The Committee was unable to agree whether the bill should pass, but recommends amendments to the bill, set out in this report, should it be determined by the House that the bill be passed.

The Business Payment Practices Bill seeks to improve transparency about business-to-business payment terms and practices, such as the amount of time it takes for entities to pay their suppliers. It would require large firms, government departments, and other large trading entities to publicly disclose information about their payment practices.

The bill would require entities to report on their payment practices twice a year if they had revenue over $33 million (including the revenue of any subsidiaries) for two or more consecutive accounting periods. This information would be submitted to, and stored on, a publicly available and searchable register administered by the Ministry of Business, Innovation and Employment.

The bill provides for the appointment of a Registrar. They would establish and maintain the register, and would have the authority to monitor and investigate compliance with the Act. The bill provides for infringement fees, penalties, and criminal offences for contraventions of its obligations.

The bill provides for the Governor-General to make various regulations. These regulations would specify the information to be disclosed by reporting entities, and the size of infringement fees and maximum fines to be imposed by a court for infringement offences.

As part of our consideration of the bill, we have examined its consistency with principles of legislative quality. We wish to bring the House’s attention to an issue related to clause 30, which we discuss in more detail later in this commentary.

This commentary covers the main amendments we recommend to the bill as introduced. We do not discuss minor or technical amendments.

The general policy statement at the start of the bill says that the revenue threshold for reporting entities would include goods and services tax. We understand this to be an error. Where the term “revenue” is used in the bill to refer to revenue thresholds above which entities would be considered reporting entities, this amount would not include goods and services tax.

A number of submitters raised the concern that the bill would not give reporting entities enough time to prepare for new reporting requirements.

As introduced, the bill would come into force the day after it received Royal assent. The disclosure period (the period covered by an entity’s report) could be no longer than 6 months, but could be shorter than that. The disclosure deadline (the date by which a report must be received by the Registrar) could be as short as l month after the disclosure period came to an end. Therefore, the first disclosure period of 6 months or less could begin on the day the bill received Royal assent, with a disclosure deadline 1 month after that.

We consider that that this would not allow reporting entities enough time to prepare to report. We note that the Government’s intention is that reporting commence as soon as practicable, so that small businesses can benefit from the availability of information about large businesses’ payment practices. However, we also note that the External Reporting Board’s conventions for the introduction of new accounting measures typically provide a transition period of between 12 and 24 months.

Therefore, we recommend amending clause 2(1) to change the date of main commencement of the Act to 6 months after the date on which it received Royal assent. At the same time, we recommend inserting clause 2(2) to provide for some parts of the Act, such as the appointment of the Registrar, to come into force on the day after assent.

We also think that the bill should apply to entities according to their revenue in stages, so that only very large entities, with revenue of $100 million or more, would be required to report during the first disclosure period. Other reporting entities with more than $33 million in revenue should be required to report in the period after that.

Accordingly, we recommend inserting clause 2 in the bill’s Schedule to provide that only entities with revenue of $100 million or more would be required to report on the first disclosure period. This would allow reporting entities with less revenue and fewer means more time to prepare to comply with new legislation.

Clause 48 would empower the Registrar to specify, by notice, disclosure periods and disclosure deadlines. Disclosure periods would have a maximum length of 6 months, and deadlines could not be earlier than a month after the end of the corresponding disclosure period.

We note that some potential suppliers of large entities see value in more frequent reporting, because payment behaviour and cashflows may change over the course of a year. However, we are mindful of the potential costs of frequent reporting and short reporting deadlines, and the effort required to make amendments to accounting systems to accommodate new reporting requirements. We therefore recommend amending clause 48(2) to set the length of a disclosure period at exactly 6 months.

In the bill as introduced, the terms “partnership”, “partner”, “limited partnership”, and “general partner” are used to define the term “director”, but are not themselves defined. We consider that these terms should be precisely defined, because the bill would place obligations on directors, and potentially subject them to penalties or fines. In addition, the term “entity” is expressed using the non-exhaustive term “includes” rather than the more precise term “means”. We see a risk that unspecified entities could fall outside this definition.

We note that other legislation, such as the Partnership Law Act 2019, defines “partnership” and provides in section 14(1) when a person is presumed to be a “partner”. The Limited Partnerships Act 2008 also defines “partner” and provides guidance as to who is a “general partner” (section 19) and a “limited partner” (section 20). That Act is also referenced when defining a “limited partnership” in other legislation. We further note that the term “entity” is also used in the Financial Reporting Act 2013.

We recommend amending clause 5 to provide that “limited partnership” would mean a partnership registered as such under section 51 of the Limited Partnerships Act, and “partnership” would have the meaning given in section 8 of the Partnership Law Act. Reference to these two Acts would also help to define the terms “partner” and “general partner”. We also recommend replacing the term “includes” with “means” in the definition of “entity”.

The bill as introduced defines “payment practices information” in broad terms in clause 10, leaving the exact details of the information to be defined by regulations. It does not further define payment practices, or the term “invoice”. We consider that “payment practices information” could be defined in more detail in the bill by making more explicit what would and would not need to be included.

We are mindful that providing an overly detailed definition may not allow sufficient flexibility to respond to future changes in reporting conventions or software. However, we are concerned that leaving the definition of payment practices information entirely to regulations risks businesses being required to provide an unreasonable level of detail in their reporting.

The purpose of the bill is to make more transparent the third-party payment practices of large entities—that is, payments involving suppliers outside the reporting entity’s commonly owned group. With that in mind, we consider that several categories of expenditure could be excluded from the information that reporting entities would be required to provide, since this information is not useful to third-party suppliers. These categories include: transactions between entities belonging to the same commonly owned group; payments of salary or wages of an entity’s employees or office holders; income tax, goods and services tax, or any other form of tax; rent or a lease; charges related to electricity, gas, telecommunications services, or other utilities; and local body rates and charges.

We therefore recommend inserting clause 10(1B) to provide that payment practices information would not be required for invoices that relate to the payments set out in clause 10(1B)(a) through (f).

We consider that invoices paid by mutual agreement in parts should not be counted as late payments in a disclosure. We therefore recommend amending clause 10(1)(a) to insert the words “in full or in part”, and inserting clause 10(1A) to provide that, if an invoice provides for payment by instalments on specified dates, for the purposes of payment practices information each instalment is to be treated as a separate invoice.

Similarly, we consider that any information about disputed invoices should be reported separately from invoices paid late. We therefore recommend inserting clause 10(2) to require the Minister to ensure the regulations enable an entity to disclose disputed invoices separately from those on which payment was late.

The purpose of the bill is to make available to third-party suppliers useful information on the payment practices of large entities. To be useful, the information should come from a representative share of large entities, in terms of the number of entities, the share of business carried on in New Zealand, and the share of payments to third-party suppliers. It should also make clear on whose behalf an entity is reporting.

On the other hand, we are mindful that any new reporting requirements would add to the regulatory burden on reporting entities. Therefore, the number and market share of reporting entities, and the scope of reporting requirements, should be no greater than needed to achieve the bill’s intended purpose. On this basis, we recommend several amendments.

We recommend amending clause 5 to state that “carrying on business in New Zealand” means carrying on business in New Zealand within the meaning of section 332 of the Companies Act 1993, and “overseas company” means a body corporate carrying on business in New Zealand that is incorporated outside New Zealand. This amendment is intended to ensure that only overseas entities actually trading in New Zealand would be required to report.

We note that, where a reporting entity forms part of a group, it can make good business sense to increase the group’s collective purchasing power by coordinating payments through a single entity within the group. Because of this, a subsidiary within a group that collectively counts as a reporting entity may not have any third-party payments information to disclose.

We consider that it would not make sense to require such entities to make disclosures. We therefore recommend amending clause 8 to state that only certain large entities would need to make disclosures.

We recommend inserting clause 8(1)(b) and clause 8(2)(b)(ii) to provide that clause 8 would apply if the entity met a payment threshold test. This test is set out in recommended new clause 9A, which would provide that an entity meets the test if, in each of the 2 preceding accounting periods, its total expenditure was at least $10 million (excluding wages and salaries and goods and services supplied by related parties). These amendments would ensure that only entities that carry out significant business with third-party suppliers would be required to report.

We recommend inserting clause 9B to specify the contents of disclosure for entities that do not have any subsidiaries. These contents would include payment practices information, the entity’s identifying information, and confirmation that an authorised person has signed off on the disclosure.

We recommend inserting clause 9C to specify the contents of disclosure for entities with one or more subsidiaries. The purpose of this clause would be to make clear which entity or entities the disclosed information applied to, whilst allowing the Registrar discretion in cases where information was not reasonably available.

• Clause 9C(1)(a) would provide that a disclosure by a reporting entity with one or more subsidiaries must contain the payment practices information for the disclosure period either for the entity and each subsidiary or for the group as a whole; or for the entity alone if it is independently large and the information is not otherwise provided.

• Clause 9C(1)(b) would provide that such disclosures must identify, for each set of payment practices information provided, the group or entity to which the disclosure relates.

• Clause 9C(1)(c) would provide that such disclosures must specify the trading name or names and New Zealand Business Number of each subsidiary.

• Clause 9C(1)(d) would provide that, if the entity’s identifying information was not already recorded on the register, the disclosures must contain the entity’s identifying information, or as much of this information as the Registrar was satisfied that the entity was able to provide.

Not all subsidiaries of a reporting entity would be required by the bill to report on their payment practices. However, we note that some subsidiaries may wish to do so, to distinguish themselves from related entities or their group as a whole. We therefore recommend inserting clause 9D to allow certain subsidiaries to make disclosures.

Clause 23(d) would enable regulations to confer further powers and functions on the Registrar. We are concerned that this framing is overly broad and could enable substantive changes to the scope of the Registrar’s role over time, including the addition of significant powers. It would conflict with Chapter 14 of the Legislation Design and Advisory Committee guidelines, which advises that secondary legislation should generally deal with minor or technical matters of implementation rather than matters of significant policy. Secondary legislation should also not enable the creation of significant public powers.

We therefore recommend removing clause 23(d).

As introduced, clause 26(2)(e) would enable the Registrar to issue a compliance notice if they were satisfied that a person had failed to comply with their obligations under the bill. It provides that the notice must contain “the conditions, if any, imposed by the Registrar”.

Given that other provisions in the bill specify all the information typically expected on a compliance notice for a business register, we consider that further conditions are unlikely to be needed. We therefore recommend removing clause 26(2)(e).

As introduced, clause 8 would require a reporting entity’s director, or their equivalent, to confirm that they are satisfied that the information disclosed is complete and accurate. We share submitters’ concerns that requiring directors to sign off disclosures could delay their publication. We agree that reporting entities’ disclosure obligations should not have the same requirements as financial information submitted to the Companies Office, which is required to be submitted by directors. This task could be delegated to another individual in the entity, such as the chief financial officer.

Therefore, we recommend inserting clauses 8A(c) and 8B(c) so that, apart from the director of an entity, any other person authorised for that purpose would be able to confirm that they are satisfied that a reporting entity’s payment practices information was complete and accurate.

Clause 13 would require a reporting entity to publish payment practices information on its website, and to keep it available for 7 years afterwards. Clauses 18, 19, and 20 would require the Registrar to store this information and make it available in a register.

We consider that requiring reporting entities to also store this information on their websites would be unnecessarily duplicative and would introduce additional compliance costs. Suppliers would be able to check a reporting entity’s disclosures in the register. We therefore recommend removing clause 13.

Clause 29 would enable the review of a compliance notice if the infringement that the notice referred to was disputed by the reporting entity. The reviewer of a compliance notice would be able to cancel, confirm, or vary the notice. However, the bill is unclear on several aspects, namely: who could act as a reviewer; the reviewer’s operational independence from the Registrar; the mechanism for appealing a review decision; and the possibility of a limitation on the review period. We believe these points should be clarified.

We recommend inserting clause 29(2A) to provide that the application for review must be received by the Registrar no later than 10 days after the date on which the notice was served. We recommend replacing clause 30(1) to provide that the chief executive of the Ministry of Business, Innovation and Employment must appoint a person other than the Registrar or their delegate to conduct a review applied for under clause 29.

We recommend amending clause 30(4) to provide that the reviewer must give both the applicant and the Registrar written notice of the reviewer’s decision. We recommend inserting clause 30(5) to provide that the reviewer’s decision would be final, except as provided in clause 30A (see below).

Finally, we recommend inserting clause 30A to set out the process by which an applicant or the Registrar could appeal to the District Court against a decision of the reviewer. This appeal would have to be lodged within 14 days after the date on which the notice referred to in clause 30(4) was served.

Clause 15 would require a reporting entity to notify the Registrar of any error or omission in a disclosure of which the entity became aware. We think that entities should only have to notify the Registrar of non-trivial errors or omissions. We therefore recommend amending clause 15(1) to provide that such errors or omissions should involve a substantial departure from the requirements of the bill or the regulations relating to the disclosure. We also recommend inserting clauses 15(3) and 15(4) to provide a definition of “substantial departure”.

We consider that the monetary amounts specified in the bill should be adjusted for inflation over time. We recommend that the Minister be made responsible for recommending adjustments, in line with provisions governing other legislation in section 48 of the Financial Reporting Act 2013.

We therefore recommend inserting clauses 53 through 55 to provide for the amendment of the Financial Reporting Act to incorporate a reference to this legislation.

Whilst National Party members believe it is important to see small businesses getting paid on time, we do not believe this bill would achieve its objective. We oppose the bill for the following reasons: