New Zealand: Licensing Regime for Corporate Trustees Introduced to the House

NZ Funds Management Update
Last Updated: 23 December 2009
Article by Rachel Taylor, Tracey Cross and Alasdair McBeth

Following the recent release of a Cabinet paper, and various reports on the current regime of trustee supervision, the Securities Trustees and Statutory Supervisors Bill (Bill) has been introduced to Parliament. The Bill retains much of the framework agreed by Cabinet in August 2009.

The Bill is the result of a review of the role of corporate trustees in supervising issuers and collective investment schemes, primarily in respect of trustees' accountability, competence and capability, potential for conflicts, and weakness of some trust deeds.

The Bill, if enacted, will remove the automatic right of the six trustee corporations (which includes Covenant Trustee Company Limited and the Maori Trustee) to act as trustees and statutory supervisors. Instead statutory supervisors, trustees of debt securities and unit trustees will be required to be licensed and subject to ongoing monitoring by the Securities Commission. The new regime only applies in respect of offers to the public - meaning that there is no requirement for trustees to be licensed in respect of wholesale offers of securities. Trustees of superannuation or KiwiSaver will also not be covered by the proposed regime.

A 'statutory supervisor' under the Bill has the same meaning as under the Securities Act 1978 (being a person appointed in respect of participatory securities). The regime will therefore cover a large range of securities and will include products such as group investment funds, forestry and agricultural syndicates, limited partnerships, and some property interests. There will be no requirement for a trustee company to be licensed in its capacity as trustee and issuer (as opposed to statutory supervisor) of group investment funds.


Key features of the Bill:

  • Licensing to be based on a consideration of various criteria including the experience of the trustee (particularly its directors and senior managers), capital adequacy, and independence from issuers.
  • Mandatory reporting to the Securities Commission by trustees when issuers may be nearing default on securities.
  • Giving the Securities Commission the power to direct trustees to take action against issuers who are in breach of their obligations.
  • Enhanced enforcement powers against trustees who fail to comply with their duties.
  • Greater prescription around matters that must be addressed in trust deeds by deeming certain implied provisions. Like most recent financial services reform legislation, much of the detailed guidance will be set out in regulations.

For more detail on these important changes please read on.


The August Cabinet paper highlighted the concern that a conflict of interest may arise or be perceived to arise, if trustees become involved in business activities similar to those of the issuers they supervise.

The Bill partly addresses this concern by providing that, in making a decision on the grant of a licence, the Securities Commission must take into account, amongst other things, the applicant's independence from issuers of securities covered by the licence. The assessment criteria are to be introduced through regulations.

The Securities Commission will have the discretion to issue a licence that only covers (or excludes) certain types of securities or issuers. Trustees may therefore find that their licence does not extend to them acting as trustee for types of products that they also offer or for issuers with which they have other business relationships.

Reporting and Directions

Trustees must report to the Securities Commission any (potential) breaches of issuer obligations or if an issuer is likely to become insolvent. They will be exempt from civil and criminal liability if they provide the information in good faith.

Where action is urgently required to protect investors' interests, and the trustee has failed to act, the Securities Commission has the power either to direct the trustee to take a particular action, or it can go to court to seek an order to protect the interests of investors.


The Bill aims to improve the accountability of trustees and statutory supervisors. The Securities Commission will be able to seek pecuniary penalties and compensation orders on behalf of investors against trustees who fail to comply with their duties.

It will be an offence for a person to act as a trustee without a licence and trustees who fail to comply with the Securities Commission's directions, including failure to provide information about the trustee, statutory supervisor or the issuer will be fined. Maximum penalties will range from $100,000 to $200,000.


The Bill was introduced to Parliament on 15 December 2009. The Bill is expected to receive its first reading in February 2010. Once it passes its first reading it will go to select committee where there will be a call for submissions.

How can we help ?

DLA Phillips Fox has a great deal of experience in the area of securities law and working with trustees.

We can help you be ready for the new licensing regime by advising on the implications that it will have for your business. We are also happy to work with you in preparing submissions on the Bill, and, once the Bill becomes law, advising on the preparation of your licence applications.

Issuers should also be aware that once the Act is passed and regulations are in place, changes which may be required to their trust deed and offer documents as a result of the new legislation.

Please contact one of our team if you would like to discuss how the new regime will affect you.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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