New Personal Property Securities legislation will soon be introduced to parliament. It has been described as New Zealand's most significant commercial law reform since the 1993 Companies legislation, and the change is long overdue; New Zealand's existing securities law is a confusing mixture of common law and various statutory rules. It is likely that the new legislation will be based largely on North American precedents and that it will replace not only the various existing statutes, but also the equitable and common law rules regulating the priorities of competing securities. The overriding intention is that all forms of security should be regulated in the same manner, and that the same rules should apply whether the debtor is an individual or a company. Further details regarding this important change will be reported on in a later edition.
On March 5 1998, the Reserve Bank of New Zealand implemented a real-time gross settlement system for high value inter-bank transactions. Previously these inter-bank obligations were netted and settled overnight through each bank's settlement account with the Reserve Bank.
The Reserve Bank has also proposed a number of statutory amendments aimed at ensuring the validity of netting arrangements in an insolvency situation. Under existing law there is uncertainty as to whether a court will uphold the operation of netting agreements, particularly multilateral netting agreements. The amendments remove this uncertainty by providing that netting agreements will generally be enforceable. The proposed amendments are now before the Commerce Select Committee, which is due to report back on them shortly.
On May 18 1998 the New Zealand Stock Exchange implemented its new Fully Automated Screen Trading and Electronic Registration System (FASTER) for trading in listed securities. The most noticeable result of the introduction of FASTER was the elimination of certificates for these securities, so that securities listed in the New Zealand Stock Exchange can now be transferred by phone, fax or e-mail. Although initial media reports highlighted a greater than expected level of confusion among investors, it seems that things quickly settled down over the ensuing six months. While FASTER has brought a number of benefits, the biggest is the reduction in the inter-broker settlement period from 2.6 days to 1.8 days. This reduction in turn means that there is less risk involved in transfers.
The reduction in the level of public confusion relating to FASTER is perhaps partly to do with a combination of lower interest rates leading more investors to look to the share market for higher returns, and a number of high profile share floats which have taken place during the year. This includes a successful float by the New Zealand government of its shareholding in Auckland International Airport. The government is poised to continue its programme of asset sales — it has commissioned a report to examine the sale of Contact Energy, one of the state-owned electricity generators. A sale helps the government to reduce public debt, as well as helping create more competition in the electricity industry.
A sale of Contact would represent a continuation of the changes taking place in the electricity industry throughout 1998. The passing of the Electricity Industry Reform Act 1998 in July forced New Zealand's many electricity companies (there are more than 35) to choose whether they wish to be involved in the lines business or the electricity retail and generation businesses. Because they can no longer be involved in both, electricity companies ultimately must sell their interest in the part of the business they choose not to remain in. The purpose behind the reform was to remove the ability of electricity companies to cross-subsidize these businesses and benefit from the monopoly ownership of electricity lines. Although a lines company will remain a monopoly, the government regulator will have the power to impose price controls on these entities. A number of sales of both types of business have already taken place, and the majority of electricity companies have so far chosen to remain in the less risky lines business. It is expected that only a handful of electricity retailers will remain once all sales of retail businesses are completed. So far, the key players emerging in the retail industry are the two government-owned generators Contract Energy and ECNZ, and the (largely) Canadian owned TransAlta. The government aims to further encourage competition in the electricity industry by splitting ECNZ into three new entities which will also compete primarily in the generation market. If a final decision is made in the next month, the split is expected to be completed by April 1999.
James Aitken and Gene Turner