Mixed Ownership Model Bill

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Explanatory note

General policy statement

The Government plans to sell a minority of shares in Genesis Power Limited, Meridian Energy Limited, Mighty River Power Limited, and Solid Energy New Zealand Limited. As these are currently State enterprises, it is necessary to pass legislation that enables the Crown to remove these companies from the ambit of the State-Owned Enterprises Act 1986 (the SOE Act), although sections 22 to 30(1) and a provision similar to section 9 of that Act will continue to apply. The companies will also be removed from the ambit of the Official Information Act 1982 and the Ombudsmen Act 1975.

The new legislation will restrict the Crown from holding less than 51% of the voting rights in each of the companies and will restrict non-Crown individuals and entities from holding more than 10% of the voting rights in each of the companies.

The Government has decided that the Bill should establish the 51% and 10% caps. Further provisions will be needed to monitor and enforce those caps, and the Government considers that these should be contained in the constitutions of the mixed ownership model companies. The provisions in the Bill establishing the 51% and 10% caps are therefore intended to work alongside these more detailed provisions. Although some consequences of breaching the 10% cap are set out in the Bill, it will not limit or prevent the constitutions of the companies from providing for further consequences of breaching the 10% cap.

The main purpose of moving these companies to the mixed ownership model is to raise $5 billion to $7 billion, which the Crown will invest through the Future Investment Fund in new schools, hospitals, roads and rail, and other public assets and use to control debt.

The mixed ownership model will give New Zealanders an opportunity to invest in the market in large New Zealand companies. It will strengthen the stock market by increasing the breadth and depth of investment opportunities. It will improve the public scrutiny of the companies, creating sharper incentives to run them efficiently. And it will allow the companies to raise the capital they need without having to rely solely on the Government for equity.

It is intended that this Bill be divided into the following 2 separate Bills at the committee of the whole House stage:

  • a State-Owned Enterprises Amendment Bill (consisting of Part 1 of the Bill); and

  • a Public Finance (Mixed Ownership Model) Amendment Bill (consisting of Part 2 and Schedules 1 and 2 of the Bill).

Regulatory impact statement

The Treasury produced a regulatory impact statement, which was considered by Cabinet on 9 May 2011, to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

A copy of this regulatory impact statement can be found at—

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 is the commencement clause. Part 2 and Schedules 1 and 2 come into force on the day after the date on which the Bill receives the Royal assent. Part 2 establishes the mixed ownership model under new Part 5A of the Public Finance Act 1989. The rest of the Bill comes into force on a date to be appointed by Order in Council, and orders may be made bringing different provisions into force on different dates. This is to enable the SOE Act (and the Official Information Act 1982 and the Ombudsmen Act 1975) to be disapplied at different times in relation to each of the 4 companies, Genesis Power Limited, Meridian Energy Limited, Mighty River Power Limited, and Solid Energy New Zealand Limited, and for the relevant company to become a mixed ownership model company under new Part 5A of the Public Finance Act 1989. It is the Government's intention that this will not occur for a company before a decision is made to proceed with a partial sale of shares in the company.

Part 1
Provisions for companies to cease to be State enterprises and to become mixed ownership model companies

Amendments to State-Owned Enterprises Act 1986

Clause 3 provides that clauses 4 and 5 amend the SOE Act.

Clauses 4 and 5 remove the names of Genesis Power Limited, Meridian Energy Limited, Mighty River Power Limited, and Solid Energy New Zealand Limited (the mixed ownership model companies) from Schedules 1 and 2 of the SOE Act. The effect is that each company ceases to be a State enterprise and ceases to be subject to the main provisions of that Act. However, see new section 45X of the Public Finance Act 1989 as to the continued application of certain provisions that apply to the companies as State enterprises.

Amendments to other enactments

Clause 6 removes the name of each mixed ownership model company from Part 2 of Schedule 1 of the Ombudsmen Act 1975 and clause 7 removes the name of Solid Energy New Zealand Limited from Schedule 1 of the Official Information Act 1982 (because it is also separately named in that Act). The effect of these clauses is that the Ombudsmen Act 1975 and the Official Information Act 1982 cease to apply to the mixed ownership model companies.

Clause 8 inserts the name of each mixed ownership model company in new Schedule 5 of the Public Finance Act 1989. The effect is that the mixed ownership model companies become subject to the provisions set out in new Part 5A of that Act.

Clauses 9 to 11 provide for the amendment of the Income Tax Act 2007 so that the name of each mixed ownership model company is shifted from new Part A of Schedule 36 of the Income Tax Act 2007 (which lists the names of companies that are State enterprises for the purposes of that Act) to new Part B (which, under Part 2, lists the names of the companies that will be called mixed-ownership enterprises for the purposes of that Act (a different term is used in the Income Tax Act 2007 than in the Public Finance Act 1989 because the Income Tax Act 2007 list will include Air New Zealand Limited)). See the analysis on clause 18 below, dealing with amendments to the Income Tax Act 2007, as to the tax treatment of these entities.

Part 2
Ongoing provision for mixed ownership model companies

Amendments to Public Finance Act 1989

Clause 12 provides that clauses 13 to 17 amend the Public Finance Act 1989.

Clause 13 amends section 1A of the Act, which deals with the purpose of the Act, to cover new Part 5A.

Clause 14 inserts in section 2(1) of the Act a cross-reference to the definition of the term mixed ownership model company.

Clause 15 inserts new section 3B, which provides for new Schedule 5 to be amended by Order in Council to replace the name of any company listed in the schedule if that company changes its name.

Clause 16 inserts new Part 5A, which provides as follows:

  • new section 45P provides that a mixed ownership model company means a company that is listed in new Schedule 5 and sets out other definitions for the purposes of the Part:

  • new section 45Q provides that nothing in new Part 5A shall permit the Crown to act in a manner that is inconsistent with the principles of the Treaty of Waitangi. Consultation with Māori has been undertaken to gather views from Māori on how the Crown's obligations under the Treaty of Waitangi should be reflected in the Bill. Many Māori considered that the status quo under section 9 of the SOE Act should be preserved for the mixed ownership model companies. Accordingly, new section 45Q has the same wording as section 9 of the SOE Act, but it refers to new Part 5A (rather than the SOE Act) because new Part 5A is the legislation that governs the mixed ownership model companies. In both cases, the provision binds the Crown only. The definition of the Crown in the SOE Act is also replicated in new Part 5A to maintain the status quo (it is understood in any case that it has the same effect as the definition of the Crown elsewhere in the Public Finance Act 1989). It is not intended that new section 45Q would bind any other shareholder in the company or the mixed ownership model company itself. To make this clear, new subsection (2) restates that the provision applies only to the Crown:

  • new section 45R prohibits a shareholding Minister in a mixed ownership model company from disposing of any shares in the Minister's name or permitting an issue of shares or securities (or a mixed ownership model company from issuing, acquiring, or redeeming its shares or securities) if doing so would result in the Crown holding less than 51% of the voting rights in the company:

  • new section 45S prohibits any non-Crown individual or entity from having relevant interests in securities conferring more than 10% of the voting rights of a mixed ownership model company. Under the meaning given to relevant interest (see sections 5 to 6 of the Securities Markets Act 1988), the securities that must be taken into account for the purposes of calculating the maximum 10% limit include securities that a person is a registered or beneficial owner of, securities that a person has the power to acquire or dispose of, or control the acquisition or disposition of, and securities in respect of which a person has the power to exercise, or control the exercise of, an attached voting right. Powers or controls exercisable through trusts, arrangements, and understandings and, in certain circumstances, securities held by other persons must also be taken into account. Certain common commercial arrangements that do not confer true voting control (eg, the holding of a proxy vote) are excluded:

  • new section 45T sets out the effect of a person exceeding the maximum 10% limit. The person must comply with any written notice from the mixed ownership model company requiring the person to sell down or dispose of securities or take any other action needed (eg, terminate any voting agreement) to ensure that the person does not exceed the limit. Regardless of whether the company gives such a notice, the person must take whatever steps are necessary to ensure that the contravention is remedied within 60 days. The person is also prohibited from exercising any voting rights attaching to securities in excess of the maximum 10% limit, and any purported exercise of those voting rights is of no effect and must be disregarded. New subsection (3) clarifies that the section does not change the position that normally applies under company law concerning what may be contained in the constitution of the company. The constitution may replicate the 10% limit and contain provisions dealing with the consequences of a person exceeding the 10% limit (which may be in addition to those set out in the Bill), and nothing in the section limits how this may be done:

  • new section 45U provides an exemption from the maximum 10% limit for persons holding interests on behalf of another person in the ordinary course of business as a trustee corporation or nominee company. The exempt persons must monitor the holdings of those for whom they hold the interests and can lose the exemption under new section 45V if designated as no longer exempt by the Financial Markets Authority on the grounds set out in that section. New section 45W enables the Financial Markets Authority to use its existing information-gathering powers for the purposes of these new functions:

  • new section 45X continues to apply sections 22 to 30(1) of the SOE Act and provisions in certain other enactments to mixed ownership model companies, despite those companies ceasing to be State enterprises. These provisions deal with—

    • Ministers' shareholdings, including Ministers' powers to exercise the rights and powers attaching to shares and to authorise other persons to act as their representatives at meetings of shareholders (section 22 of the SOE Act):

    • the transfer by the Crown to State enterprises of land, other assets, and liabilities (sections 23 to 29A of the SOE Act). In broad terms, the continued application of sections 23 to 29A has the effect of ensuring that all processes for the transfer of assets to these companies can be completed, despite the companies no longer being State enterprises. The continued application of those sections also ensures that the Crown's obligations to resume land or interests in land and return it to Māori in certain circumstances (provided for in sections 27A to 27D of the SOE Act) continue to apply:

    • the application of certain provisions of the Companies Act 1993 relating to company names and registration (section 30(1) of the SOE Act):

    • the requirement for the reservation of marginal strips from certain land disposed of by the Crown to State enterprises and the Minister of Conservation's power to declare certain dispositions exempt from reservation (including dispositions of land that is part of the core assets of a State enterprise that is a generator of electricity or land that is required in connection with electricity works) (sections 24(1) and (6), 24B(4) to (6), and 61(2) of the Conservation Act 1987):

    • the granting of renewable leases of land vested in a State enterprise in exchange for pastoral leases (section 11 of the Crown Pastoral Land Act 1998):

    • recommendations of the Waitangi Tribunal in respect of land transferred to, or vested in, a State enterprise (sections 8A to 8H of the Treaty of Waitangi Act 1975).

Clause 17 inserts new Schedule 5, which will list the mixed ownership model companies when each name is inserted by clause 8.

Amendments to other enactments

Clause 18 provides for amendments to other enactments to ensure that they continue to apply to mixed ownership model companies in order to preserve the rights of the companies, the rights of third parties, or the general intent of those Acts. These include amendments to—

  • the Employment Relations Act 2000. The effect of the amendment made to Schedule 1 of that Act is to ensure that the operational management of the mixed ownership model companies whose business covers electricity generation remains an essential service and therefore that the requirements as to notice (set out in sections 90 and 91 of that Act) that must be given in order for participation in a strike or lockout not to be unlawful under section 86 of that Act continue to apply:

  • the Income Tax Act 2007. The amendments made to Schedule 36 of that Act, which currently lists State enterprises for the purposes of the Act, result in that schedule being divided into 2 parts dealing with government enterprises. New Part A lists State enterprises for the purposes of the Act and new Part B lists enterprises that are called mixed-ownership enterprises for the purposes of the Act. After the name of each mixed ownership model company is moved from new Part A to new Part B of Schedule 36 (see clauses 9 to 11), the specific tax rules for State enterprises and for special corporate entities will no longer apply to the company. Air New Zealand is listed in new Part B because this reflects its current tax treatment. The following amendments deal with the tax treatment of mixed-ownership enterprises:

    • new subsection (5B) of section CW 38 provides that these entities are excluded from the public authority tax exemption in that section (State enterprises are currently excluded under subsection (5) of that section). The amendment to the definition of public authority in section YA 1 also makes it clear that a mixed-ownership enterprise is not a public authority for tax purposes:

    • new subsection (2A) of section IC 3 ensures that mixed-ownership enterprises cannot group for loss purposes with other mixed-ownership enterprises. (Section YC 5(5) already has the effect of ensuring that mixed-ownership enterprises cannot group with State enterprises for loss purposes because that provision precludes State enterprises from grouping with any other company):

    • the amendment made to section YB 2(6) ensures that mixed-ownership enterprises are excluded from the associated persons rules:

    • new section YC 5B clarifies that there is no breach of shareholder continuity merely because a mixed ownership model company is moved from Part A to Part B of Schedule 36 and that the Crown will always hold its shares in a mixed ownership model company as a single notional person at all times:

  • the Land Act 1948. The amendments made to section 172 of that Act ensure that the removal of the ability to assert rights or obtain title to land by user or adverse possession as against a State enterprise continues to apply after the State enterprise becomes a mixed ownership model company:

  • the Public Records Act 2005. The amendment made to section 5 of that Act ensures that it continues to apply in respect of records of the affairs of each mixed ownership model company before it ceased to be a public office:

  • the Public Works Act 1981. New section 45X of the Public Finance Act 1989 continues to apply section 24(4) of the SOE Act as if each mixed ownership model company were a State enterprise. This means that sections 40 to 42 of the Public Works Act 1981 apply to land that has been transferred to these companies by the Crown, as if the company were the Crown and the land had not been transferred. If a mixed ownership model company no longer requires land previously acquired for a public work, it must therefore offer the land for sale to the person from whom it was originally acquired. Clause 18 consequentially amends section 42B of the Public Works Act 1981, which relates to processes that must be followed in these circumstances, to ensure that these also apply to mixed ownership model companies:

  • the Ngāi Tahu Claims Settlement Act 1998, which gives effect to the deed of settlement of a Treaty of Waitangi claim by Ngāi Tahu. The amendment relates to the definition of Crown body to ensure that wherever the term is used in that Act it includes the mixed ownership model companies, as well as State enterprises. The Government is still discussing with other iwi whether they want the Bill to make equivalent amendments to the Acts giving effect to their deeds of settlement and changes to the Bill to deal with this may be proposed at select committee stage, depending on the outcome of those discussions.