New powers proposed for finance company trustees

News Release

6 September 2007

New powers proposed for finance company trustees

The Securities Commission has proposed immediate changes to the law to strengthen the position of trustees of finance companies and to assist them to perform their supervisory roles in the interests of investors.

In advice to the Minister of Commerce the Commission has advised that trustees be given enhanced powers to obtain up to date and accurate information about the financial position of the finance companies they oversee.

The Commission has proposed these changes after meeting with all finance company trustees yesterday. Many of the changes proposed are already in the Trustee Corporations Association guidelines and in some existing trust deeds. However, other deeds do not contain all the powers trustees need.

“It is important that trustees have up to date and reliable information about the companies they supervise”, said Commission acting Chairman Colin Beyer. “The changes we are proposing will ensure that all trust deeds provide trustees with robust powers to get the information they need to carry out their duties in the interests of investors.”

The changes the Commission is proposing will automatically become part of all finance company trust deeds (including existing deeds). The changes are:

Reporting

A finance company must give to its trustee:
- Annual and half-yearly audited financial statements
- Quarterly attestations by the directors on compliance with prospectus and trust deed requirements
- Monthly management accounts
- Monthly reports on liquidity, asset quality, reinvestment rates, and any breaches of financing arrangements with third parties
- Notice of any changes in controlling shareholders, directors, and senior management
- Advance notice of any major transactions.

The trustee may also require further reports.

More…

Verification

The trustee may:
- Appoint an independent expert such as an investigating accountant or valuer to report on the true financial situation of the finance company
- Enter a finance company’s offices to inspect its books and other papers

Audit

A finance company must:
- Consult its trustee before appointing an auditor
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- Tell its trustee if an auditor has refused appointment or resigned together with reasons
- Engage its auditors to:

o confirm their audit opinion to the trustee

o give a copy of the audit management letter to the trustee

o report separately to the trustee on matters relevant to the powers and duties of the trustee or the interests of investors, and on whether all reports given by the company to the trustee were accurate

o meet privately with the trustee after each audit and answer any questions the trustee may ask

A trustee may appoint an additional auditor at the finance company’s expense if the audit firm chosen by the finance company does not have at least five partners and earn at least 20% of its revenue from assurance work, or otherwise, in the trustee’s opinion, does not have sufficient experience or capacity to undertake the audit of the finance company.

Changes to the law to give effect to the new powers will be made by regulations under the Securities Act 1978 on the recommendation of the Securities Commission. The Commission expects to provide its formal recommendations by the end of September.

ENDS

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