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Securities Commission Policy in Respect of Approval of Trustees and Statutory Supervisors

PART IV
COMMISSION'S CRITERIA AND PROCEDURES FOR APPROVING TRUSTEES AND STATUTORY SUPERVISORS

29. The Act does not provide explicit direction as to the criteria and procedures to be adopted by the Commission in approving trustees and statutory supervisors. The Commission is empowered under section 48(3) to approve any person, or class of persons, to act as a trustee or statutory supervisor either in respect of specified securities, or a specified class or classes of securities only, or in respect of all securities. Any such approval may be granted on such terms and conditions as the Commission thinks fit.

30. The Commission has from time to time reviewed and refined its criteria and procedures for approvals. The current criteria have four main elements namely, competence and financial capacity, character, independence and accountability. Set out below is a restatement of the criteria that the Commission takes into account when approving trustees and statutory supervisors, and the procedures and information to be sought from applicants to satisfy that criteria.

Competence and Financial Capacity

Criteria

31. The applicant must be able to demonstrate competence to fulfil the duties and functions required of a trustee or statutory supervisor under the law in respect of the particular securities being offered ("the duties").

32. The applicant, and where the applicant is a company, the applicant's directors, should have:
    1. appropriate skills, qualifications, and experience to carry out the duties;

    2. adequate financial resources to carry out the duties and to meet the potential liabilities of office; and

    3. adequate personnel and other resources.

Procedures / Information Required

33. The applicant should prepare and present a report to the Commission. The presentation should focus on:
    1. the curriculum vitae of the applicant, or, where the applicant is a company, the curriculum vitae of each director of the applicant and any key management staff, setting out the relevant skills, qualifications and experience of those people;

    2. where the applicant is a company, core information about the applicant including details of incorporation, directors, shareholders and financial statements if available;

    3. the proposed role of the trustee or statutory supervisor;

    4. the procedures it will observe in carrying out its functions, for example, reporting and communication channels with the issuer and security holders;

    5. the standards it will adhere to in conducting its business;

    6. a brief description about its level of resources and its staff, including a profile of key management staff responsible for carrying out the duties of the trustee or statutory supervisor on a day to day basis; and

    7. whether the applicant needs to delegate any of its duties to an external body, and if so, the reasons for that delegation and the procedures to ensure the proper performance of those duties.

34. In assessing the competence of the applicant, the Commission has regard to the nature of the securities being offered and the particular functions of the applicant. For example, the experience and procedural systems expected of a trustee charged with acting in respect of a substantial finance company will differ from those expected of a statutory supervisor whether with or without a custodial role. Similarly, the level of resources required of a statutory supervisor applying for approval in respect of schemes generally, may be higher than that of a statutory supervisor applying for approval in respect of a particular scheme.

Comment

35. At present, the Commission does not require applicants to have a minimum amount of paid up capital. It is considered that the introduction of a minimum capital requirement would be a marked departure from the settled policy of New Zealand company law. There is no requirement for companies to have a minimum amount of capital under the Companies Act 1993.

36. We do not think it is necessary for the Commission to prescribe a minimum level of capital in the future. The Commission is entitled to consider the resources of the applicant, including working capital and indemnity insurance, in order to make an assessment as to whether the applicant is able to carry out its duties and to meet its obligations as they arise.

37. To date, the Commission has not approved an individual to act as a trustee under the Act. The Commission has considered that the duties and obligations imposed on a trustee differ from those placed on a statutory supervisor, and that recognised companies are better suited to the task than individuals. Individuals have, however, been approved to act as statutory supervisors but only in respect of specified schemes, rather than on an unlimited basis.

Character

Criteria

38. The applicant (and if the applicant is a company, its directors) and key management staff must not:
    1. have been convicted of a serious offence, in particular a crime involving dishonesty (as defined in section 2(1) of the Crimes Act 1961) including theft and fraud;

    2. be prevented from acting as a director under section 199K of the Companies Act 1955 or under sections 382, 383 or 385 of the Companies Act 1993;

    3. have been a bankrupt at any time during the last five years; or

    4. have been disqualified, banned or suspended for more than six months from holding a licence or authorisation to practice under the law or membership rules of any professional association at any time during the last ten years.

39. The applicant, or the applicant's directors and shareholders, if the applicant is a company, must be chartered accountants or lawyers, or otherwise members of a professional body which the Commission designates from time to time. The Commission may make inquiries of these professional bodies before approving an application. These bodies maintain and enforce rules relating to competence and discipline within their profession.

Procedures / Information required

40. The applicant, if the applicant is a company, must provide a written assurance that it has undertaken reasonable investigations and is satisfied that the above criteria are satisfied in respect of directors and key management staff.

Comment

41. It is arguable that the Commission's dishonesty criterion (paragraph 38) may be superfluous if the applicant, or if the applicant is a company, the applicant's directors and shareholders are required to be members of a professional body. A chartered accountant or lawyer who has been convicted of a serious offence will be subject to the disciplinary process within a designated professional body. A blanket prohibition on persons whose offence took place ten or twenty years ago may be rather extreme if a designated professional body has determined that the person is fit to practise the profession without qualification or restriction.

42. The Commission has only approved applications where the applicant or its directors and shareholders are chartered accountants or lawyers. The Commission has said it is willing to consider approving an application where the applicant, or its directors and shareholders, are members of a professional body other than the Institute of Chartered Accountants of New Zealand or the New Zealand Law Society. This matter has not been tested in practice.

43. The effect of the professional membership criterion (paragraph 39) may be that people who have practical experience, but who are not members of a professional body, may not be eligible to act as directors or shareholders of a trustee or statutory supervisor. It is also argued that the need for directors and shareholders of an applicant to be members of a professional body may also increase the potential for conflicts of interest, where the trustee / statutory supervisor deals with chartered accounting firms and lawyers. It is suggested that applicants should be allowed a greater level of choice, for example, if only a portion of their directors or shareholders needed to satisfy the professional membership criterion.