Published 7 September 2007The Securities Commission proposed immediate law changes yesterday to strengthen the position of finance company trustees.
Commerce Minister Lianne Dalziel welcomed the changes, which she said would make best practice become standard practice.
The commission proposed the changes after meeting all finance company trustees on Wednesday. Many of the proposed changes are already in the Trustee Corporations Association guidelines and in some existing trust deeds. However, acting commission chairman Colin Beyer said other deeds didn’t contain all the powers trustees needed.
The changes will automatically become part of all finance company trust deeds, including existing deeds. They are in 3 categories – reporting, verification & audit.
Reporting – a finance company must give its trustee:
annual & half-yearly audited financial statementsquarterly attestations by the directors on compliance with prospectus & trust-deed requirementsmonthly management accountsmonthly reports on liquidity, asset quality, reinvestment rates and any breaches of financing arrangements with third partiesnotice of any changes in controlling shareholders, directors & senior managementadvance notice of any major transactions.
The trustee may also require further reports.
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 companyenter a finance company’s offices to inspect its books & other papers.
Audit – a finance company must:
consult its trustee before appointing an auditortell its trustee if an auditor has refused appointment or resigned, together with reasonsengage its auditors to:confirm their audit opinion to the trusteegive a copy of the audit management letter to the trusteereport separately to the trustee on matters relevant to the powers & duties of the trustee or the interests of investors, and on whether all reports given by the company to the trustee were accuratemeet the trustee privately after each audit and answer any questions.
A trustee may appoint an additional auditor at the finance company’s expense if the audit firm the finance company chose doesn’t have at least 5 partners and earn at least 20% of its revenue from assurance work, or if the trustee feels the auditor doesn’t have enough experience or capacity to undertake the audit.
Mr Beyer said law changes to give effect to the new powers would be made by regulations under the Securities Act on the recommendation of the Securities Commission. The commission expects to provide its formal recommendations by the end of September.
Attribution: Commission & ministerial releases, story written by Bob Dey for this website.