IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV 2018-485-338
[2018] NZHC 3368	

UNDER	the Companies Act 1993	
IN THE MATTER OF	an appeal against the decision of the Registrar of Companies to decline an
application for exemption under s 207L of the Companies Act 1993	
IN RE	GENERAL ELECTRIC INTERNATIONAL, INC
Appellant	

Hearing:	29 October 2018	
Appearances:	L A O’Gorman and A N Birkinshaw for Appellant
H B Rennie QC and M G A Madden for Registrar of Companies	
Judgment:	17 December 2018	

JUDGMENT OF MALLON J

Introduction	[1]
Context	[4]
Factual background	[10]
GEC structure and operations	[10]
US regulatory requirements	[15]
Previous compliance with New Zealand’s requirements	[17]
Legislative history	[19]
The position as at 1993	[20]
Review of 1993 requirements	[22]
Section 35B exemption power introduced	[34]
Section 35B in operation	[35]
Further review	[37]
Renewal of s 35B class exemptions	[59]
Reporting regime from 2014	[63]
Applies to large overseas companies	[63]
Does the overseas company have subsidiaries	[65]
New Zealand branch accounts	[76]

IN RE GENERAL ELECTRIC INTERNATIONAL, INC [2018] NZHC 3368 [17 December 2018]

Balance date	[78]
Auditing	[79]
Registering statements	[82]
Exemption	[84]
Explanation for the May 2017 amendments	[87]
The regime as it applied to GEII	[94]
Process leading to the Registrar’s decision	[100]
Decision	[131]
Preliminary matters on the appeal	[133]
Appeal jurisdiction	[133]
Appeal grounds	[136]
New evidence	[141]
Assessment of appeal	[148]
The submissions	[148]
Analysis	[160]
Remedy	[170]
Costs	[171]

Introduction

[1]	General Electric International, Inc (GEII) is a company incorporated in the United States of America (the US) and registered and operating as a branch in New Zealand. It is a wholly-owned subsidiary of General Electric Company (GEC), a US company listed on the New York, London and Frankfurt stock exchanges, and the parent company of the GEC group global operations.

[2]	This appeal concerns whether the New Zealand Registrar of Companies (the Registrar) erred in declining to grant GEII’s application for an exemption to the requirement under the Companies Act 1993 to file audited financial statements of GEII. The issue arises because, in accordance with US regulatory requirements, GEC files with the US authorities audited consolidated financial statements for the GEC group. It is not required to and does not file audited financial statements for GEII.

[3]	The Registrar is not a party to the proceeding. It has elected to appear because this is the first appeal concerning the Registrar’s exemption power and to assist the Court.1

1	Pursuant to the High Court Rules 2016, r 20.17.

Context

[4]	New Zealand law allows for overseas companies to conduct business in this country in a range of ways. An overseas company may, for example, establish a subsidiary under the Companies Act. Or it may establish a branch, trade through an agency, or contract with New Zealand parties without establishing a presence here. In general terms, the legal requirements that apply to the overseas company depend on which of these ways it conducts business.2

[5]	The Companies Act defines an “overseas company” as “a body corporate that is incorporated outside New Zealand”.3 If an overseas company incorporates a subsidiary which is registered under Part 2 of the Act, the subsidiary is not an overseas company, but is a company generally subject to the Act’s provisions.

[6]	If an overseas company, as defined, is carrying on business in New Zealand it must register under Part 18 of the Companies Act.4 The registration application must provide the following information: the name of the overseas company; the full names and residential addresses of the directors of the overseas company; the full address of the place of business in New Zealand; evidence of the overseas incorporation; a copy of the company’s constitution in English; a notice of name approval; and the full name and address of one or more persons resident or incorporated in New Zealand who are authorised to accept service in New Zealand of documents on behalf of the overseas company.5

[7]	An overseas company must also: ensure its full name and its country of incorporation is clearly stated in its written communications and documents which it issues or signs;6 give notice to the Registrar if it alters its constitution;7 file each year with the Registrar its annual return, in a prescribed form, confirming that the

2	See PL Davies and S Worthington  Gower and Davies’ Principles of Modern Company Law  (9th ed, Sweet and Maxwell, London, 2012) at [6-2]-[6.8] for the similar position in the United Kingdom.
3	Companies Act 1993, s 2(1).
4	Section 334. In general terms, carrying on business involves an element of continuity, as opposed to an isolated transaction, and with a view to pecuniary gain: Morison’s Company and Securities Law (looseleaf ed, LexisNexis) at [71.4].
5	Section 336.
6	Section 338.
7	Section 339.

information on the overseas register for the overseas company is correct at the date of the return;8 and give public notice if it intends to cease carrying on business in New Zealand.9 An application can be made for the liquidation of an overseas company.10

[8]	Together these provisions are intended to ensure there is some basic information about an overseas company which has established a presence in this country. That includes ensuring that those dealing with an overseas company know that it is incorporated overseas and on whom they can serve proceedings brought against the company.

[9]	Additionally, “large” overseas companies, as defined, are subject to financial reporting requirements.11 In summary, these require audited financial statements for the overseas company (or potentially for the overseas company’s group) that comply with New Zealand’s generally accepted accounting principles (GAAP), audited financial statements for the overseas company’s New Zealand business, and delivery of these statements and the auditor’s report to the Registrar for registration. This case concerns what audited financial statements are or should be required when the overseas company carrying on business in New Zealand is a wholly owned subsidiary of another overseas company that is not registered under Part 18 of the Act.

Factual background

GEC structure and operations

[10]	GEC is a global digital industrial company. It has customers in approximately 180 countries and it employs 333,000 people worldwide. In 2015 GEC had over US$117 billion in total revenue and shareholder equity of over US$98 billion.

[11]	GEC operates in the finance sector. The financial services are operated through General Electric Capital Corporation (GECC) and its subsidiaries, or GECC’s successor GE Capital Global Holdings, LLC (GECGH) and its subsidiaries. In this judgment these companies will be referred to collectively as GE Capital.

8	Section 340.
9	Section 341.
10	Section 342.
11	Companies Act, s 196; and Financial Reporting Act 2013, s 45.

[12]	Its industrial operations encompass power, renewable energy, oil and gas, energy management, aviation, healthcare, transportation, appliances and lighting sectors. It provides a wide range of products and services. They include, for example, gas, steam and wind turbines, drilling and production systems, floating production platform equipment, grid management products, aircraft engines, diagnostic imaging systems, diesel engines, and home appliances.

[13]	The industrial products and services are operated through a number of subsidiaries. Those of its subsidiaries that operate in New Zealand are organised in different ways, as the following chart shows:

[14]	As the chart shows, one of GEC’s subsidiaries that operates in New Zealand is GEII. GEII provides worldwide support activities for services and products offered for sale by GEC. These activities include installation and maintenance as well as training of customer personnel. The New Zealand business of GEII is operated as a branch. It supports the lighting, power, transportation, oil and gas and corporate operations of GEC in New Zealand. In 2015 GEII had US$13 billion in total revenue and shareholder equity of US$4.6 billion. As recorded in 2015 GEII’s New Zealand statements, in 2015 its  GEII  New  Zealand  branch  total  revenue  was  over  NZ$16 million.

US regulatory requirements

[15]	GEC files audited group consolidated statements in the US. The group consolidated statements are split into (1) all GEC operations except GE Capital and
(2) GE Capital. GEII is not required to file stand-alone financial statements in the US. GEC’s group consolidated statements comply with US GAAP.12 They are audited by KPMG. These statements are published in the form of annual reports which are publicly available for download from its website.

[16]	GEC’s publicly available annual report provides a range of information in addition to the financial statements. For example, its 2015 annual report provides some general information about General Electric’s business, the competitive conditions and environment in which it operates and its employee numbers and relations. It contains a 72 page management discussion and analysis of the financial condition and results of General Electric’s operations. Included in this section is management’s statement that General Electric maintains “a strong focus on liquidity” with GEC excluding GE Capital holding US$10.4 billion and GE Capital holding US$60.1 billion respectively in cash and equivalent. GEC’s credit rating from Standard and Poor’s Rating Service was AA+ for long-term unsecured debt and A-1+ for short-term funding. Details of the regulation and supervision to which it is subject are provided, and there is information about its risk management amongst other things. This annual report is filed with the US Securities and Exchange Commission in accordance with the Securities Exchange Act 1934.

Previous compliance with New Zealand’s requirements

[17]	Between August 2009 and August 2017 GEC was registered on the New Zealand Registrar of Overseas Issuers because it operated a GEC employee share scheme in this country. As required by the Financial Markets Conduct Act 2013 and its predecessor legislation, it filed the GEC consolidated financial statements with the Registrar of Financial Service Providers on an annual basis.13

12 John Hagen, who filed an affidavit in support of the appeal, described the US GAAP standards as “very rigorous” and “more than satisfactory from an accounting standards viewpoint”. The Registrar does not suggest otherwise.
13	Financial Markets Conduct Act 2013, ss 6, 461 and 461H.

[18]	Up until the 2015 financial year GEII was not required to file audited financial statements as a stand-alone entity because it had the benefit of an exemption that applied to all US companies carrying on business in New Zealand. As is discussed in more detail below, under this exemption a US company was required only to file whatever its home jurisdiction required together with audited statements for its New Zealand branch. GEII’s issue with the New Zealand requirement arose following legislative amendments that came into force in 2014.

Legislative history

[19]	Over the past 150 years there has been an “evolutionary development” in the content of the accounting records that are required to be kept by companies and the financial statements required to be produced from those records.14

The position as at 1993

[20]	A major change introduced in 1993 was to separate the requirements for what constituted financial statements from the accounting records and auditing requirements. The former was dealt with under the Financial Reporting Act 1993 and applied to a range of business entities. The latter, for companies, was dealt with under the Companies Act.

[21]	The 1993 provisions obliged companies to prepare certain financial statements. It also required that copies of the financial statements of public issuers, overseas companies and large overseas-controlled companies be delivered to the Registrar together with copies of audited reports. Overseas companies carrying on business in New Zealand were required to produce reports for the company (for all its operations in all jurisdictions) and for their New Zealand branch operations as if the branch was a separate legal entity.

14	See Andrew Beck and others New Zealand Company Law and Practice (looseleaf ed, CCH New Zealand Ltd) at [86.052]-[86.053] for a short account of the history.

Review of 1993 requirements

[22]	The financial reporting requirements were part of a review in 2004. In November 2004 the Ministry of Economic Development, as it was then named, produced a Discussion Document: “Review of the Financial Reporting Act 1993, Part II”.15 A primary goal of the review was to ensure New Zealand’s financial reporting regime struck “an appropriate balance between the costs and benefits of financial reporting”.16 A further aim was to provide sufficient flexibility to allow for future developments.

[23]	The Discussion Document discussed the underlying principles for imposing financial reporting requirements as being:17

(a)	accountability (ensuring owners, shareholders or stakeholders of an entity or those acting on their behalf have access to information necessary to assess the entity’s performance and hold managers to account);

(b)	transparency (to enable creditors, potential investors and prospective or existing employees to assess the viability of the entity);

(c)	monitoring (for example, by academics or analysts);

(d)	enforcement (for example, the Securities Commission, as it then was, might refer to the financial reports in considering disclosures made by issuers to the market or private individuals may use them for a variety of legal actions); and

(e)	internal governance.

15 Ministry of Economic Development Review of the Financial Reporting Act 1993: Part II (Discussion Document, November 2004). This was a public document, prepared following consultation, and on which submissions were invited from all interested parties.
16	At [12].
17	At [136].

[24]	One of the matters discussed in the review was the obligations on overseas companies. There was a view that the additional obligations on them imposed under the existing regime led to onerous compliance costs without providing any significant benefit to users.

[25]	The rationale of these additional obligations was to protect New Zealand stakeholders, particularly as to information about the potential flow of capital in and out of New Zealand. For example, a lender considering whether to advance funds to the company would wish to know whether the assets of the company were beyond the reach of the New Zealand jurisdiction or whether title to New Zealand based assets might pass beyond the lender’s reach. As company-wide financial reports might obscure poor New Zealand operations and New Zealand branch financial reports might obscure poor performance of the entity as a whole, both reports are required.

[26]	The Discussion Document commented that this approach seemed sensible for a single entity operating in both New Zealand and its jurisdiction of incorporation. However, where there was a more complex corporate structure and the company did not produce financial reports at a company-wide level, substantial compliance costs were likely. This typically occurred where the company was part of a wider group of companies and the company was permitted or required by its domestic requirements to file consolidated financial reports for the group only.

[27]	In such cases the New Zealand requirements might impose costs that exceeded the profits from the New Zealand operation or which might deter some large international companies from establishing a small presence here. The Discussion Paper commented:18
Representations received by the Ministry indicated that overseas companies are typically happy to prepare financial reports for their New Zealand operations, and to file the financial reports prepared for the group as a whole (which is typically required by the domestic law of their home country). However, the requirement to prepare an additional set of financial reports for the direct parent of the New Zealand operations imposes significant compliance costs and can interfere with their business operations generally. A particular concern of some businesses is that they are exposing their financial reports to worldwide scrutiny (something their competitors do not have to do) for New Zealand requirements.

18	At [314].

[28]	The issue was compounded by the requirement for financial reports to comply with New Zealand accounting standards and practices. While the adoption of international standards would resolve this issue for some countries, others were not going to adopt those standards.19

[29]	The Discussion Document noted the New Zealand requirements were based on concerns about the potential inadequacies of foreign jurisdictions’ regulatory regimes for companies. Although some foreign regimes might cause issues for New Zealand stakeholders, blanket reporting requirements for everyone did not seem appropriate. The Ministry therefore proposed the status quo would be modified to grant exemptions from the full requirements to overseas companies incorporated in jurisdictions where adequate regulatory and enforcement mechanisms existed. The exemptions should be tailored to the jurisdiction and company to “strike an appropriate balance between the benefits of the additional financial information to New Zealand stakeholders and the costs associated with producing it”.20

[30]	The Ministry considered the exemption power could apply both to the legal requirements and the accounting requirements. It should be for “genuine cases where there was likely to be particular and unjustified detriment or costs”.21 It should not be overused and would not apply to a person simply because they did not wish to comply with the requirements.

[31]	Following this review, the Business Law  Reform  Bill  was  introduced  on 27 June 2006. The Explanatory Note explained the Bill was to amend a number of business law statutes. This included financial reporting changes intended to remove “unneeded or excessive preparation, audit, and filing requirements” and to establish “an exemption system that provided flexibility to exempt entities from unnecessary requirements in circumstances that could not be clearly defined in primary legislation”.22

19	The Discussion Paper noted the United States, Canada and Japan as particular examples.
20	At [318].
21	At [56].
22	Business Law Reform Bill 2006 (64-1) (explanatory note) at 2.

[32]	Similarly, the Commentary on the Bill as reported back from the Commerce Committee on 18 October 2006 stated that the Bill aimed “to increase the clarity, efficiency and effectiveness of the law regarding the operation of business” by “removing    unnecessary   compliance   costs”.23	The Commerce Committee recommended a new s 37A to the Financial Reporting Act.24 This concerned overseas companies that offered share purchase and option plans to their New Zealand employees. At that time such companies were required to prepare consolidated and non-consolidated financial statements. Countries, such as the United States, did not require non-consolidated financial statements. Submitters informed the Committee that the cost of preparing non-consolidated accounts was prohibitive.

[33]	The Commentary said the new s 37A would provide the Securities Commission with the power to exempt companies incorporated outside of New Zealand from auditing and filing requirements. The Securities Commission would need to be satisfied the exemption would not cause significant detriment to New Zealand subscribers of overseas companies offering share plans to their New Zealand employees. To complement this power, the Committee proposed that the Registrar have an exemption power for non-issuer overseas companies.

Section 35B exemption power introduced

[34]	This complementary power was inserted on 18 June 2007 as s 35B of the Financial Reporting Act 1993. Section 35B provided the Registrar with the power to grant exemptions to overseas companies from compliance with certain provisions of the Act. The exemption could be granted on any terms or conditions the Registrar thought fit.25 An exemption could not be granted unless the Registrar was satisfied:
(a)	compliance with the relevant provision would require … the overseas company to comply with requirements that are unduly onerous or burdensome; and

(b)	the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.

23	Business Law Reform Bill 2006 (64-2) (select committee report) at 1.
24	At 4.
25	Financial Reporting Act 1993, s 35B(3).

Section 35B in operation

[35]	The Registrar had, as described at the appeal hearing, a practice note. This referred to the November 2004 Discussion Document for the policy reasons behind the exemption power. This practice note provided the following discussion of the Registrar’s practice:26
6.2	Careful consideration will be required in respect of each application by an overseas company for an exemption. Each company that requests an exemption will have different reasons for doing so and accordingly it is not possible to set a general policy for when exemptions will be justified. To date we have considered that the words “unduly onerous or burdensome” indicate that there must be a particularly high degree of inconvenience present. For an exemption to be granted the circumstances faced by the company seeking the exemption must be serious; mere extra cost will not be sufficient.

6.3	In determining whether an exemption from filing or audit requirements is appropriate in any particular case, the Registrar will consider the purposes for which financial statements and an auditor’s report on those statements are required to be filed with the Registrar by overseas companies under the FRA, namely:

•	To ensure that effective comparisons can be made between the financial performance of overseas companies; and

•	To assist New Zealand investors and creditors in making informed business decisions in relation to these companies.

6.4	The principle basis on which the Registrar has found that it is “unduly onerous or burdensome” for an overseas company to comply with requirements under the FRA is where the overseas company is able to prepare and file consolidated financial statements for the group of which it forms part but is not required in its home jurisdiction to prepare stand alone financial statements. In such situations, provided the circumstances of the overseas company are such that consolidated accounts provide sufficient information to meet the needs of NZ users, the Registrar has granted exemptions from the requirement to prepare and file stand alone accounts for the overseas company.

6.5	Factors that have not been accepted as making it “unduly onerous or burdensome” for an overseas company to comply with the FRA include:

•	a limited presence in NZ, or a lack of NZ creditors;

•	a desire to maintain commercial confidentiality in the content of financial statements;

26 The practice note was described in the Record for the hearing as an undated internal document entitled “Financial Reporting Act 1993: Section 35B – Registrar’s exemptions from reporting and filing requirements”. No author was given.

•	the cost of preparing financial statements;

•	audit and filing requirements in New Zealand that are in excess of the requirements in a company’s home jurisdiction.

6.6	We have also formed the view that a particularly compelling case will be required to justify an exemption from the requirement to prepare financial statements for a company’s New Zealand branch as if that business were conducted by a company formed and registered in New Zealand.

6.7	Where possible we have sought to grant class exemptions as opposed to exemptions for individual companies, although in some cases specific individual exemptions have been appropriate. Where it appears to the Registrar that requirements under the FRA are unduly onerous  or  burdensome  for  a  class  of  overseas   companies   (e.g. companies that are incorporated in a particular jurisdiction), he or she may grant an exemption for that class of companies.

[36]	As at 14 June 2012 the Registrar had granted ten exemptions under s 35B. Seven of these were for individual companies and three were class exemptions. Most of these, including a class exemption that applied to all US incorporated companies, allowed the directors of overseas companies to file group financial statements instead of entity financial statements for the exempted companies. The US class exemption was due to expire on 31 July 2012. Before that occurred there was a further review of the financial reporting requirements.

Further review

[37]	This review commenced in 2011. It led to a major overhaul of the financial reporting requirements in 2013 that took effect in 2014. A Regulatory Impact Statement, dated 28 June 2011, which was prepared as part of the review stated:27
The main aim of the review is to find an appropriate balance between the costs of reporting and the benefits that users obtain from financial reports to assist users to make economic decisions, or to promote accountability and transparency or both.

…

The reason for imposing statutory financial reporting obligations is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them. Decisions about who should have to report and, if so, what they should report predominantly involve trade-offs

27	Ministry of Economic Development Regulatory Impact Statement: The Review of the Financial Reporting Framework (28 June 2011) at 1-5.

between the benefits of transparency and accountability to users and the compliance costs associated with financial reporting. The overall objective is to obtain an appropriate balance between the benefits and costs.

[38]	The Regulatory Impact Statement considered there to be three indicators of the need for accessible financial reporting for external users. These were: (1) public accountability where an entity is effectively publicly owned or publicly funded;
(2) economic significance; and (3) where there is a significant degree of separation between managers and the owners of the entity.28 Economic significance was a relevant indicator because the failure of a large entity could have significant economic and social impacts. The entity should therefore be required to provide assured general purpose financial statements.29

[39]	The Regulatory Impact Statement provided an analysis of the requirements for various categories of entities. These categories included:30

(a)	large companies that were not overseas-incorporated or owned;

(b)	large companies that have 25 per cent or more overseas ownership and large overseas companies that carry on business in New Zealand;

(c)	medium and small companies that are widely held; and

(d)	medium and small companies that are closely held.

[40]	The report noted that the non-overseas large companies were required to prepare accounts (audited unless the owners unanimously decided otherwise) for the group as a whole and the companies within the group. The proposal was to remove the requirement for the parent entity of the group.31

28	At 5.
29 However if there were outweighing commercial confidentiality or privacy related costs such that publication was not justified, the entity should be required to prepare assured general purpose financial statements and distribute them to the entity’s owners or members.
30	Ministry of Economic Development Regulatory Impact Statement, above n 27, at 9-22.
31	At 10.

[41]	For overseas large companies the proposal was to retain the status quo.32 This required the same reports as for non-overseas large companies (that is, financial statements for the group as a whole and for companies within the group) with the additional requirement to file the audited reports with the Registrar. It was not proposed to remove this filing requirement because it provided protection for creditors. This was important because of the difficulties of pursuing directors and shareholders in other jurisdictions in the event that the company failed.

[42]	For widely held medium and small companies the proposal was to have a default of preparation, assurance and distribution to owners of accounts but allowing shareholders to opt out of this. For closely held medium and small companies the proposal was to have a default of no requirement of general purpose financial reporting but with the ability to opt in to preparation and assurance. For the closely held companies there would be compliance costs savings. All medium and small companies were also be subject to new obligations under the Tax Administration Act which would provide financial discipline and promote confidence in the healthy functioning of business.

[43]	The proposals from the Regulatory Impact Statement led to recommendations in a 2011 Report from the Minister of Commerce to the Cabinet Economic Growth and Infrastructure Committee.33 These recommendations were consistent with what had been proposed. The proposals were expected to substantially reduce compliance costs for medium and small New Zealand and overseas companies and to provide a small reduction in compliance costs for large New Zealand companies.

[44]	Consistent with the proposals, in the main no change was recommended for large overseas companies. It was noted that as, a general rule, large overseas companies were required to: prepare and filed audited consolidated financial statements where the legal entity was part of a group; audited financial statements for the legal entity; and audited financial statements for the New Zealand business of the

32	At 11.
33 Office of the Minister of Commerce Report on Review of financial Reporting  Framework:  Primary Issues by Minister of Commerce to Cabinet Economic Growth and Infrastructure Committee (undated, 2011) (P/008/PR018/006/001).

company as if it was a stand-alone entity.34 These requirements for large overseas companies were for creditor protection reasons and because of the difficulties of pursuing directors and shareholders in other jurisdictions in the event the company failed.

[45]	The Report referred to the exemption:35

The Registrar of Companies can provide exemptions for the legal entity financial statements where the home country only requires consolidated financial statements be prepared, if the cost of producing the legal entity financial statements for New Zealand filing purposes would be onerous or burdensome. Class and individual exemptions have been made for United States companies.

[46]	There was, however, one change proposed:36

The only other change I am recommending is to introduce a new approach for the legal entity financial statements. Those statements would need to be prepared and filed, but only if there is a preparation requirement in the home jurisdiction. This would mean the Registrar’s exemption power could be consequentially repealed.

[47]	This review led to the Financial Reporting Bill 2012. This Bill was introduced on 31 July 2012. Consistent with the 2011 Regulatory Impact Statement, the Explanatory Note identified the three indicators that financial reporting was in the public interest as being public accountability, economic significance, and separation.37 It said the Bill aimed to: reduce compliance costs by removing or reducing reporting obligations where they were unnecessary or excessive, (particularly to remove requirements for non-large non-issuer companies); empower the External Reporting Board to issue financial reporting standards for a range of entities; and to make other changes to current financial reporting requirements where they were inconsistent with public accountability, economic significance and separation.38

[48]	The Explanatory Note explained the requirement to prepare general-purpose financial statements would now apply to overseas companies only if they were

34	At [66].
35	At [67].
36	At [69].
37	Financial Reporting Bill 2012 (42-1) (explanatory note) at 1-2.
38	At 2.

“large”.39 Financial statements prepared in accordance with GAAP were to be filed within three months after a balance date (rather than five months as was the case under the 1993 Act). The test for recognising overseas financial reporting requirements was to be relaxed so that the Registrar needed only to be satisfied the requirements were sufficiently equivalent (compared with substantially the same under the existing requirements).

[49]	On the topic of group statements, the Explanatory Note said:40

[F]inancial statements for a parent company do not need to be prepared if group financial statements are prepared. Under the 1993 Act, if a company has subsidiaries, financial statements for both the parent company and the group must be prepared[.]

[50]	It is unclear if this is the same change as had been proposed in the 2011 Report from the Minister.41 That was a change to the requirement for the legal entity operating in New Zealand not to have to file financial statements if these were not required in the home jurisdiction. Consolidated group financial statements were still required. This approach was consistent with what had been the Registrar’s approach to exemptions under s 35B. That is presumably why it was envisaged that the Registrar’s exemption power could be repealed.

[51]	However the Explanatory Note’s description of the change said it was to not require financial statements for “a parent company”. This terminology might be referring to the parent of the company that is operating in New Zealand, not the legal entity that is actually operating in New Zealand. In any event, this Bill introduced what became ss 200 to 203 in the Companies Act, amongst other provisions. The Bill as introduced did not contain an exemption power equivalent to s 35B of the Financial Reporting Act 1993.

[52]	On 22 May 2013 the Financial Reporting Bill was reported back from the Commerce Committee. This included an exemption power similar in its terms to

39 Also, consistent with the 2011 Regulatory Impact Statement, a similar change was to be made for other companies – the requirements applied only if they were large, and to other companies subject to opting out or opting in mechanisms.
40	At 16.
41	At [43] above.

s 35B of the Financial Reporting Act 1993.  This was the precursor to what became  s 207L in the Companies Act. The Explanatory Note and Commerce Committee Commentary do not explain why the exemption power was initially omitted and nor why it was subsequently added.

[53]	The officials’ report to the Commerce Select Committee dated 15 April 2013 referred to a KPMG submission concerning the requirement in the Bill, as introduced, to prepare financial statements within three months and to lodge them within a further 20 working days.42 KPMG submitted the Registrar should have the discretion to grant an extension of time to the reporting timeframes upon application by an overseas company. In response to that submission, officials commented:43
Agree that there should be a power for the Registrar to grant exemptions to overseas companies that are not FMC Reporting Entities similar to the current powers under s 35B of the FR Act 1993. It is needed to deal with circumstances where NZ’s reporting requirements are more demanding than the requirements in the company’s home jurisdiction.

[54]	Similarly, GE Capital submitted that reducing the preparation deadline from five to three months would cause practical difficulties and provide little benefit to interested parties. Officials commented in response that “reinstating the exemption powers … would address the issue”.44

[55]	In the officials’ report to the Commerce Select Committee dated 15 April 2013 the only commentary on the reintroduction of s 35B concerned this timeframe issue. Specifically, this report said:45
Two uncontroversial changes could be made to the Bill to mitigate any risks associated with reducing the deadlines. Accordingly, we recommend:

a. The reinstatement of the rules appearing in two exemption-related provisions in the FR Act 1993, but have not been included in the Bill. Those provisions are:

…

42	Ministry of Business, Innovation and Employment Financial Reporting Bill Officials’ Report for Commerce Select Committee Part B: Clause by Clause Analysis (15 April 2013) at 29.
43	Above.
44	Above.
45	Ministry of Business, Innovation and Employment (Financial Reporting Bill Officials’ Report to the Commerce Select Committee (15 April 2013) at 30.

ii) Section 35B of the FR Act  1993,  which  empowers  the  Registrar of Companies to grant exemptions to overseas companies that are not issuers. Reinstating this power will provide the Registrar with the power to make class and individual exemptions, subject to any conditions as the Registrar may consider appropriate, where New Zealand’s reporting requirements are more demanding than the requirements in the company’s home jurisdiction…

[56]	In addition to reinstating the s 35B exemption power, the amendments to the Bill also extended the time for registration of financial statements to five months after the balance date of the overseas company. A further change was to limit the requirement for audited branch accounts of the overseas company to the situation where the New Zealand business was “large”.

[57]	It is unclear whether officials had already formed the view that the s 35B exemption power was needed (perhaps prompted by needing to consider the class exemption applications that had been made – discussed under the next heading) or whether that realisation arose because of the submissions about potential problems with timeframes. It is clear that the exemption was not intended to be confined to problems with the timeframes. As recommended in the officials’ report, it was in the same terms as had previously been the case, it enabled the Registrar to make class and individual exemptions, and it was available where New Zealand’s reporting requirements were more demanding than the requirements in the company’s home jurisdiction.

[58]	Further, the theme of all the changes to the financial reporting requirements brought in through the Finance Reporting Bill were about reducing compliance costs that were not justified by the benefits they brought to users of the reports. While large overseas companies needed to be subject to financial reporting requirements that medium and small companies were not (justified by their economic significance and the public impact if they collapsed), the Bill sought to relax some of the reporting requirements imposed on them and the exemption power remained intact.

Renewal of s 35B class exemptions

[59]	In June 2012, shortly before the Financial Reporting Bill 2012’s introduction, the Registrar received exemption applications from overseas companies incorporated

in Australia, Singapore and the United Kingdom that were subsidiaries of overseas parent companies. They sought to file consolidated group accounts for the group of which the entity was part. This was because they were not required to file entity financial statements in their home jurisdiction. Internal advice to the Registrar recommended granting the exemptions as a class to these countries as well as to the United States. This was seen to be consistent with the Financial Reporting Bill due to be introduced.

[60]	In accordance with that advice, by Gazette Notice dated 15 November 2012 an exemption was granted to overseas companies in Australia, the United Kingdom, Singapore and the US.46 The Notice applied from 16 November 2012 to 15 November 2017. It provided:47

The effect of this notice is to exempt directors of the exempt overseas companies from certain financial reporting obligations under the Act. In particular, the directors of those companies will not be required to prepare and file financial statements for the companies where there is no equivalent requirement under law of the jurisdiction in which they are incorporated.

The directors of those companies will instead be able to provide the financial statements or group financial statements that are required of them to meet financial reporting obligations under the laws of the country in which they are incorporated.

[61]	The Notice further explained:48

The main difference in the financial statements provided by exempt overseas companies relying on the exemptions are:

•	The directors of those companies will prepare and register audited financial statements for the New Zealand business and the financial statements or consolidated financial statements that they are required to prepare in the country in which they are incorporated;

…

•	the financial statements and/or consolidated financial statements will comply with generally accepted accounting principles applying in the country in which the exempt company is incorporated (rather than generally accepted accounting practice in New Zealand); and

46	“The Financial Reporting Act (Overseas Companies) Exemption Notice 2012” 136 (15 November 2012) New Zealand Gazette 3974-3976.
47	Above at 3976.
48	Above.

•	the financial statements and/or consolidated financial statements will be audited in accordance with, and the auditor’s report will provide the information required under, the laws of the country in which the exempt company is incorporated instead of the Act.

[62]	The Notice set out the Registrar’s reasons as follows:49

The Registrar considers it appropriate to grant the exemptions because of the following reasons:

•	The Registrar considers that unless the exemptions are granted, it would be unduly onerous or burdensome for the directors of exempt overseas companies to prepare financial statements that comply with section 10 of the Act;

•	the exemptions address the particular difficulties experienced by exempt overseas companies that carry on business in New Zealand. The Registrar is satisfied that the exemptions are not broader than what is reasonably necessary to address these difficulties and still require that group financial statements be filed in New Zealand;

•	an exempt overseas company relying on the exemptions will still be required to file audited financial statements for their New Zealand business prepared in accordance with New Zealand generally accepted accounting practice as if that business was a company formed and registered in New Zealand;

•	the Registrar is satisfied that the financial statements or consolidated financial statements required to be prepared under the laws of the specified jurisdictions provide sufficient information to avoid any detriment to members of the public who have dealings with the exempt overseas companies; and

•	the Registrar has had regard to the financial reporting requirements that must be complied with by exempt overseas companies who rely on the exemptions. The exemptions are limited to the directors of overseas companies incorporated in the specified jurisdictions who must comply with the financial reporting and audit requirements under the laws applying in those jurisdictions.

Reporting regime from 2014

Applies to large overseas companies

[63]	For present purposes, the relevant changes brought in through the Financial Reporting Bill were made to the Companies Act 1993 with effect from 1 April 2014.50

49	Above.
50 As noted in Beck and Borrowdale New Zealand Company Law and Practice, above n 14, at [86.051] and [86.152], one of the aims of the amendments was to assist with the interface between the Financial Reporting Act and other acts. The new Financial Reporting Act 2013 established the

These amendments set out the financial reporting requirements for every “large company” and “large overseas company”.51 The requirements applied to other companies on an opting in or out basis: that is, they applied to those with at least ten shareholders unless the shareholders opted out of them; and they applied to other companies with less than ten shareholders only if they opted in (by shareholders with at least five per cent of the voting shares requiring the company to comply).52

[64]	A large overseas company meant a company incorporated outside New Zealand that carried on business in New Zealand and which met the definition of “large”.53 For overseas companies (and their subsidiaries) this meant total assets exceeding $20 million, and/or revenue exceeding $10 million in each of the two preceding years.54 For non-overseas companies the threshold was higher. “Large” was defined as total assets exceeding $60 million, and/or revenue exceeding
$30 million, for the company and its subsidiaries in the each of the two preceding years.55

Does the overseas company have subsidiaries

[65]	The applicable provisions for companies and overseas companies depended on whether the company had one or more subsidiaries.56 Prior to 30 May 2017, s 200 provided as follows:

200	Application of preparation provisions

(1)	Sections 201 and 202 apply to—

(a)	every large company; and

(b)	every company that is a public entity; and

(c)	every large overseas company; and

framework that governed the preparation of financial statements. For example, by defining “financial statements” and “group financial statements” and what constitutes “GAAP”. The financial reporting, audit and annual report requirements of entities were placed within the legislation that governed their organisation and operations, for example: the Companies Act, the Financial Markets Conduct Act 2013 and the Partnership Act 2008.
51	Companies Act 1993, ss 200(1)(a) and (c).
52	Sections 196, 199 and 207H-207K.
53	Section 198.
54	Financial Reporting Act 2013, s 45(2)
55	Companies Act, s 198; Financial Reporting Act 2013, s 45(1).
56	Companies Act, s 200.

(d)	every other company with 10 or more shareholders unless the company has opted out of compliance with the provision in accordance with section 207I; and

(e)	every other company with fewer than 10 shareholders if the company has opted into compliance with the provision in accordance with section 207K.

(2)	However, section 201 does not apply to a company or an overseas company in relation to a balance date if the company or overseas company has, on that date, 1 or more subsidiaries (see section 202).

[66]	In short, if a large overseas company (that is a large company incorporated overseas that carried on business in New Zealand) did not have subsidiaries then s 201 applied. If the large overseas company did have subsidiaries then s 202 applied.

[67]	From 30 May 2017 the section was amended to add the following:

(3)	Further, section 201 does not apply to a company or an overseas company (A) in relation to a balance date if,—

(a)	on the balance date, A has no subsidiaries but is a subsidiary of a body corporate (B) that is—

(i)	incorporated in New Zealand; or

(ii)	registered or deemed to be registered under Part 18; and

(b)	group financial statements in relation to a group comprising B, A, and all other subsidiaries of B that comply with generally accepted accounting practice are completed in relation to the balance date under this Act or any other enactment; and

(c)	A has not opted into compliance with section 201 as referred to in subsection (1)(e).

[68]	Similar amendments were made to the corresponding provisions as set out below. I will discuss the intention behind these amendments later.

[69]	If s 201 applied, the large overseas company financial reporting obligations were as follows:

201	Financial statements must be prepared

Every company or overseas company to which this section applies (A) must ensure that, within 5 months after the balance date of A, financial statements that comply with generally accepted accounting practice are—

(a)	completed in relation to A and that balance date; and

(b)	dated and signed on behalf of A by 2 directors of A, or, if A has only 1 director, by that director.

[70]	If s 202 applied, prior to 30 May 2017 the large overseas reporting obligations were as follows:

202	Group financial statements must be prepared

(1)	Every company or overseas company to which this section applies (A) that has, on the balance date of A, 1 or more subsidiaries must ensure that, within 5 months after that balance date, group financial statements that comply with generally accepted accounting practice are—

(a)	completed in relation to that group and that balance date; and

(b)	dated and signed on behalf of A by 2 directors of A, or, if A has only 1 director, by that director.

(2)	Group financial statements are not required under subsection (1) in relation to a balance date if,—

(a)	on the balance date, A is a subsidiary of a body corporate that is incorporated in New Zealand (B); and

(b)	group financial statements in relation to a group comprising B, A, and all other subsidiaries of B that comply with generally accepted accounting practice are completed in relation to that balance date under this Act or any other enactment.

[71]	“Group” was defined as meaning a company or an overseas company and its subsidiaries.57

[72]	This meant a large overseas company carrying on business in New Zealand, who had subsidiaries, was to file group financial statements (rather than “parent” financial statements as a stand-alone entity). The group statements were to be of the overseas company and its subsidiaries.

57	Companies Act, s 198.

[73]	However if that large overseas company was a subsidiary of a company incorporated in New Zealand, it did not have to file group financial statements, providing its New Zealand parent filed group financial statements. This exception was extended when, from 30 May 2017, s 202(2) was replaced with the following:

(2)	Group financial statements are not required under subsection (1) in relation to a balance date if,—

(a)	on the balance date, A is a subsidiary of a body corporate (B) that is—

(i)	incorporated in New Zealand; or

(ii)	registered or deemed to be registered under Part 18; and

(b)	group financial statements in relation to a group comprising B, A, and all other subsidiaries of B that comply with generally accepted accounting practice are completed in relation to that balance date under this Act or any other enactment; and

(c)	A has not opted into compliance with this section as referred to in section 200(1)(e).

[74]	In other words, from 30 May 2017, a large overseas company, which had subsidiaries, did not have to file group financial reports under s 202(1) if it was itself a subsidiary of another company (the parent company), that parent company was registered or deemed to be registered under Part 18, and the parent company had filed group financial statements. It can be seen that the amendments to s 200 made with effect from 30 May 2017 mirrored this extension of the exception.

[75]	Section 203 provided:58

203	Recognition of financial reporting requirements of overseas countries

(1)	Subsection (2) applies if the Registrar notifies a large overseas company (A) that the Registrar is satisfied that—

(a)	the financial statements of A comply with the requirements of the law in force in the country where A is incorporated or constituted; and

58	Tidying up amendments were made to s 203 with effect from 30 May 2017. These are of no significance for present purposes.

(b)	those requirements are—

(i)	substantially the same as those of this Act; or

(ii)	sufficiently equivalent, in relation to the quality of financial reporting they achieve, to the requirements of this Act.

(2)	The financial statements must be treated as complying with generally accepted accounting practice.

(3)	Subsection (4) applies if the Registrar notifies a large overseas company (A) that the Registrar is satisfied that—

(a)	the group financial statements of the group that comprises A and its subsidiaries comply with the law in force in the country where A is incorporated or constituted; and

(b)	those requirements are—

(i)	substantially the same as those of this Act; or

(ii)	sufficiently equivalent, in relation to the quality of financial reporting they achieve, to the requirements of this Act.

(4)	The group financial statements must be treated as complying with generally accepted accounting practice.

New Zealand branch accounts

[76]	Section 204 required an overseas company to include financial statements for its New Zealand business if that business was “large”. In this context “large” meant total assets of the New Zealand business exceeding $20 million, and/or total revenue of the New Zealand business exceeding $10 million, in each of the two preceding years.59 Section 204 provided:
204	Financial statements for overseas company must include financial statements for large New Zealand business

(1)	If an overseas company is required to prepare financial statements under s 201 and its New Zealand business is large, the financial statements that are prepared must include, in addition to the financial statements of the overseas company, financial statements for its New Zealand business prepared as if that business were conducted by a company formed and registered in New Zealand.

(2)	If an overseas company is required to prepare group financial statements under section 202 and the group's New Zealand business

59	Companies Act 1993, s 204(3).

is large, the group financial statements that are prepared must include, in addition to the financial statements of the group, financial statements for the group's New Zealand business prepared as if the members of the group were companies formed and registered in New Zealand.

…

(5) If an overseas company has been granted an exemption under section 207L from a requirement to prepare financial statements under section 201 or group financial statements under section 202, subsection (1) or
(2) (as the case may be) still applies (except that the financial statements for the New Zealand business are not in addition to the financial statements of the overseas company or its group).

[77]	In other words, financial statements for the New Zealand business would always be required even if the requirement to prepare group financial statements was exempted, provided the New Zealand business was large.

Balance date

[78]	Section 205 concerned aligning the balance date of each subsidiary of an overseas company that is required to comply to with s 202.

Auditing

[79]	Section 207 provided that the required financial statements are to audited:60

207	Financial statements must be audited

(1) Every company or overseas company to which this section applies (A) must ensure that the financial statements or group financial statements prepared in respect of A under section 201, 202, or 204 (if any) are audited by a qualified auditor.

…

[80]	Prior to 30 May 2017 this requirement applied to a large overseas company (incorporated overseas and carrying on business in New Zealand).61 From 30 May 2017 s 206(3) provided that s 207 did not apply to a large overseas company if: financial statements or group financial statements for it are prepared under s 201 or   s 202; it is not required to file financial statements for its New Zealand business under

60	This is subject to s 206(3) which is not material for present purposes.
61	Section 206(1)(c).

s 204; and in the country in which it which it is incorporated its financial statements (those that are equivalent or substantially equivalent to those required under s 201 or
202) are required to be prepared but are not required to be audited.

[81]	Section 207A required that the audit be carried out in accordance with applicable auditing and assurance standards. For a large overseas company, those standards could be those in force in the country in which it is incorporated. That was permitted if the Registrar notified the company that he or she was satisfied those standards were substantially the same or substantially equivalent to the applicable auditing and assurance standards.

Registering statements

[82]	Section 207E provided for the registration of financial statements completed under s 201, 202 or 204 and the auditor’s report (if any).

[83]	Section 207D determined who was subject to this requirement. Large overseas companies (that is, companies incorporated overseas who carry on business in New Zealand and who meet the definition of “large”) were subject to the requirement unless s 207D(2) applied. Prior to 30 May 2017 this meant that it did not apply to a large overseas company if it was a subsidiary of a company incorporated in New Zealand who filed group financial statements. Consistent with the amendments made to ss 200 and 202, with effect from 30 May 2017 it also did not apply to a large overseas company if it was a subsidiary of a company that was registered or deemed to be registered under Part 18.

Exemption

[84]	The exemption power was as follows:

207L	Registrar may grant exemptions to overseas companies

(1)	The Registrar may, by notice in the Gazette, exempt any large overseas company, or any class of large overseas companies, from compliance with any provision of sections 201, 202, 207, and 207E.

(2)	The Registrar must not grant an exemption under this section unless he or she is satisfied that—

(a)	compliance with the relevant provision would require the overseas company to comply with requirements that are unduly onerous or burdensome; and

(b)	financial reporting requirements must be complied with in relation to the overseas company under the law in force in the country where the overseas company is incorporated or constituted and that those requirements are satisfactory; and

(c)	the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.

(3)	The exemption may be granted on any terms and conditions that the Registrar thinks fit.

(4)	The Registrar may vary or revoke an exemption in the same way as an exemption may be granted under this section.

[85]	This power is similar to s 35B with the addition of s 207L(2)(b). It was not amended when the 30 May 2017 amendments were made.

[86]	The Registrar was required to notify his or her reasons for granting an exemption in the Gazette.62 If the exemption involved ss 201 or 202 the Registrar had to consult with the Commissioner of Inland Revenue.63 The Registrar could consult with any other person or organisation that the Registrar thought fit.64

Explanation for the May 2017 amendments

[87]	The May 2017 amendments arose from the Regulatory Systems (Commercial Matters) Amendment Bill. This Bill contained amendments to legislation administered by MBIE and identified by it as part of its regulatory programme. As set out in the Initial Briefing to the Select Committee dated 1 December 2016, the amendments in the Bill were intended to maintain the effectiveness and efficiency of the legislation by: clarifying and updating provisions to give effect to the purpose of the legislation; addressing gaps, errors or inconsistencies; keeping the regulatory system up to date and relevant; and removing unnecessary compliance costs in doing business.65

62	Section 207M.
63	Section 207N(b).
64	Section 207N. These consultation provisions were also part of the s 35B exemption provisions.
65	Ministry of Business, Innovation and Employment Regulatory Systems (Commercial Matters) Amendment Bill: Initial Briefing to Commerce Select Committee (1 December 2016) at [9].

[88]	The Initial Briefing described the amendment to s 200 and the reason for it as follows:
Description	Reason for change	
Amends section 200. Section 200 requires certain companies to
prepare financial statements.
The amendment removes a
requirement for a large company with no subsidiaries to prepare entity financial statements if it is a
subsidiary of a body corporate that is registered in New Zealand that is
required to prepare group financial statements.	Reduces compliance costs.
Makes reporting requirements the same regardless of whether the large company does or does not have at
least one subsidiary.	

[89]	Similarly, for s 202:

Description	Reason for change	
Amends section 202. Section 202 provides that group financial
statements are not required if the company is a subsidiary of a New Zealand company and financial
statements for the group of that New Zealand company are prepared.
The amendment extends the provision to cover situations in
which the company is a subsidiary of an overseas company that is a
reporting entity.	Reduces compliance costs.
Consistent with the idea that financial reporting requirements should reflect whether the group of companies as a whole is large, not whether or not there are also individual companies within the group structure that are
large.	

[90]	For s 207D, the Initial Briefing said:

Description	Reason for change	
Amends section 207D. Section 207D provides for the registration of financial statements. Currently, financial statements are not required to be registered if the company is a subsidiary of a New Zealand
company and financial statements for the group of that New Zealand company are registered or lodged under another Act.
The amendment extends the provision to a company that is a subsidiary of an overseas company.	Reduces compliance costs.
Consistent with the idea that financial reporting requirements should reflect whether the group of companies as a whole is large, not whether or not there are also individual companies within the group structure that are
large.	

[91]	The Explanatory Note to the Bill described, in similar terms as was discussed in the Initial Briefing, how the proposed amendments arose.66 In relation to the Companies Act amendments it said:67

The purpose of the Companies Act 1993 changes is to ensure that the requirements of that Act can be more efficiently and effectively achieved with minimum necessary compliance costs. The changes will remove unnecessary compliance costs in relation to –

•	the provision of information from directors:

•	the preparation of financial statements for companies that are subsidiaries of a body corporate that is required to prepare group financial statements:

•	notification requirements for listed companies.

…

[92]	More specifically the Explanatory Note said:68

Clause 18 amends section 200, which places requirements on certain companies to prepare financial statements. The amendment clarifies how those requirements apply to a company that is a subsidiary of another company. A company is not required to prepare financial statements if it is a subsidiary of a New Zealand or an overseas company and financial statements for that group are prepared.

Clause 19 amends section 202, which currently provides that group financial statements are not required if the company is a subsidiary of a New Zealand company and financial statements for the group of that New Zealand company are prepared. The amendment extends the provision to cover situations in which the company is a subsidiary of an overseas company.

…

Clause 22 amends section 207D, which provides for the registration of financial statements. The section currently provides that financial statements are not required to be registered if the company is a subsidiary of a New Zealand company and financial statements for the group of that New Zealand company are registered (or lodged under another Act). The amendment extends the provision to cover situations in which the company is a subsidiary of an overseas company.

[93]	In short, a gap in the provisions was identified. An overseas company that was part of a group could rely on the group’s financial statements where those statements

66	Regulatory Systems (Commercial Matters) Amendment Bill 2016 (183-1) (explanatory note) at 1.
67	At 2.
68	At 7-8.

were already required to be filed by the Act. The amendments were seen as reducing unnecessary compliance costs for the overseas company.

The regime as it applied to GEII

[94]	The effect of these provisions as they applied to GEII was:

(a)	prior to 30 May 2017, if GEII did not have subsidiaries, it was required to file financial statements for itself in accordance with GAAP (ss 200 and 201);

(b)	prior to 30 May 2017, if GEII had subsidiaries it was required to file its group financial statements (for itself and its subsidiaries) unless GEII was a subsidiary of a New Zealand company (ss 200 and 202);

(c)	after 30 May 2017, whether or not GEII had subsidiaries, if it was a subsidiary of another company (GEC) registered or deemed to be registered under Part 18 and GEC had filed group financial statements in accordance with GAAP it was not required to file financial statements for itself or its group (itself and its subsidiaries);

(d)	after 30 May 2017, if GEC was not registered or deemed to be registered under Part 18, the requirements on GEII were the same as before 30 May 2017.

[95]	In other words, for the financial years ending 2015 and 2016, GEII was required to file either:

(a)	the financial statements for GEII on a stand-alone basis (if GEII did not have subsidiaries); or

(b)	the GEII group financial statements (if GEII did have subsidiaries).

[96]	Either way:

(a)	they could be prepared in accordance with US GAAP if the Registrar was satisfied about them and issued a notice to that effect (s 203);

(b)	the financial statements required needed to be audited (s 207) in accordance with the applicable standards (or standards the Registrar was satisfied were substantially equivalent, s 207A); and

(c)	audited statements for the New Zealand branch were required (s 204).

[97]	After May 2017, GEII would not be required to file financial statements for itself or for its group if GEC was registered or deemed to be registered under Part 18 and it had filed the audited group financial statements. But if GEC was not registered or deemed to be registered under Part 18, the position for GEII remained the same.

[98]	In all cases, whatever financial statements were required for the overseas company, those statements and any requisite auditor’s report, need to be registered.

[99]	If GEII wished to file statements that did not meet these requirements, it needed to seek an exemption under s 207L.

Process leading to the Registrar’s decision

[100]	There were no issues with GEII’s accounts in the 2013 and 2014 financial years when the amendments to the financial reporting requirements had not been enacted (2013 financial year) or were not in force (2014 financial year). At this time GEC had a share employee plan for New Zealand employees of its New Zealand operations. This meant the consolidated GEC accounts had to be filed with the Registrar pursuant to the requirements of the Financial Reporting Act 1993 and subsequently with the Registrar of Financial Service Providers under the Financial Markets Conduct Act 2013.69 For its part, GEII relied on the class exemption for US companies and filed with the Companies office:

(a)	the audited statements for the New Zealand branch;

69	Financial Reporting Act 1993, ss 2 and 10; Financial Markets Conduct Act 2013, ss 6 and 461H.

(b)	GEII financial statements prepared as part of the audited GEC consolidated accounts, comprising statements of financial position, operations and changes in shareowner’s equity for GEII;

(c)	and a letter from KPMG (GEC’s auditors) stating that the information in the GEII statements had been subjected to the auditing procedures applied in the audit of GEC’s consolidated accounts and in KPMG’s opinion they were fairly stated in all material respects in relation to GEC’s statements.

[101]	On  19  July  2016  GEII  filed  financial  statements  for  the   year  ended   31 December 2015 with the Companies Office. By this time, the new financial reporting regime was in force. The statements filed by GEII comprised the financial statements for GEII prepared as part of the audited GEC consolidated accounts and GEII’s New Zealand branch statements, prepared and audited as if it were incorporated in New Zealand (as per s 204 of the Companies Act). Additionally, as GEII noted in its correspondence with MBIE (Mr Rendle), the GEC financial statements were registered with “the New Zealand Companies Office” pursuant to the Financial Markets Conduct Act 2013.

[102]	The GEII financial statements comprised statements of financial position, operations and changes in shareholder’s equity for GEII. These were accompanied by a letter from KPMG, the auditors of GEC, stating that the information in the statements were subjected to auditing procedures applied in the audit of the GEC statements and that, in KPMG’s opinion, the information in the statements was “fairly stated, in all material respects, in relation to the consolidated financial statements as a whole”.

[103]	On 15 September 2016 the Registrar advised that the financial documents filed for GEII could not be accepted. This was because: (1) the “overseas company financial statements” had not been audited (as required by s 207 and 207A of the Companies Act); (2) a cash flow statement was required; (3) a statement of accounting policies was required by NZ IAS 1; and (4) notes to financial statements were required by NZ IAS 1.70

70	NZ IAS stands for New Zealand International Accounting Standards.

[104]	On 21 September 2016 Buddle Findlay, on behalf of GEII, sought clarification of this rejection. As to (1) it sought clarification about whether the issue was with the qualifications of the auditor or the US auditing standards. As to (2) to (4), it noted the financial statements were prepared in accordance the US requirements. The letter referred to s 203 and said that GEII was not required to prepare a statement of cash flows, a statement of accounting principles or notes to the financial statements under US financial reporting requirements. The letter also sought confirmation that the branch financial statements were in order.

[105]	On 22 September 2016 John McPherson, for the Companies Office, replied. He said the financial statements were “non compliant” and did not meet  the test in   s 203. This was because the financial statements “have not actually been audited” in accordance with New Zealand auditing standards or their US equivalent. Rather, the audit report explained that the company’s shareholder’s accounts71 have been audited and the company’s accounts72 have been subjected to a much more limited review. This did not comply with s 207A. Further, the financial statements did not comply with GAAP because there was no statement of cash flow, nor a statement of accounting policies and notes.

[106]	On 10 October 2016 Buddle Findlay emailed the Companies Office to request a meeting to discuss the financial reporting provisions, on behalf of “our client – a multi-billion dollar international group that has a number of different operations in New Zealand”. Mr Rendle (MBIE) replied on 11 October 2016, copied to the Companies Office and Mr McPherson, asking for details of the overseas company that Buddle Findlay represented and the circumstances faced by that company which made the reporting requirements “unduly onerous or burdensome”. Buddle Findlay responded on 12 October 2016 confirming the client was GEII. They also sought confirmation that no action would be taken against GEII for its non-compliance in the meantime.

[107]	By letter dated 14 October 2016 to Mr Rendle (MBIE), Buddle Findlay, on behalf of GEII, provided further information for the purposes of “a high level

71	Meaning GEC.
72	Meaning GEII.

discussion concerning the implications for GEII of [the] interpretation of sections 203 and 207”. The letter explained that GEII was a large overseas company as defined in s 198; it was a wholly owned subsidiary of GEC which was registered on the New Zealand Registrar of Overseas Issuers in connection with the operation of the GEC employee share scheme in New Zealand; and GEC was required under the Financial Markets Conduct Act 2013 to file audited group financial statements in accordance with applicable US laws and a report from the auditor confirming the statements comply with US GAAP.

[108]	The letter referred to the 2014 financial statements filed for GEII pursuant to the exemption and that the same information was submitted for the 2015 year. It said:

2.1	We are seeking confirmation from the Registrar that:

(a)	under section 203(3) of the Act, the Registrar is satisfied that:

(i)	the group financial statements of the group that comprises GEII and its subsidiaries (submitted for filing on 19 July 2016) comply with the laws in force in the US: and

(ii)	those requirements are:

A.	substantially the same as those of the Act; or

B.	sufficiently equivalent, in relation to the quality of financial reporting they achieve, to the requirements of the Act. Please refer to paragraph 4.1 below which sets out our proposed additions to the information currently filed.

(b)	under section 207A(2) of the Act, that the Registrar is satisfied that:

(i)	the standards relating to auditing and assurance that are in force in the US (i.e. that do not require GEII to submit independently audited accounts) are:

A.	substantially the same as those of the Act; or

B.	sufficiently equivalent, in relation to the quality of financial reporting they achieve, to the standards referred to in the Act.

3.	Request for exemption

3.1	If the Registrar considers it is unable to give one or both of the notices requested above, we request the Registrar grant an exemption under clause 207L of the Act and exempt GEII from the requirements of:

(a)	section 202 of the Act (to the extent that the Registrar considers the requirements of US GAAP are not “substantially the same” or “sufficiently equivalent”) to NZ GAAP; and

(b)	section 207 and 207A of the Act from the requirement to file independently audited financial statements provided that the financial statements that are filed are extracted from GEC’s consolidated financial statements that are audited in accordance with US GAAP.

[109]	It can be seen that GEII understood s 202 applied to it (because it had subsidiaries) and that it was therefore required to file the audited GEII group financial statements and in compliance with NZ GAAP. It was seeking an exemption to this on the basis that what it was filing was substantially equivalent to this.

[110]	The letter set out reasons in support of GEII’s position. These were that: the financial statements were prepared in accordance with US GAAP; a statement of cash flows could be provided; the financial statements were not independently audited because US law did not require that; there was a level of audit oversight because the statements were extracted from GEC’s audited consolidated accounts; having US accountants prepare GEII financial statements in accordance with New Zealand requirements would be unduly onerous and burdensome on GEII and outweigh the benefits to the New Zealand public of having access to those financial statements; the New Zealand public had access to the audited GEC consolidated statements and the audited GEII branch statements; a notice or an exemption would avoid unnecessary compliance costs in accordance with the objectives of the new reporting provisions in the Companies Act which provisions were intended to relax the requirements; GEII was subject to a level of compliance in New Zealand through GEC; GEII was regulated in the US by the US Securities and Exchange Commission; and a notice or exemption would address the issues that only arise because GEII was a subsidiary of GEC and was not separately required to prepare audited financial statements under US law.

[111]	Mr Rendle, copied to Mr McPherson and others, advised Buddle Findlay on
14 October 2016 that the letter would be considered and in the meantime no infringement action would be taken against GEII. After this Buddle Findlay followed up their request for a meeting. This was declined in an email dated 7 November 2016 from Mr Rendle. This email also advised Buddle Findlay that the Registrar was not prepared to provide a notice under s 203(3) for GEII’s financial statements and not grant GEII an exemption under s 207L.

[112]	The Registrar explained that s 203(3) required NZ GAAP compliant financial statements for the overseas company that was registered in New Zealand as opposed to a shareholder of that company. The financial statements provided by GEII were prepared in accordance with US GAAP and were not accompanied by an audit report that complied with s 207. As to s 207L, it did not appear that the requirements were more onerous to GEII than any other overseas company to comply with the Act. Further:

The Registrar’s power of exemption under s207L is a narrow exception to the requirements of the Act. The purpose of the exemption power is to ensure that the law does not impose requirements that are inappropriate for the particular circumstances. As with any power to exempt persons from statutory requirements, it is important that the power ins s207L is not overused. The Registrar considers that the words “unduly onerous or burdensome” in s207L(2)(a) indicate that the circumstances faced by the company seeking the exemption must be serious and there must be a particularly high degree of inconvenience. It should not apply to any overseas company that simply does not wish to comply with the requirements of the Act, or who finds compliance inconvenient or costly. The Registrar considers that the cost incurred by a company in comply[ing] with the financial reporting requirements under the Act is not an element that, of itself, could justify an exemption being granted.

[113]	This reasoning contained wording that can be found in the 2004 Discussion Document, which led to the enactment of s 35B (the exemption power). However it omitted the point from that Document,73 picked up in the practice note74 and applied when granting the 2012 class exemption,75 that it can be “unduly onerous or burdensome” for an overseas company to prepare stand-alone financial statements

73	At [26]-[30] above.
74	At [35] above.
75	At [36] above.

when it is not required to prepare them in its home jurisdiction and the group’s consolidated accounts provide sufficient information.76

[114]	Mr Rendle’s 7 November 2016 email also advised Buddle Findlay that he was willing to consider any further submissions. In accordance with that invitation, further submissions were made in a letter from Buddle Findlay to Mr Rendle on 22 December 2016. This letter requested the Registrar exempt GEII, pursuant to an exemption under s 207L, from compliance with:

(a)	s 201 except to the extent it required financial statements for GEII’s branch in accordance with s 204; and

(b)	s 207E to the extent it requires GEII’s financial statements to be delivered to the Registrar for registration.

[115]	The letter proposed the exemption would be subject to the condition that, in addition to the branch accounts, GEII prepare a schedule of financial position, a schedule of operations, and a schedule of changes in shareowner’s equity. The letter attached a proposed form of exemption.

[116]	In support of the exemption request the following submissions were made:

1.3	GEII operates in approximately 130 countries worldwide. GEII’s global assets for FY 2015 were US$14.1 billion and global revenues were US$13.3 billion.

1.4	Of these 130 countries in which GEII operates and lodges financial statements, New Zealand is the only country that is currently not accepting GEII’s financial statements as they are currently prepared.

1.5	Given GEII’s size and reach, for GEII to prepare the stand-alone financial statements requested by the Companies Office would involve an unprecedented level of upheaval, including potential re- organisation of the company, re-orientation of staff and establishment of a dedicated team to focus on compliance. Resource would need to be dedicated to areas that it would otherwise not be required and could be better used in other aspects of the business. These difficulties

76     It is unclear in the practice note whether it was referring to the group of each overseas company  of which the overseas company is the parent company. However, in practice, as confirmed by the 2012 class exemption, it was only the group consolidated accounts of the ultimate parent company of the company carrying out business in New Zealand that was required.

cannot all be quantified from a monetary perspective and accordingly GEII have not attempted to do so.

1.6	GEII has been able to quantify the external audit costs and have advised that if KPMG were to audit stand-alone financial statements of GEII there would be substantially more audit work needed than currently required. GEII estimate KPMG’s fee would be approximately US$500,000.

1.7	GEII would also like to advise that to date, in dealing with this particular matter, it has incurred over NZ$50,000 in legal costs.

1.8	The GEII global board of directors have also advised that the level of inconvenience for GEII would be so high that the company would need to seriously consider whether to maintain its branch registration in New Zealand. Closing the branch could result in a more complicated legal structure in New Zealand meaning further disruption and cost.

1.9	The GEII branch currently supports the Lighting, Power, Transportation, Oil & Gas and Corporate operations of GE in New Zealand. The GEII NZ branch has assets of NZ$48.9 million and revenues of NZ$16.4 million.

1.10	For the reasons set out in paragraphs 1.5, 1.6 and 1.7 above we submit that compliance as required by the Companies Office would indeed be unduly onerous and burdensome.

[117]	The submissions said that GEII might be one of only a handful of companies that has found itself materially inconvenienced by the approach being taken by the Registrar. GEII understood that financial statements for Hawaiian Airlines Inc and Citibank N.A. prepared under US GAAP had been accepted by the Companies Office. The point was made that the new provisions were intended to relax the requirements and, given the amount and quality of the information available to the public, there would be no material detriment to users if GEII were granted the exemption. The exemption would therefore be consistent with the policy of the provisions to reduce unnecessary compliance costs which provided little benefit to users.77

[118]	On 8 February 2017 Mr Rendle advised Buddle Findlay that the matter was under consideration.78 On 8 June 2017 Buddle Findlay advised Mr Rendle that GEII had filed its 2016 financial statements in the same format as for 2015.79 Buddle

77	The submission went on to advance reasons why the Companies Office’s interpretation of s 203 was not accepted while noting it was academic now that GEII were seeking an exemption only.
78	It is not clear what work, if any, was being carried out at this time. The internal emails discussing the application are not until August 2017.
79	GEC’s 2016 financial statements were also registered as they had been in 2015.

Findlay also asked for an update on the status of the exemption application. In an email dated 22 June 2017 Mr McPherson provided internal advice that the 2016 financial accounts had to be rejected because they did not constitute a complete set of financial accounts in accordance with GAAP as required by s 201. On 17 July 2017 the Companies Office rejected the 2016 financial statements. On 17 August 2017 Buddle Findlay advised Mr Rendle of the rejection and sought confirmation that infringement action would not be taken while its exemption application was under consideration. That was confirmed on 24 August 2017.

[119]	Around this time  it  is  apparent  from  internal  email  messages  between  Mr McPherson and Ms Voon Shan Kong (a MBIE solicitor) that work was being carried out by MBIE on GEII’s exemption application. On 23 August 2017 Mr McPherson suggested to Ms Kong that the requirement for the accounts to be audited was likely to be what was of concern to GEII. He suggested speaking to “geoff” about what the legislation was intended to capture.80 On 24 August 2017 Mr McPherson elaborated to Ms Kong as follows:

there is a broader issue we should probably address

the fundamental problem with those overseas companies that struggle to comply is often that they have subsidiary companies and are in turn subsidiaries of an ultimate holding company.

in some circumstances the overseas company on the register does not prepare financial statements because it is a subsidiary of an ultimate holding company which prepares consolidated financial statements.

in other circumstances the overseas company on the register does prepare accounts but does not prepare consolidated accounts because it is in turn a subsidiary of an ultimate holding company that prepares consolidated accounts for the entire group.

S202(2) exempts an overseas company from the preparation of group accounts if its parent is either incorporated or registered in NZ (as the parent would file group accounts)

this does not apply to most overseas companies on the register as their parent or ultimate holding company will not be on the nz register.

most overseas companies would gladly submit the consolidated financial statements for their ultimate holding company instead of those for the company on the register if they could take advantage of an exemption similar to S202(2)

80	This appears to be a reference to Geoff Connor, from MBIE’s policy team.

It has been suggested that S203 allows the registrar to do that (on the basis that the law in the country of incorporation is similar to S202(2))

to date we have taken the view that the intention of S202 is to require the overseas company on the register submit group accounts (irrespective of the existence of an ultimate holding company) and that S203 does not refer to the existence of the group accounts but to their form (accounting policies, content etc)

(ie it is the overseas company on the register that is relevant not its shareholder
– but perhaps it is the broader conglomerate that is in substance of interest? – that’s really a policy question)

it would be helpful if we could obtain from the policy people an indication of what the intention was for overseas companies

and also what their view of S203 is

a similar question relates to overseas companies without subsidiaries. If the overseas company is a subsidiary of an ultimate holding company and for that reason does not prepare accounts – is the intention to obtain the accounts of the overseas company on the register or would the group accounts of the ultimate holding company suffice? – and does S203 allow that

[120]	I interpolate at this point of the narrative that in my view Mr McPherson has correctly set out the position as to when an overseas company on the register is required to file its group accounts rather than the group accounts of its ultimate owner. Mr McPherson was querying whether s 203 (rather than the exemption power under s 207L) could be used to allow an overseas company on the register to submit the group accounts of its ultimate owner, which is not on the register. He wondered whether it was the broader conglomerate that was in substance of interest.

[121]	On 24 August 2017 Ms Kong emailed the MBIE policy team advising that they were considering a s 207L exemption application from GEII, a wholly owned subsidiary of GEC, both of which were incorporated in the US and GEII was registered in New Zealand. The email asked whether policy work had been carried out relating to the following three matters:81
1.	Overseas company cannot take advantage of section 200(3) of the Companies Act if the parent is not incorporated or registered in NZ but would volunteer to provide group accounts for the ultimate holding company (no matter where incorporated). Is it the policy intention that the financial reporting obligations be strictly imposed on the overseas company registered in NZ?

81	This email is referring to the provisions as they were from 30 May 2017.

2.	Overseas company with subsidiaries cannot take advantage of section 202(2) if the parent is not incorporated or registered in NZ but would volunteer to provide group accounts for the ultimate holding company (no matter where incorporated). Is it the policy intention that the group financial reporting obligation be strictly imposed on the overseas company registered in NZ?

3.	Is section 203 restricted to the content rather than the existence of financial statements or group financial statements?

[122]	These questions were considered by Stephen Tat, in MBIE’s policy team, who asked Ms Kong to confirm that the 207L exemption was sought by GEII for its filing obligations under s 201. This was confirmed. Mr Tat advised the answers to all three questions was “yes”. Mr Tat advised that his team had discussed this and the consensus was that any reform of the area was unlikely and not desirable. The requirements on the New Zealand business of an overseas company were the cost of doing business in New Zealand and the exemption criteria was “quite a high test” in line with the intent that these companies should be meeting these requirements.

[123]	On 28 September 2017 there were further email exchanges between Ms Kong and Mr McPherson. Ms Kong queried whether the financial statements of GEII and GEC might be identical for all practical purposes, noting a report from Mr McPherson in the previous year proposing an exemption for Hawaiian Airlines. Ms Kong also noted GEII’s argument that its financial statements were in the same form as for the 2015 financial year and these had been accepted when the class exemption applied. Ms Kong said that Mr McPherson’s report on Hawaiian Airlines explained that its financial position could be satisfactorily determined by reviewing its parent’s financial statements, and what little additional benefit might be gained from reviewing separate financial statements would not appear to justify the cost to Hawaiian Airlines of requiring it to prepare and file separate financial statements. Mr McPherson responded that this case involved an ultimate parent company whose only assets were its shares in the subsidiary.

[124]	On 29 September 2017 Ms Kong and Mr McPherson discussed whether Citibank NA had been granted an exemption. They identified that Citibank NA had an exemption under the former legislation but did not have one now. This was because

Citibank NA now filed its consolidated accounts, not its shareholder’s accounts, which was as the legislation required.

[125]	In October 2017 a draft report on GEII’s exemption application was internally reviewed. Ms Kong had two particular questions at this time: whether GEII’s estimate of US$500,000 for the requested audited financial statements was a reasonable estimate; and whether it would be too difficult to prepare the entity’s financial statements given the branch statements had been prepared (and whether there would be much difference between them). The internal reviewer had no comments on these points.

[126]	On 31 January 2018 Ms Kong emailed Mr Rendle a draft response to the Buddle Findlay letter for his review and suggesting a meeting for an hour to discuss it. On 19 March 2018 Mr Rendle forwarded this email to Mr McPherson, copying Ms Kong and another, for his thoughts on the exemption application and the draft response. Mr Rendle asked a number of questions of Mr McPherson. These included questions about the plausibility of the estimated audit costs that would be involved if the exemption was not granted and whether there was support for GEII’s claim of “an unprecedented level of upheaval”. Mr Rendle asked if MBIE had an estimate of the number of overseas companies that might be in an equivalent position. He also asked:

6.	Are we able to respond to GEII’s submission that the intent of the new financial reporting provisions in the Companies Act was to relax the test for when overseas financial statements can be registered?

7.	Do we need to consider what circumstances might justify exercising the power of exemption in s207L, at least hypothetically? I understand you might already have discussed this with Voon.

[127]	Mr McPherson replied to Mr Rendle by email 20 minutes later. He did not know what it would cost GEII to provide the audited accounts. He considered that if this exemption were granted it would be necessary to grant a generic exemption as every company would have the same argument. He said:

6.	I’m not sure what the intent was – but that was certainly the effect for most overseas companies – they no longer have any financial reporting obligations and the focus shifted to the large overseas companies – a very small minority

7.	those circumstances set out in my email to the securities commission years ago – I’ll see if I can find it – copy attached – but most of them have been addressed wit[h] the changes to the FRA/CA/FMCA – I can’t think of any case where we would exempt existence of accounts
– but we would contemplate exemption in the form of the accounts

[128]	Later that day Mr McPherson added “and if an exemption were granted – how would the registrar justify that? (including to someone who wanted access to compliant financial statements for the company on the register)”.

[129]	The email referred (and attached) to Mr McPherson’s response was an email dated 2 March 2007 when the introduction of the s 35B exemption power was under consideration. This email discussed the situations which caused companies difficulties in complying with the Financial Reporting Act requirements. One of these situations was where a company incorporated in a foreign jurisdiction was a subsidiary of another company also incorporated in a foreign jurisdiction and the company was required only to file accounts at the group level.

[130]	On 22 March 2018 Ms Kong provided a report to Mr Rendle recommending declining GEII’s application for an exemption. The advice in this report formed the basis of Mr Rendle’s decision.

Decision

[131]	On 12 April 2018 Mr Rendle, as a Deputy Registrar of Companies (exercising the powers of the Registrar),82 advised GEII’s solicitors he was not satisfied the requirements of s 207L were met. He was therefore declining the application for an exemption from the requirement to prepare and file audited financial statements of GEII for the 2015 and 2016 financial years. In summary, this was because the asserted inconvenience and cost of complying with the financial reporting requirements did not meet the high threshold of “unduly onerous or burdensome.”

[132]	His full reasons were as follows:

I have considered the application and I am not satisfied that the requirements of section 207L of the Act are met. Therefore the application is declined.

82	Companies Act, s 357(2).

The Registrar’s power of exemption under section 207L is a narrow exception to the requirements of the Act. Before granting an exemption the Registrar must be satisfied that:

•	Compliance with the relevant provision would require the overseas company to comply with requirements that are unduly onerous or burdensome;

•	Financial reporting requirements must be complied with in relation to the overseas company under the law in force in the country where the overseas company is incorporated or constituted and that those requirements are satisfactory; and

•	The extent of the exemption is not broader than what is reasonably necessary to address the matters that give rise to the exemption.

The purpose of the exemption power is to ensure that the law does not impose requirements that are inappropriate for the particular circumstances. As with any power to exempt persons from statutory requirements, it is important that the power in section 207L is not overused, and it should not apply to any company which finds compliance inconvenient or costly.

The Registrar considers that the words “unduly onerous or burdensome” in section 207L(2)(a) indicate that the circumstances faced by the company seeking the exemption must be serious and there must be a particularly high degree of inconvenience.

I am not satisfied that the grounds on which GEII has sought an exemption mean that it is unduly onerous or burdensome for it to comply with the financial reporting obligations imposed on it under the Act. GEII’s revenue exceeds the threshold under section 45 of the Financial Reporting Act 2013 meaning it qualifies as a large overseas company.

I do not consider the following arguments should affect GEII’s obligation to prepare and file audited financial statements in New Zealand:

•	GEII does not have any US specific filing obligations;

•	NZ is the only country of 130 countries in which GEII operates and lodges financial statements which requires stand-alone financial statements;

•	an unprecedented level of upheaval, including potential re- organisation of the company, re-orientation of staff and establishment of a dedicated team to focus on compliance;

•	an estimated KPMG fee of approximately US$500,000; and

•	the incurrence of over NZ$50,000 in legal costs to date.

It is clear Parliament intended that the burden of preparing and registering audited financial statements will be greater for overseas companies than companies operating in New Zealand. By setting the “large” definition for an overseas company at a significantly lower level than a New Zealand company,

Parliament has determined that companies who meet those criteria are capable of bearing the resulting compliance costs.

You have quoted Hawaiian Airlines Inc. as an example of a company that has been granted an exemption recently from the requirement to prepare any stand-alone accounts. The Hawaiian Airlines case is distinguishable as the exemption was given (amongst other reasons) as the accounts of the parent and Hawaiian Airlines were sufficiently similar such that Hawaiian Airlines’ financial position could be determined from the parent’s financial statements. The parent company’s main asset was Hawaiian Airlines, effectively making the parent company a “shell” company.

You also cited the exemption given to Citibank as a company that has been granted an exemption. We note that the exemption was considered under the Financial Reporting Act 1993 rather than the current Act and in any case, the recent financial statements filed for Citibank N.A meet the requirements of the Act of which no exemption is required.

The circumstances faced by GEII are not unique and the requirement to file audited financial statements does not appear unduly onerous or burdensome relative to those other overseas companies.

You have also sought our views on the interpretations of s 203(3) of the Act. However, as GEII is seeking an exemption rather than approval under section 203(3) of the Act our interpretation of that section is somewhat academic and I have not addressed that issue in this letter.

Preliminary matters on the appeal

Appeal jurisdiction

[133]	A person aggrieved by an act or decision of the Registrar has a right of appeal.83 On the appeal the Court “may approve the Registrar’s act or decision or may give such directions or make such determination in the matter as the court thinks fit”.84 GEII and the Registrar submit this is a general appeal, where the appeal court considers the matter afresh on the material before it, and GEII bears the onus to satisfy the Court that it should differ from the decision under appeal. This is consistent with the weight of the authority concerning the appeal right concerned.85

83	Companies Act, s 370(1).
84	Section 370(2).
85 Davidson v Registrar of Companies [2011] 1 NZLR 542 (HC) at [84]; Mani v Registrar of companies [2016] NZHC 3002, (2016) 11 NZCLC 98-048 at [5]; and Vicom New Zealand Ltd v Vicomm Systems Ltd [1987] 2 NZLR 600 (CA), (1987) 2 TCLR 474 at 478. Cf. Clarke v Registrar of Companies [2018] NZHC 1608 at [3].

[134]	However these authorities do not consider an appeal from the Registrar’s decision under s 207L (or its s 35B predecessor). As was observed in Brand v Registrar of Companies:86
[31]	While s 370 is the only appeal provision in the Companies Act the Registrar exercises a wide range of powers under the Act and the decisions he or she is required to make vary in complexity and kind. The nature of the appeal hearings will therefore vary reflecting the range of decision-making subject to challenge.

[32]	To better understand the nature of the Court’s function in this appeal I find it more helpful to consider the nature of the decision appealed from than to simply observe that the appeal hearing is “de novo”.

[135]	In this case, s 207L confers a discretion, subject to evaluative criteria, which must be exercised in accordance with its purpose. This may mean that the appeal will focus on, for example, whether a relevant consideration was overlooked or an irrelevant consideration taken into account, in determining whether in the Court’s assessment the Registrar’s decision was wrong.

Appeal grounds

[136]	GEII’s appeal originally sought to appeal the Registrar’s decision to decline GEII’s application “for an exemption under s 207L of the Companies Act 1993 from compliance with certain requirements of ss 201 and 207E of the Act”. This was consistent with GEII’s submissions dated 22 December 2016 which were in support of an exemption from those provisions although its earlier correspondence, dated    14 October 2016, had referred to s 202.

[137]	On 9 October 2018, approximately three weeks before the hearing of its appeal, GEII applied to amend its appeal. The proposed amendment was to delete “of s 201 and 207E” and to add after “the Act” the following: “(originally the exemption was sought in respect of ss 201 and 207E, but the appropriate sections for which the exemption is now sought are ss 202, 207 and 207E)”.

[138]	The amendment is not opposed by the Registrar. However the Registrar says the amendment is relevant to the order I should make if the appeal is successful. The

86	Brand v Registrar of Companies [2016] NZHC 2983.

Registrar submits I should refer the matter back to the Registrar for consideration rather than determining whether the exemption should be granted because GEII now seek exemptions from sections not considered by the Registrar.

[139]	GEII submits the criteria does not change depending on whether the exemption is sought under ss 201 or 202 and the Registrar’s decision does not refer to ss 201 or
202. GEII says that, although GEII’s application did not refer specifically to s 207, it was clear from the information put before the Registrar that it was seeking an exemption from the requirement that its financial statements be audited.

[140]	I allow the amendment and will return to the question of remedy if the appeal is allowed later.

New evidence

[141]	On an appeal new evidence requires leave.87 Special reasons are required. Updating evidence is an example of a special reason.88 The requirement for special leave reflects the position that an appeal proceeds on the record and parties should not be able to bolster their case with new evidence on the appeal.89 Generally, the evidence must be cogent, likely to be material and not reasonably available at an earlier stage.90

[142]	In support of its appeal, GEII filed an affidavit from John Hagen, an accountant. This affidavit annexed, amongst other things, GEC’s 2015 audited consolidated group statements as required by the US authorities, the GEII financial statements derived from these statements, and the audited GEII New Zealand branch statements. In the affidavit, Mr Hagen expresses the opinion that the breadth of information from these statements would give New Zealand investors and creditors or other members of the public:

… more than sufficient reliable financial information to enable them to make informed business decisions in relation to GEII. Frankly I cannot see what more they could reasonably need; and

87	High Court Rules 2016, 20.16(2).
88	Rule 20.16(3).
89	McGechan on Procedure (looseleaf ed, Thomson Reuters) at [HR20.16.01].
90	At [HR20.16.02].

… the burden of financial compliance that would be placed on GEII if it were obliged to prepare stand-alone audited financial statements for GEII including the expected additional audit costs, would far outweigh the additional benefit (if any) to users of its financial statements in New Zealand.

[143]	The Registrar raises no issue regarding the provision of the GEC consolidated accounts, as these were referred to in GEII’s exemption application. The Registrar notes that Mr Hagen’s expert opinion was not before the decision maker, but abides the Court’s decision on whether leave should be granted for this affidavit.

[144]	In these circumstances, I grant leave to GEII to adduce Mr Hagen’s affidavit. The GEC consolidated accounts are relevant. Mr Hagen’s opinion was not before the decision maker. It is nevertheless relevant because it provides evidence of whether there may be a case made for an exemption if the matter is reconsidered by the Registrar and that evidence is before him or her. It is therefore potentially relevant to the relief that might be granted on this appeal.

[145]	Less than a week before the hearing GEII provided an affidavit from Drossos Haramantas, the company secretary for GEII’s New Zealand branch.91 The affidavit purports to update the Court on the costs of an audit of GEII’s financial statements. The affidavit annexes a letter from KPMG which estimates the audit fees would be between US$4.9 million and US$5.9 million plus out-of-pocket expenses estimated at 5 per cent of the audit fee. The affidavit also advises that GEII presently operates in 123 countries.

[146]	The Registrar opposes leave being granted to this evidence. This is because the affidavit has been filed late and could have been adduced earlier, it is scant on detail, and it was not before the Registrar.

[147]	Other than to update the Court on the number of countries in which GEII now operates, I do not grant leave to adduce the affidavit of Mr Haramantas for the reasons on which it is opposed by the Registrar. Additionally, for the reasons I will come to, it is not material to the outcome of this appeal.

91	An updated affidavit was foreshadowed approximately three weeks before the hearing, when the application for leave to amend the appeal was made.

Assessment of appeal

The submissions

[148]	GEII submits “unduly onerous or burdensome” in s 207L(2)(a) means whether compliance would impose an excessive or unreasonable burden on GEII relative to the potential benefits to the public. It submits this is consistent with the statutory objective of striking a balance between the benefits of accountability and transparency to users and the compliance cost to companies.

[149]	GEII says compliance would be unreasonable and excessive because:

(a)	GEII currently operates in 123 countries. In 2015 the revenue of its New Zealand branch was NZ$16 million, which is a small proportion of its total revenue of around US$13 billion. New Zealand is the only country in which it operates which requires the financial statements in the form required by the Registrar. The costs of compliance will be relevant only to New Zealand.

(b)	The estimated external audit costs are large and will also involve an enormous amount of work and involve disruption not capable of monetary quantification.

(c)	General Electric’s global board is seriously considering whether to maintain branch registration in New Zealand because the cost of doing business in New Zealand would outweigh the benefits.

[150]	GEII says this burden is not outweighed by any benefit to users because:

(a)	GEC and GEII are substantial companies: GEC’s revenue is equivalent to approximately 66 per cent of New Zealand’s GDP. GEII’s New Zealand branch revenue is small relative to GEII’s total revenue (see above) and the size of GEII’s shareholder equity (US$4.6 billion).

(b)	GEII is wholly owned by GEC, whose common stock is listed on the New York, London and Frankfurt stock exchanges among others. Investors are protected by the regimes in those countries and there are no relevant investors in New Zealand for the Registrar to protect. Those who deal with GEII are likely to be large, financially sophisticated commercial parties. The Registrar has not identified what information is lacking for creditors or other counterparties of GEII who wish to assess the risk of a business failure by GEII.

(c)	Mr Hagen’s opinion (set out above) is that there is more than sufficient information already available from the GEC and GEII financial statements and the burden on GEII if stand-alone audited GII financial statements are also required would far outweigh any benefit to New Zealand users.

[151]	GEII submits the Registrar, correctly, did not dispute the other two criteria under s 207L that: GEC and GEII’s financial statements comply with US requirements and they are satisfactory; and the exemption, if granted, would not be broader than is reasonably necessary to address the matters that gave rise to the exemption.

[152]	GEII’s principal submissions as to why the Registrar’s reasoning for declining an exemption was flawed are:

(a)	The Registrar’s decision was inconsistent with the purpose of the Act’s financial reporting provisions to balance the benefits to users against the compliance costs and with the approach taken by the Registrar under s 35B.

(b)	It is clear from the Parliamentary materials that led to s 35B and its replacement, s 207L, that cost and convenience were valid considerations in whether to grant an exemption. Section 207L does not prescribe any specific criteria for determining whether compliance is unduly onerous or burdensome. The legislative history shows that Parliament intended the Registrar to have regard to a range of factors

relevant  to  detriment and cost.	The matters GEII relied on were therefore relevant.

(c)	The Registrar wrongly considered GEII’s status as a large company disentitled it to an exemption. The exemption applies to large overseas company and Parliament has not determined that large overseas companies are capable of bearing the resulting compliance costs.

(d)	The Registrar’s view that GEII’s circumstances are not unique was not supported by any evidence. The legislation does not require GEII to be in a unique position in order to be granted an exemption. The section anticipates the possibility of a class exemption and historically class exemptions were granted. While there may be a number of US incorporated companies in a similar position, the Registrar is required to consider the burden on GEII if compliance is required.

[153]	GEII advises that GEC, although no longer an issuer subject to the requirements of the Financial Markets Conduct Act, remains willing to register its financial statements as a condition of an exemption.

[154]	The Registrar submits the statutory framework and legislative history establishes that compliance with the standard requirements is to ensure that information is available on all registered entities (New Zealand registered companies and overseas companies carrying on business in New Zealand) on an equivalent basis and that information must be accessible within New Zealand. The information is important to assess and reduce the risk of business failure and to establish “level playing field” conditions. The exemption provision allows for adjustment to the requirements recognising that large overseas companies may find it more difficult to achieve complete alignment with New Zealand law. This is a limited and discretionary exemption and must be considered specifically in relation to the applicant.

[155]	The Registrar submits that GEII conflates its position with that of GEC. If an exemption were granted to GEII, it would not enable relevant persons to ascertain the information required of other companies for registration. GEII seeks to adjust the New

Zealand requirements through the discretionary exemption to respond to its needs. In this case the GEII financial statements proposed to be filed are: a) unaudited; b) not consolidated; and c) omit basic information such as a statement of accounting policies, a statement of cash flows and notes and other explanatory information on the significant elements of the financial statements.

[156]	The Registrar accepts Mr Hagen is an acknowledged accounting expert and is opinion is entitled to respect. However any person who needs to refer to the registered New Zealand statements is entitled to make their own assessment and reach their own opinion on the financial position of GEII; those persons are not assumed to have the forensic accounting skills of Mr Hagen; the assessment of whether disclosure is adequate is made by the Registrar with reference to the financial statements registered in New Zealand; and consolidation of the financial information of a subsidiary in the financial statements of its parent does not automatically mean that the financial strength of the subsidiary is ascertainable from the financial statements of its parent.

[157]	The Registrar accepts that the Act’s reporting requirements seek to strike a balance between the public interest in ensuring necessary financial information is available to those who need it and the compliance costs in ensuring that information is available. Here, because GEII has significant business interests, there are a wide variety of industries that may need to access GEII’s financial information in order to make business decisions. The consequences of any business failure of GEII would be significant. The matters missing from GEII’s proposed accounts are directly material to the assessment of the business risk.

[158]	The Registrar submits the assessment of what is “unduly onerous or burdensome” must be made in context. “Unduly” requires an applicant to show a real and substantial difficulty in compliance such that it should prevail over these matters. An applicant needs to show that full compliance is unreasonable in that it is either not possible on technical grounds, or is unnecessary in that no material benefit is derived from compliance.

[159]	The Registrar says the costs and inconvenience asserted by GEII are the normal consequences of the financial reporting regime and are the cost of doing business in

New Zealand. They are merely figures asserted by GEII and may not be excessive in light of GEII’s size, its relationship with GEC, the scale of its business interests in New Zealand, and other options for a business structure. The Registrar is not required to investigate these matters. It is for the applicant to persuade the Registrar. The Registrar was not persuaded in this case.

Analysis

[160]	The exemption power must be exercised in accordance with its purpose. The purpose was to deal with circumstances where New Zealand’s reporting requirements were more demanding than the requirements in the company’s home jurisdiction and the costs of compliance with the New Zealand requirements were not justified by the benefits of additional disclosure. That was the purpose of its predecessor legislation. It was again the rationale put forward when its reintroduction in the Financial Reporting Bill was recommended by officials in their report to the Commerce Select Committee dated 15 April 2013. It was recognised that the exemption power could also be used where a company had difficulty in complying with the timeframe for preparing and filing the statements (although amendments to the timeframes had also been made to respond to this concern).

[161]	This purpose was consistent with the new regime for financial reporting regime being brought in at this time. The new regime was intended to strike an appropriate balance between the costs of reporting, and the benefits that users obtained from financial reports in making economic decisions or from promoting accountability and transparency. The major change was to remove requirements imposed on medium and small companies. It was necessary to impose financial reporting requirements on large companies, including large overseas companies, because of their economic significance and, consequently, the significant impact if they failed.

[162]	It was recognised, however, that there had been difficulties for overseas companies who were part of a group and who were not required in their home jurisdiction to file statements other than for the group as a whole. The new regime enabled group financial statements to be filed for the company on the New Zealand register. As Mr McPherson noted when considering GEII’s application, this did not

assist overseas companies on the New Zealand register who had subsidiaries, but whose ultimate holding company was not on the New Zealand register.

[163]	The legislative regime decided upon was to allow one set of group statements, for an overseas companies within a group, to be filed by the parent of the group that was on the New Zealand register.92 This applied across the board to all overseas companies regardless of their jurisdiction of incorporation. If the New Zealand requirements exceeded the requirements of an overseas company’s home jurisdiction, there remained the possibility of an exemption. The obvious example where this might arise was where the ultimate parent company of the group was not on the New Zealand register. The 2012 class exemption recognised this. At that time the Registrar was satisfied the costs of the New Zealand requirements were unduly onerous and burdensome for group companies from the US, the United Kingdom, Australia and Singapore relative to their benefits.

[164]	The legislative history does not suggest the exemption power was intended to have a different scope or use under the new regime. Rather, it was anticipated that problems could still arise for large overseas companies who were part of a group despite the new provisions in ss 200 to 207. The test for when the power could be exercised was essentially the same as had been the case under the previous regime. Large overseas companies that wished to be granted an exemption would need to satisfy the Registrar that the compliance costs were “unduly onerous or burdensome” relative to their benefits. An important factor in that under the previous regime was an assessment of the regime to which the overseas company was subject in its home jurisdiction. The legislative history does not suggest this was no longer to be an important factor under the new regime.

[165]	In this case the Registrar’s decision did not take into account the purpose of the exemption. That seems to have arisen because those considering GEII’s application were focussed on the scope and intent of ss 201, 202 and 203. Sections 201 and 202 were seen as setting the bar that all large overseas companies now had to meet and constituting the cost of doing business in New Zealand, subject to the

92	This was expressly the position from 30 May 2017.

possibility under s 203 that the statements could be prepared in accordance with the home country’s GAAP. The exemption power was to have a narrow scope, potentially exempting the form of the accounts only. The Registrar’s advisers were concerned that every company could make the same argument as GEII and it would not be possible to justify the exemption in this case.

[166]	This approach was contrary to the exemption’s purpose discussed above.93 The words of the exemption power confirm that this approach was contrary to the purpose of the exemption. The power enabled the Registrar to exempt any large overseas company or “any class of overseas companies”. It therefore contemplated class exemptions as had been the previous practice, which might potentially apply to a large number of companies. The exemption could be granted from “compliance with any provisions of sections 201, 202, 207, and 207E”. It was therefore available to exempt a large overseas company from filing audited statements for itself or its group. It could be granted if compliance was “unduly onerous or burdensome”. Consistent with the exemption’s purpose, “unduly” was a relative term. As had been the case with the power under the predecessor legislation, whether compliance was unduly onerous or burdensome needed to be assessed against the benefits from compliance.

[167]	GEII’s application was not approached in this way. The focus was on the fact that GEII was a large overseas company and could therefore be assumed to be able to afford to bear the costs of compliance. No assessment was made of what users of the financial statements, likely to be creditors, would gain from audited financial statements for GEII over and above what they would have from: the audited consolidated financial statements of GEC; the financial statements for GEII as prepared for the audited GEC consolidated statements (albeit not comprising in entirety “financial statements” as defined in the New Zealand legislation); the audited branch accounts for GEII; and the information about GEII’s directors, address for service, and constitution which it was required to file as a registered overseas company.

93	At [160]-[164] above.

[168]	Nor was any consideration given to whether GEC was a reporting entity under the Financial Markets Conduct Act and whether this meant there might be information available to the New Zealand public about GEC that was comparable to if GEC been registered under Part 18 of the Companies Act.94

[169]	For these reasons I consider the Registrar approached the application in the wrong way and therefore failed to take into account considerations that were relevant to GEII’s application. The Registrar therefore erred when deciding that GEII’s application should be declined.

Remedy

[170]	I consider the appropriate remedy is to quash the Registrar’s decision and to refer the matter back for reconsideration. The Registrar is the appropriate person to assess whether the application should be granted when all the relevant considerations are before him or her. Those considerations include an assessment of the costs relative to the benefits in light of all the information that those who deal with GEII in New Zealand will have available to them. They include a consideration of the regulatory regime to which GEII and GEC is subject in its home jurisdiction. They do not include the fact that it is possible that other large incorporated companies from the US (or from some other countries) carrying on business in New Zealand may be able to make out a similar case for an exemption.

Costs

[171]	GEII submits there should be an order for costs in its favour. GEII says MBIE refused to meet with it after rejecting the GEII 2015 financial statements, did not consider the exemption application for eight months, Ms Kong’s advice misinterpreted s 207L, Mr Rendle appears not to have reflected on whether an exemption was appropriate, and the exemption was declined over a year after the application was filed.

[172]	I consider there is no basis for an award of costs against the Registrar. The Registrar is not a party to the proceeding and appeared in order to assist the Court.

94	GEII and the Registrar did not make submissions about this. I have referred to this because it is a potentially relevant consideration.

GEII seeks an exemption from the legislative regime and appropriately bears the costs of doing so. Notwithstanding the criticisms that are made of MBIE’s approach to its application, I consider the record shows that that MBIE diligently went about considering the application. The legislative regime is not straightforward. Ms Kong’s work was supervised by Mr McPherson, a senior and experienced MBIE employee, input was sought from  MBIE’s  policy team and a draft was circulated  for input.  Mr Rendle asked questions of Mr McPherson before accepting the recommendation that had been made. While I have found the Registrar’s decision was in error, that is an insufficient basis on which to order costs.

[173]	Costs should lie where they fall in these circumstances.

Mallon J