuers of debt and some investment schemes.

The commission will gain greater powers of enforcement against trustees that fail their care of duty and will allow it to direct trustees to take action against issuers. Parliament's Commerce Committee will hold an inquiry into finance company failures, including the advice given to investors in moratorium situations.

Businesswire.co.nz

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