Recommendation

The Commerce Committee has examined the Securities (Local Authority Exemption) Amendment Bill and recommends that it be passed with the amendments shown.

Introduction

This bill amends the Securities Act 1978 to exempt local authorities from the full disclosure requirements of that Act when issuing debt securities to the public. This will exempt local authorities from the requirement to produce a prospectus signed by all councillors when issuing debt securities to the public. They will still be required to produce an investment statement with a certificate signed by two councillors, although all councillors will be criminally liable for the accuracy of the content of the investment statement (under section 58 of the Securities Act 1978).

Information disclosure requirements

In the bill as introduced, local authorities are exempt from the full disclosure requirements of the Securities Act when issuing debt securities to the public. We understand that local authorities would still be required to fulfil the information disclosure requirements under the Local Government Act 2002, despite this exemption. However, we were concerned that the requirements in the Local Government Act would not be sufficient to ensure that investors and potential investors obtained adequate information on the financial position of the local authorities on an ongoing basis.

To address this concern, we recommend that clause 5 be amended to introduce additional requirements for local authorities. A local authority would be required to

• refer to its most recent audited annual financial statements in the investment statement that it distributes when issuing debt securities

• refer to interim financial statements in the investment statement where the date of allotment of the debt securities is more than nine months after the last balance date

• provide financial statements to investors and potential investors on request and free of charge

• state in the investment statement that the debt securities being offered are not guaranteed by the Crown, unless they are under the Public Finance Act 1989.

In our view, the proposed requirements would be less stringent and burdensome than the existing requirements under the Securities Act.

In clause 5, we also recommend the insertion of new subsection 3D. This would make it clear that the requirements relating to allotments made in contravention of section 37A of the Securities Act would apply to the contents of the financial statements and interim financial statements for debt securities offered by a local authority.

Criminal liability

Some submitters argued that elected members of local authorities should be exempt from criminal liability for breaches of the Securities Act, as are Ministers of the Crown. However, we disagree, because councillors and Ministers of the Crown are not in similar positions in terms of accountability. Compared with local authorities, the Crown has to fulfil significantly more reporting and accountability requirements, and is subject to more checks and balances.