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

IN RE GENERAL ELECTRIC INTERNATIONAL, INC [2018] NZHC 3368 [17 December 2018]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV 2018-485-338[2018] NZHC 3368UNDER the Companies Act 1993IN THE MATTER OF an appeal against the decision of theRegistrar of Companies to decline anapplication for exemption under s 207L ofthe Companies Act 1993IN RE GENERAL ELECTRICINTERNATIONAL, INCAppellantHearing: 29 October 2018Appearances: L A O'Gorman and A N Birkinshaw for AppellantH B Rennie QC and M G A Madden for Registrar of CompaniesJudgment: 17 December 2018JUDGMENT OF MALLON JIntroduction [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]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 theUnited States of America (the US) and registered and operating as a branch in NewZealand. It is a wholly-owned subsidiary of General Electric Company (GEC), a UScompany listed on the New York, London and Frankfurt stock exchanges, and theparent company of the GEC group global operations.[2] This appeal concerns whether the New Zealand Registrar of Companies (theRegistrar) erred in declining to grant GEII's application for an exemption to therequirement under the Companies Act 1993 to file audited financial statements ofGEII. The issue arises because, in accordance with US regulatory requirements, GECfiles with the US authorities audited consolidated financial statements for the GECgroup. 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 becausethis is the first appeal concerning the Registrar's exemption power and to assist theCourt.11 Pursuant to the High Court Rules 2016, r 20.17.Context[4] New Zealand law allows for overseas companies to conduct business in thiscountry in a range of ways. An overseas company may, for example, establish asubsidiary under the Companies Act. Or it may establish a branch, trade through anagency, or contract with New Zealand parties without establishing a presence here. Ingeneral terms, the legal requirements that apply to the overseas company depend onwhich of these ways it conducts business.2[5] The Companies Act defines an "overseas company" as "a body corporate thatis incorporated outside New Zealand".3 If an overseas company incorporates asubsidiary which is registered under Part 2 of the Act, the subsidiary is not an overseascompany, 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 itmust register under Part 18 of the Companies Act.4 The registration application mustprovide the following information: the name of the overseas company; the full namesand residential addresses of the directors of the overseas company; the full address ofthe place of business in New Zealand; evidence of the overseas incorporation; a copyof the company's constitution in English; a notice of name approval; and the full nameand address of one or more persons resident or incorporated in New Zealand who areauthorised to accept service in New Zealand of documents on behalf of the overseascompany.5[7] An overseas company must also: ensure its full name and its country ofincorporation is clearly stated in its written communications and documents which itissues or signs;6 give notice to the Registrar if it alters its constitution;7 file each yearwith the Registrar its annual return, in a prescribed form, confirming that the2 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 UnitedKingdom.3 Companies Act 1993, s 2(1).4 Section 334. In general terms, carrying on business involves an element of continuity, as opposedto an isolated transaction, and with a view to pecuniary gain: Morison's Company and SecuritiesLaw (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 ofthe return;8 and give public notice if it intends to cease carrying on business in NewZealand.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 basicinformation about an overseas company which has established a presence in thiscountry. That includes ensuring that those dealing with an overseas company knowthat it is incorporated overseas and on whom they can serve proceedings broughtagainst the company.[9] Additionally, "large" overseas companies, as defined, are subject to financialreporting requirements.11 In summary, these require audited financial statements forthe overseas company (or potentially for the overseas company's group) that complywith New Zealand's generally accepted accounting principles (GAAP), auditedfinancial statements for the overseas company's New Zealand business, and deliveryof these statements and the auditor's report to the Registrar for registration. This caseconcerns what audited financial statements are or should be required when theoverseas company carrying on business in New Zealand is a wholly owned subsidiaryof another overseas company that is not registered under Part 18 of the Act.Factual backgroundGEC structure and operations[10] GEC is a global digital industrial company. It has customers in approximately180 countries and it employs 333,000 people worldwide. In 2015 GEC had overUS$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 throughGeneral Electric Capital Corporation (GECC) and its subsidiaries, or GECC'ssuccessor GE Capital Global Holdings, LLC (GECGH) and its subsidiaries. In thisjudgment 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 lightingsectors. It provides a wide range of products and services. They include, for example,gas, steam and wind turbines, drilling and production systems, floating productionplatform equipment, grid management products, aircraft engines, diagnostic imagingsystems, diesel engines, and home appliances.[13] The industrial products and services are operated through a number ofsubsidiaries. Those of its subsidiaries that operate in New Zealand are organised indifferent ways, as the following chart shows:[14] As the chart shows, one of GEC's subsidiaries that operates in New Zealand isGEII. GEII provides worldwide support activities for services and products offeredfor sale by GEC. These activities include installation and maintenance as well astraining of customer personnel. The New Zealand business of GEII is operated as abranch. It supports the lighting, power, transportation, oil and gas and corporateoperations of GEC in New Zealand. In 2015 GEII had US$13 billion in total revenueand shareholder equity of US$4.6 billion. As recorded in 2015 GEII's New Zealandstatements, in 2015 its GEII New Zealand branch total revenue was overNZ$16 million.US regulatory requirements[15] GEC files audited group consolidated statements in the US. The groupconsolidated 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 byKPMG. These statements are published in the form of annual reports which arepublicly available for download from its website.[16] GEC's publicly available annual report provides a range of information inaddition to the financial statements. For example, its 2015 annual report providessome general information about General Electric's business, the competitiveconditions and environment in which it operates and its employee numbers andrelations. It contains a 72 page management discussion and analysis of the financialcondition and results of General Electric's operations. Included in this section ismanagement's statement that General Electric maintains "a strong focus on liquidity"with GEC excluding GE Capital holding US$10.4 billion and GE Capital holdingUS$60.1 billion respectively in cash and equivalent. GEC's credit rating fromStandard 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 subjectare provided, and there is information about its risk management amongst other things.This annual report is filed with the US Securities and Exchange Commission inaccordance 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 NewZealand Registrar of Overseas Issuers because it operated a GEC employee sharescheme in this country. As required by the Financial Markets Conduct Act 2013 andits predecessor legislation, it filed the GEC consolidated financial statements with theRegistrar of Financial Service Providers on an annual basis.1312 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". TheRegistrar 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 financialstatements as a stand-alone entity because it had the benefit of an exemption thatapplied to all US companies carrying on business in New Zealand. As is discussed inmore detail below, under this exemption a US company was required only to filewhatever its home jurisdiction required together with audited statements for its NewZealand branch. GEII's issue with the New Zealand requirement arose followinglegislative amendments that came into force in 2014.Legislative history[19] Over the past 150 years there has been an "evolutionary development" in thecontent of the accounting records that are required to be kept by companies and thefinancial statements required to be produced from those records.14The position as at 1993[20] A major change introduced in 1993 was to separate the requirements for whatconstituted financial statements from the accounting records and auditingrequirements. The former was dealt with under the Financial Reporting Act 1993 andapplied to a range of business entities. The latter, for companies, was dealt with underthe 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, overseascompanies and large overseas-controlled companies be delivered to the Registrartogether with copies of audited reports. Overseas companies carrying on business inNew Zealand were required to produce reports for the company (for all its operationsin all jurisdictions) and for their New Zealand branch operations as if the branch wasa separate legal entity.14 See Andrew Beck and others New Zealand Company Law and Practice (looseleaf ed, CCH NewZealand 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. InNovember 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 financialreporting regime struck "an appropriate balance between the costs and benefits offinancial reporting".16 A further aim was to provide sufficient flexibility to allow forfuture developments.[23] The Discussion Document discussed the underlying principles for imposingfinancial reporting requirements as being:17(a) accountability (ensuring owners, shareholders or stakeholders of anentity or those acting on their behalf have access to informationnecessary to assess the entity's performance and hold managers toaccount);(b) transparency (to enable creditors, potential investors and prospective orexisting 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 byissuers to the market or private individuals may use them for a varietyof 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 followingconsultation, 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 overseascompanies. There was a view that the additional obligations on them imposed underthe existing regime led to onerous compliance costs without providing any significantbenefit to users.[25] The rationale of these additional obligations was to protect New Zealandstakeholders, particularly as to information about the potential flow of capital in andout of New Zealand. For example, a lender considering whether to advance funds tothe company would wish to know whether the assets of the company were beyond thereach of the New Zealand jurisdiction or whether title to New Zealand based assetsmight pass beyond the lender's reach. As company-wide financial reports mightobscure poor New Zealand operations and New Zealand branch financial reportsmight obscure poor performance of the entity as a whole, both reports are required.[26] The Discussion Document commented that this approach seemed sensible fora single entity operating in both New Zealand and its jurisdiction of incorporation.However, where there was a more complex corporate structure and the company didnot produce financial reports at a company-wide level, substantial compliance costswere likely. This typically occurred where the company was part of a wider group ofcompanies and the company was permitted or required by its domestic requirementsto file consolidated financial reports for the group only.[27] In such cases the New Zealand requirements might impose costs that exceededthe profits from the New Zealand operation or which might deter some largeinternational companies from establishing a small presence here. The DiscussionPaper commented:18Representations received by the Ministry indicated that overseas companiesare typically happy to prepare financial reports for their New Zealandoperations, 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 forthe direct parent of the New Zealand operations imposes significantcompliance costs and can interfere with their business operations generally. Aparticular concern of some businesses is that they are exposing their financialreports 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 complywith New Zealand accounting standards and practices. While the adoption ofinternational standards would resolve this issue for some countries, others were notgoing to adopt those standards.19[29] The Discussion Document noted the New Zealand requirements were based onconcerns about the potential inadequacies of foreign jurisdictions' regulatory regimesfor companies. Although some foreign regimes might cause issues for New Zealandstakeholders, blanket reporting requirements for everyone did not seem appropriate.The Ministry therefore proposed the status quo would be modified to grant exemptionsfrom the full requirements to overseas companies incorporated in jurisdictions whereadequate regulatory and enforcement mechanisms existed. The exemptions should betailored to the jurisdiction and company to "strike an appropriate balance between thebenefits of the additional financial information to New Zealand stakeholders and thecosts associated with producing it".20[30] The Ministry considered the exemption power could apply both to the legalrequirements and the accounting requirements. It should be for "genuine cases wherethere was likely to be particular and unjustified detriment or costs".21 It should not beoverused and would not apply to a person simply because they did not wish to complywith the requirements.[31] Following this review, the Business Law Reform Bill was introduced on27 June 2006. The Explanatory Note explained the Bill was to amend a number ofbusiness 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 unnecessaryrequirements in circumstances that could not be clearly defined in primarylegislation".2219 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 CommerceCommittee 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 Committeerecommended a new s 37A to the Financial Reporting Act.24 This concerned overseascompanies that offered share purchase and option plans to their New Zealandemployees. At that time such companies were required to prepare consolidated andnon-consolidated financial statements. Countries, such as the United States, did notrequire non-consolidated financial statements. Submitters informed the Committeethat the cost of preparing non-consolidated accounts was prohibitive.[33] The Commentary said the new s 37A would provide the Securities Commissionwith the power to exempt companies incorporated outside of New Zealand fromauditing and filing requirements. The Securities Commission would need to besatisfied the exemption would not cause significant detriment to New Zealandsubscribers of overseas companies offering share plans to their New Zealandemployees. To complement this power, the Committee proposed that the Registrarhave 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 theFinancial Reporting Act 1993. Section 35B provided the Registrar with the power togrant exemptions to overseas companies from compliance with certain provisions ofthe Act. The exemption could be granted on any terms or conditions the Registrarthought fit.25 An exemption could not be granted unless the Registrar was satisfied:(a) compliance with the relevant provision would require the overseascompany to comply with requirements that are unduly onerous orburdensome; and(b) the extent of the exemption is not broader than what is reasonablynecessary 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. Thisreferred to the November 2004 Discussion Document for the policy reasons behindthe exemption power. This practice note provided the following discussion of theRegistrar's practice:266.2 Careful consideration will be required in respect of each applicationby an overseas company for an exemption. Each company thatrequests an exemption will have different reasons for doing so andaccordingly it is not possible to set a general policy for whenexemptions will be justified. To date we have considered that thewords "unduly onerous or burdensome" indicate that there must be aparticularly high degree of inconvenience present. For an exemptionto be granted the circumstances faced by the company seeking theexemption must be serious; mere extra cost will not be sufficient.6.3 In determining whether an exemption from filing or auditrequirements is appropriate in any particular case, the Registrar willconsider the purposes for which financial statements and an auditor'sreport on those statements are required to be filed with the Registrarby overseas companies under the FRA, namely:• To ensure that effective comparisons can be made between thefinancial performance of overseas companies; and• To assist New Zealand investors and creditors in making informedbusiness decisions in relation to these companies.6.4 The principle basis on which the Registrar has found that it is "undulyonerous or burdensome" for an overseas company to comply withrequirements under the FRA is where the overseas company is able toprepare and file consolidated financial statements for the group ofwhich it forms part but is not required in its home jurisdiction toprepare stand alone financial statements. In such situations, providedthe circumstances of the overseas company are such that consolidatedaccounts provide sufficient information to meet the needs of NZ users,the Registrar has granted exemptions from the requirement to prepareand file stand alone accounts for the overseas company.6.5 Factors that have not been accepted as making it "unduly onerous orburdensome" for an overseas company to comply with the FRAinclude:• a limited presence in NZ, or a lack of NZ creditors;• a desire to maintain commercial confidentiality in the content offinancial statements;26 The practice note was described in the Record for the hearing as an undated internal documententitled "Financial Reporting Act 1993: Section 35B – Registrar's exemptions from reporting andfiling requirements". No author was given.• the cost of preparing financial statements;• audit and filing requirements in New Zealand that are in excess ofthe requirements in a company's home jurisdiction.6.6 We have also formed the view that a particularly compelling case willbe required to justify an exemption from the requirement to preparefinancial statements for a company's New Zealand branch as if thatbusiness were conducted by a company formed and registered in NewZealand.6.7 Where possible we have sought to grant class exemptions as opposedto exemptions for individual companies, although in some casesspecific individual exemptions have been appropriate. Where itappears to the Registrar that requirements under the FRA are undulyonerous or burdensome for a class of overseas companies(e.g. companies that are incorporated in a particular jurisdiction), heor 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. Mostof these, including a class exemption that applied to all US incorporated companies,allowed the directors of overseas companies to file group financial statements insteadof entity financial statements for the exempted companies. The US class exemptionwas due to expire on 31 July 2012. Before that occurred there was a further review ofthe financial reporting requirements.Further review[37] This review commenced in 2011. It led to a major overhaul of the financialreporting requirements in 2013 that took effect in 2014. A Regulatory ImpactStatement, dated 28 June 2011, which was prepared as part of the review stated:27The main aim of the review is to find an appropriate balance between the costsof reporting and the benefits that users obtain from financial reports to assistusers to make economic decisions, or to promote accountability andtransparency or both.The reason for imposing statutory financial reporting obligations is to provideinformation to external users who have a need for an entity's financialstatements but are unable to demand them. Decisions about who should haveto report and, if so, what they should report predominantly involve trade-offs27 Ministry of Economic Development Regulatory Impact Statement: The Review of the FinancialReporting Framework (28 June 2011) at 1-5.between the benefits of transparency and accountability to users and thecompliance costs associated with financial reporting. The overall objective isto obtain an appropriate balance between the benefits and costs.[38] The Regulatory Impact Statement considered there to be three indicators of theneed for accessible financial reporting for external users. These were: (1) publicaccountability where an entity is effectively publicly owned or publicly funded;(2) economic significance; and (3) where there is a significant degree of separationbetween managers and the owners of the entity.28 Economic significance was arelevant indicator because the failure of a large entity could have significant economicand social impacts. The entity should therefore be required to provide assured generalpurpose financial statements.29[39] The Regulatory Impact Statement provided an analysis of the requirements forvarious 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 andlarge 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 toprepare accounts (audited unless the owners unanimously decided otherwise) for thegroup as a whole and the companies within the group. The proposal was to removethe requirement for the parent entity of the group.3128 At 5.29 However if there were outweighing commercial confidentiality or privacy related costs such thatpublication was not justified, the entity should be required to prepare assured general purposefinancial 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 Thisrequired the same reports as for non-overseas large companies (that is, financialstatements for the group as a whole and for companies within the group) with theadditional requirement to file the audited reports with the Registrar. It was notproposed to remove this filing requirement because it provided protection forcreditors. This was important because of the difficulties of pursuing directors andshareholders in other jurisdictions in the event that the company failed.[42] For widely held medium and small companies the proposal was to have adefault of preparation, assurance and distribution to owners of accounts but allowingshareholders to opt out of this. For closely held medium and small companies theproposal was to have a default of no requirement of general purpose financial reportingbut with the ability to opt in to preparation and assurance. For the closely heldcompanies there would be compliance costs savings. All medium and smallcompanies were also be subject to new obligations under the Tax Administration Actwhich would provide financial discipline and promote confidence in the healthyfunctioning of business.[43] The proposals from the Regulatory Impact Statement led to recommendationsin a 2011 Report from the Minister of Commerce to the Cabinet Economic Growthand Infrastructure Committee.33 These recommendations were consistent with whathad been proposed. The proposals were expected to substantially reduce compliancecosts for medium and small New Zealand and overseas companies and to provide asmall reduction in compliance costs for large New Zealand companies.[44] Consistent with the proposals, in the main no change was recommended forlarge overseas companies. It was noted that as, a general rule, large overseascompanies were required to: prepare and filed audited consolidated financialstatements where the legal entity was part of a group; audited financial statements forthe legal entity; and audited financial statements for the New Zealand business of the32 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 InfrastructureCommittee (undated, 2011) (P/008/PR018/006/001).company as if it was a stand-alone entity.34 These requirements for large overseascompanies were for creditor protection reasons and because of the difficulties ofpursuing directors and shareholders in other jurisdictions in the event the companyfailed.[45] The Report referred to the exemption:35The Registrar of Companies can provide exemptions for the legal entityfinancial statements where the home country only requires consolidatedfinancial statements be prepared, if the cost of producing the legal entityfinancial statements for New Zealand filing purposes would be onerous orburdensome. Class and individual exemptions have been made for UnitedStates companies.[46] There was, however, one change proposed:36The only other change I am recommending is to introduce a new approach forthe legal entity financial statements. Those statements would need to beprepared and filed, but only if there is a preparation requirement in the homejurisdiction. This would mean the Registrar's exemption power could beconsequentially repealed.[47] This review led to the Financial Reporting Bill 2012. This Bill was introducedon 31 July 2012. Consistent with the 2011 Regulatory Impact Statement, theExplanatory Note identified the three indicators that financial reporting was in thepublic interest as being public accountability, economic significance, and separation.37It said the Bill aimed to: reduce compliance costs by removing or reducing reportingobligations where they were unnecessary or excessive, (particularly to removerequirements for non-large non-issuer companies); empower the External ReportingBoard to issue financial reporting standards for a range of entities; and to make otherchanges to current financial reporting requirements where they were inconsistent withpublic accountability, economic significance and separation.38[48] The Explanatory Note explained the requirement to prepare general-purposefinancial statements would now apply to overseas companies only if they were34 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 filedwithin three months after a balance date (rather than five months as was the case underthe 1993 Act). The test for recognising overseas financial reporting requirements wasto be relaxed so that the Registrar needed only to be satisfied the requirements weresufficiently equivalent (compared with substantially the same under the existingrequirements).[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 ifgroup financial statements are prepared. Under the 1993 Act, if a companyhas subsidiaries, financial statements for both the parent company and thegroup must be prepared[.][50] It is unclear if this is the same change as had been proposed in the 2011 Reportfrom the Minister.41 That was a change to the requirement for the legal entity operatingin New Zealand not to have to file financial statements if these were not required inthe home jurisdiction. Consolidated group financial statements were still required.This approach was consistent with what had been the Registrar's approach toexemptions under s 35B. That is presumably why it was envisaged that the Registrar'sexemption power could be repealed.[51] However the Explanatory Note's description of the change said it was to notrequire financial statements for "a parent company". This terminology might bereferring to the parent of the company that is operating in New Zealand, not the legalentity that is actually operating in New Zealand. In any event, this Bill introducedwhat became ss 200 to 203 in the Companies Act, amongst other provisions. The Billas introduced did not contain an exemption power equivalent to s 35B of the FinancialReporting Act 1993.[52] On 22 May 2013 the Financial Reporting Bill was reported back from theCommerce Committee. This included an exemption power similar in its terms to39 Also, consistent with the 2011 Regulatory Impact Statement, a similar change was to be made forother companies – the requirements applied only if they were large, and to other companies subjectto 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 becames 207L in the Companies Act. The Explanatory Note and Commerce CommitteeCommentary do not explain why the exemption power was initially omitted and norwhy it was subsequently added.[53] The officials' report to the Commerce Select Committee dated 15 April 2013referred 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 further20 working days.42 KPMG submitted the Registrar should have the discretion to grantan extension of time to the reporting timeframes upon application by an overseascompany. In response to that submission, officials commented:43Agree that there should be a power for the Registrar to grant exemptions tooverseas companies that are not FMC Reporting Entities similar to the currentpowers under s 35B of the FR Act 1993. It is needed to deal withcircumstances where NZ's reporting requirements are more demanding thanthe requirements in the company's home jurisdiction.[54] Similarly, GE Capital submitted that reducing the preparation deadline fromfive to three months would cause practical difficulties and provide little benefit tointerested parties. Officials commented in response that "reinstating the exemptionpowers would address the issue".44[55] In the officials' report to the Commerce Select Committee dated 15 April 2013the only commentary on the reintroduction of s 35B concerned this timeframe issue.Specifically, this report said:45Two uncontroversial changes could be made to the Bill to mitigate any risksassociated with reducing the deadlines. Accordingly, we recommend:a. The reinstatement of the rules appearing in two exemption-relatedprovisions in the FR Act 1993, but have not been included in the Bill. Thoseprovisions are:42 Ministry of Business, Innovation and Employment Financial Reporting Bill Officials' Report forCommerce 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 tothe Commerce Select Committee (15 April 2013) at 30.ii) Section 35B of the FR Act 1993, which empowers theRegistrar of Companies to grant exemptions to overseascompanies that are not issuers. Reinstating this power willprovide the Registrar with the power to make class andindividual exemptions, subject to any conditions as theRegistrar may consider appropriate, where New Zealand'sreporting requirements are more demanding than therequirements in the company's home jurisdiction[56] In addition to reinstating the s 35B exemption power, the amendments to theBill also extended the time for registration of financial statements to five months afterthe balance date of the overseas company. A further change was to limit therequirement for audited branch accounts of the overseas company to the situationwhere the New Zealand business was "large".[57] It is unclear whether officials had already formed the view that the s 35Bexemption power was needed (perhaps prompted by needing to consider the classexemption applications that had been made – discussed under the next heading) orwhether that realisation arose because of the submissions about potential problemswith timeframes. It is clear that the exemption was not intended to be confined toproblems with the timeframes. As recommended in the officials' report, it was in thesame terms as had previously been the case, it enabled the Registrar to make class andindividual exemptions, and it was available where New Zealand's reportingrequirements were more demanding than the requirements in the company's homejurisdiction.[58] Further, the theme of all the changes to the financial reporting requirementsbrought in through the Finance Reporting Bill were about reducing compliance coststhat were not justified by the benefits they brought to users of the reports. While largeoverseas companies needed to be subject to financial reporting requirements thatmedium and small companies were not (justified by their economic significance andthe public impact if they collapsed), the Bill sought to relax some of the reportingrequirements 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 incorporatedin Australia, Singapore and the United Kingdom that were subsidiaries of overseasparent companies. They sought to file consolidated group accounts for the group ofwhich the entity was part. This was because they were not required to file entityfinancial statements in their home jurisdiction. Internal advice to the Registrarrecommended granting the exemptions as a class to these countries as well as to theUnited States. This was seen to be consistent with the Financial Reporting Bill due tobe introduced.[60] In accordance with that advice, by Gazette Notice dated 15 November 2012 anexemption was granted to overseas companies in Australia, the United Kingdom,Singapore and the US.46 The Notice applied from 16 November 2012 to 15 November2017. It provided:47The effect of this notice is to exempt directors of the exempt overseascompanies from certain financial reporting obligations under the Act. Inparticular, the directors of those companies will not be required to prepare andfile financial statements for the companies where there is no equivalentrequirement under law of the jurisdiction in which they are incorporated.The directors of those companies will instead be able to provide the financialstatements or group financial statements that are required of them to meetfinancial reporting obligations under the laws of the country in which they areincorporated.[61] The Notice further explained:48The main difference in the financial statements provided by exempt overseascompanies relying on the exemptions are:• The directors of those companies will prepare and register auditedfinancial statements for the New Zealand business and the financialstatements or consolidated financial statements that they are required toprepare in the country in which they are incorporated;• the financial statements and/or consolidated financial statements willcomply with generally accepted accounting principles applying in thecountry in which the exempt company is incorporated (rather thangenerally accepted accounting practice in New Zealand); and46 "The Financial Reporting Act (Overseas Companies) Exemption Notice 2012" 136 (15 November2012) New Zealand Gazette 3974-3976.47 Above at 3976.48 Above.• the financial statements and/or consolidated financial statements will beaudited in accordance with, and the auditor's report will provide theinformation required under, the laws of the country in which the exemptcompany is incorporated instead of the Act.[62] The Notice set out the Registrar's reasons as follows:49The Registrar considers it appropriate to grant the exemptions because of thefollowing reasons:• The Registrar considers that unless the exemptions are granted, it wouldbe unduly onerous or burdensome for the directors of exempt overseascompanies to prepare financial statements that comply with section 10 ofthe Act;• the exemptions address the particular difficulties experienced by exemptoverseas companies that carry on business in New Zealand. The Registraris satisfied that the exemptions are not broader than what is reasonablynecessary to address these difficulties and still require that group financialstatements be filed in New Zealand;• an exempt overseas company relying on the exemptions will still berequired to file audited financial statements for their New Zealandbusiness prepared in accordance with New Zealand generally acceptedaccounting practice as if that business was a company formed andregistered in New Zealand;• the Registrar is satisfied that the financial statements or consolidatedfinancial statements required to be prepared under the laws of thespecified jurisdictions provide sufficient information to avoid anydetriment to members of the public who have dealings with the exemptoverseas companies; and• the Registrar has had regard to the financial reporting requirements thatmust be complied with by exempt overseas companies who rely on theexemptions. The exemptions are limited to the directors of overseascompanies incorporated in the specified jurisdictions who must complywith the financial reporting and audit requirements under the lawsapplying in those jurisdictions.Reporting regime from 2014Applies to large overseas companies[63] For present purposes, the relevant changes brought in through the FinancialReporting Bill were made to the Companies Act 1993 with effect from 1 April 2014.5049 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 betweenthe Financial Reporting Act and other acts. The new Financial Reporting Act 2013 established theThese amendments set out the financial reporting requirements for every "largecompany" and "large overseas company".51 The requirements applied to othercompanies on an opting in or out basis: that is, they applied to those with at least tenshareholders unless the shareholders opted out of them; and they applied to othercompanies with less than ten shareholders only if they opted in (by shareholders withat least five per cent of the voting shares requiring the company to comply).52[64] A large overseas company meant a company incorporated outside NewZealand that carried on business in New Zealand and which met the definition of"large".53 For overseas companies (and their subsidiaries) this meant total assetsexceeding $20 million, and/or revenue exceeding $10 million in each of the twopreceding 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 precedingyears.55Does the overseas company have subsidiaries[65] The applicable provisions for companies and overseas companies depended onwhether the company had one or more subsidiaries.56 Prior to 30 May 2017, s 200provided 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; andframework that governed the preparation of financial statements. For example, by defining"financial statements" and "group financial statements" and what constitutes "GAAP". Thefinancial reporting, audit and annual report requirements of entities were placed within thelegislation that governed their organisation and operations, for example: the Companies Act, theFinancial 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 thecompany has opted out of compliance with the provision inaccordance with section 207I; and(e) every other company with fewer than 10 shareholders if thecompany has opted into compliance with the provision inaccordance with section 207K.(2) However, section 201 does not apply to a company or an overseascompany in relation to a balance date if the company or overseascompany has, on that date, 1 or more subsidiaries (see section 202).[66] In short, if a large overseas company (that is a large company incorporatedoverseas that carried on business in New Zealand) did not have subsidiaries then s 201applied. 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 overseascompany (A) in relation to a balance date if,—(a) on the balance date, A has no subsidiaries but is a subsidiaryof 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 comprisingB, A, and all other subsidiaries of B that comply withgenerally accepted accounting practice are completed inrelation to the balance date under this Act or any otherenactment; and(c) A has not opted into compliance with section 201 as referredto in subsection (1)(e).[68] Similar amendments were made to the corresponding provisions as set outbelow. I will discuss the intention behind these amendments later.[69] If s 201 applied, the large overseas company financial reporting obligationswere as follows:201 Financial statements must be preparedEvery company or overseas company to which this section applies (A) mustensure that, within 5 months after the balance date of A, financial statementsthat 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 only1 director, by that director.[70] If s 202 applied, prior to 30 May 2017 the large overseas reporting obligationswere 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 ensurethat, within 5 months after that balance date, group financialstatements that comply with generally accepted accounting practiceare—(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 Ahas only 1 director, by that director.(2) Group financial statements are not required under subsection (1) inrelation to a balance date if,—(a) on the balance date, A is a subsidiary of a body corporate thatis incorporated in New Zealand (B); and(b) group financial statements in relation to a group comprisingB, A, and all other subsidiaries of B that comply withgenerally accepted accounting practice are completed inrelation to that balance date under this Act or any otherenactment.[71] "Group" was defined as meaning a company or an overseas company and itssubsidiaries.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 theoverseas company and its subsidiaries.57 Companies Act, s 198.[73] However if that large overseas company was a subsidiary of a companyincorporated in New Zealand, it did not have to file group financial statements,providing its New Zealand parent filed group financial statements. This exception wasextended when, from 30 May 2017, s 202(2) was replaced with the following:(2) Group financial statements are not required under subsection (1) inrelation 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 comprisingB, A, and all other subsidiaries of B that comply withgenerally accepted accounting practice are completed inrelation to that balance date under this Act or any otherenactment; and(c) A has not opted into compliance with this section as referredto in section 200(1)(e).[74] In other words, from 30 May 2017, a large overseas company, which hadsubsidiaries, did not have to file group financial reports under s 202(1) if it was itselfa subsidiary of another company (the parent company), that parent company wasregistered or deemed to be registered under Part 18, and the parent company had filedgroup financial statements. It can be seen that the amendments to s 200 made witheffect from 30 May 2017 mirrored this extension of the exception.[75] Section 203 provided:58203 Recognition of financial reporting requirements of overseascountries(1) Subsection (2) applies if the Registrar notifies a large overseascompany (A) that the Registrar is satisfied that—(a) the financial statements of A comply with the requirements ofthe law in force in the country where A is incorporated orconstituted; and58 Tidying up amendments were made to s 203 with effect from 30 May 2017. These are of nosignificance 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 offinancial reporting they achieve, to the requirementsof this Act.(2) The financial statements must be treated as complying with generallyaccepted accounting practice.(3) Subsection (4) applies if the Registrar notifies a large overseascompany (A) that the Registrar is satisfied that—(a) the group financial statements of the group that comprises Aand its subsidiaries comply with the law in force in thecountry 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 offinancial reporting they achieve, to the requirementsof this Act.(4) The group financial statements must be treated as complying withgenerally accepted accounting practice.New Zealand branch accounts[76] Section 204 required an overseas company to include financial statements forits New Zealand business if that business was "large". In this context "large" meanttotal assets of the New Zealand business exceeding $20 million, and/or total revenueof the New Zealand business exceeding $10 million, in each of the two precedingyears.59 Section 204 provided:204 Financial statements for overseas company must include financialstatements for large New Zealand business(1) If an overseas company is required to prepare financial statementsunder s 201 and its New Zealand business is large, the financialstatements that are prepared must include, in addition to the financialstatements of the overseas company, financial statements for its NewZealand business prepared as if that business were conducted by acompany formed and registered in New Zealand.(2) If an overseas company is required to prepare group financialstatements under section 202 and the group's New Zealand business59 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, financialstatements for the group's New Zealand business prepared as if themembers of the group were companies formed and registered in NewZealand.(5) If an overseas company has been granted an exemption under section207L from a requirement to prepare financial statements under section201 or group financial statements under section 202, subsection (1) or(2) (as the case may be) still applies (except that the financialstatements for the New Zealand business are not in addition to thefinancial statements of the overseas company or its group).[77] In other words, financial statements for the New Zealand business wouldalways be required even if the requirement to prepare group financial statements wasexempted, provided the New Zealand business was large.Balance date[78] Section 205 concerned aligning the balance date of each subsidiary of anoverseas company that is required to comply to with s 202.Auditing[79] Section 207 provided that the required financial statements are to audited:60207 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 statementsprepared in respect of A under section 201, 202, or 204 (if any) areaudited 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 May2017 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 ors 202; it is not required to file financial statements for its New Zealand business under60 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 or202) are required to be prepared but are not required to be audited.[81] Section 207A required that the audit be carried out in accordance withapplicable auditing and assurance standards. For a large overseas company, thosestandards could be those in force in the country in which it is incorporated. That waspermitted if the Registrar notified the company that he or she was satisfied thosestandards were substantially the same or substantially equivalent to the applicableauditing and assurance standards.Registering statements[82] Section 207E provided for the registration of financial statements completedunder s 201, 202 or 204 and the auditor's report (if any).[83] Section 207D determined who was subject to this requirement. Large overseascompanies (that is, companies incorporated overseas who carry on business in NewZealand and who meet the definition of "large") were subject to the requirement unlesss 207D(2) applied. Prior to 30 May 2017 this meant that it did not apply to a largeoverseas company if it was a subsidiary of a company incorporated in New Zealandwho filed group financial statements. Consistent with the amendments made to ss 200and 202, with effect from 30 May 2017 it also did not apply to a large overseascompany if it was a subsidiary of a company that was registered or deemed to beregistered 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 largeoverseas company, or any class of large overseas companies, fromcompliance with any provision of sections 201, 202, 207, and 207E.(2) The Registrar must not grant an exemption under this section unlesshe or she is satisfied that—(a) compliance with the relevant provision would require theoverseas company to comply with requirements that areunduly onerous or burdensome; and(b) financial reporting requirements must be complied with inrelation to the overseas company under the law in force in thecountry where the overseas company is incorporated orconstituted and that those requirements are satisfactory; and(c) the extent of the exemption is not broader than what isreasonably necessary to address the matters that gave rise tothe exemption.(3) The exemption may be granted on any terms and conditions that theRegistrar thinks fit.(4) The Registrar may vary or revoke an exemption in the same way asan 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 notamended when the 30 May 2017 amendments were made.[86] The Registrar was required to notify his or her reasons for granting anexemption in the Gazette.62 If the exemption involved ss 201 or 202 the Registrar hadto consult with the Commissioner of Inland Revenue.63 The Registrar could consultwith any other person or organisation that the Registrar thought fit.64Explanation for the May 2017 amendments[87] The May 2017 amendments arose from the Regulatory Systems (CommercialMatters) Amendment Bill. This Bill contained amendments to legislationadministered by MBIE and identified by it as part of its regulatory programme. As setout in the Initial Briefing to the Select Committee dated 1 December 2016, theamendments in the Bill were intended to maintain the effectiveness and efficiency ofthe legislation by: clarifying and updating provisions to give effect to the purpose ofthe legislation; addressing gaps, errors or inconsistencies; keeping the regulatorysystem up to date and relevant; and removing unnecessary compliance costs in doingbusiness.6562 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 asfollows:Description Reason for changeAmends section 200. Section 200requires certain companies toprepare financial statements.The amendment removes arequirement for a large companywith no subsidiaries to prepare entityfinancial statements if it is asubsidiary of a body corporate that isregistered in New Zealand that isrequired to prepare group financialstatements.Reduces compliance costs.Makes reporting requirements thesame regardless of whether the largecompany does or does not have atleast one subsidiary.[89] Similarly, for s 202:Description Reason for changeAmends section 202. Section 202provides that group financialstatements are not required if thecompany is a subsidiary of a NewZealand company and financialstatements for the group of that NewZealand company are prepared.The amendment extends theprovision to cover situations inwhich the company is a subsidiary ofan overseas company that is areporting entity.Reduces compliance costs.Consistent with the idea that financialreporting requirements should reflectwhether the group of companies as awhole is large, not whether or notthere are also individual companieswithin the group structure that arelarge.[90] For s 207D, the Initial Briefing said:Description Reason for changeAmends section 207D. Section207D provides for the registration offinancial statements. Currently,financial statements are not requiredto be registered if the company is asubsidiary of a New Zealandcompany and financial statementsfor the group of that New Zealandcompany are registered or lodgedunder another Act.The amendment extends theprovision to a company that is asubsidiary of an overseas company.Reduces compliance costs.Consistent with the idea that financialreporting requirements should reflectwhether the group of companies as awhole is large, not whether or notthere are also individual companieswithin the group structure that arelarge.[91] The Explanatory Note to the Bill described, in similar terms as was discussedin the Initial Briefing, how the proposed amendments arose.66 In relation to theCompanies Act amendments it said:67The purpose of the Companies Act 1993 changes is to ensure that therequirements of that Act can be more efficiently and effectively achieved withminimum necessary compliance costs. The changes will remove unnecessarycompliance costs in relation to –• the provision of information from directors:• the preparation of financial statements for companies that are subsidiariesof a body corporate that is required to prepare group financial statements:• notification requirements for listed companies.[92] More specifically the Explanatory Note said:68Clause 18 amends section 200, which places requirements on certaincompanies to prepare financial statements. The amendment clarifies howthose requirements apply to a company that is a subsidiary of anothercompany. A company is not required to prepare financial statements if it is asubsidiary of a New Zealand or an overseas company and financial statementsfor that group are prepared.Clause 19 amends section 202, which currently provides that group financialstatements are not required if the company is a subsidiary of a New Zealandcompany and financial statements for the group of that New Zealand companyare prepared. The amendment extends the provision to cover situations inwhich the company is a subsidiary of an overseas company.Clause 22 amends section 207D, which provides for the registration offinancial statements. The section currently provides that financial statementsare not required to be registered if the company is a subsidiary of a NewZealand company and financial statements for the group of that New Zealandcompany are registered (or lodged under another Act). The amendmentextends the provision to cover situations in which the company is a subsidiaryof an overseas company.[93] In short, a gap in the provisions was identified. An overseas company that waspart of a group could rely on the group's financial statements where those statements66 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 reducingunnecessary 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 requiredto file financial statements for itself in accordance with GAAP (ss 200and 201);(b) prior to 30 May 2017, if GEII had subsidiaries it was required to file itsgroup financial statements (for itself and its subsidiaries) unless GEIIwas 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 asubsidiary of another company (GEC) registered or deemed to beregistered under Part 18 and GEC had filed group financial statementsin accordance with GAAP it was not required to file financialstatements for itself or its group (itself and its subsidiaries);(d) after 30 May 2017, if GEC was not registered or deemed to beregistered under Part 18, the requirements on GEII were the same asbefore 30 May 2017.[95] In other words, for the financial years ending 2015 and 2016, GEII wasrequired to file either:(a) the financial statements for GEII on a stand-alone basis (if GEII did nothave 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 Registrarwas satisfied about them and issued a notice to that effect (s 203);(b) the financial statements required needed to be audited (s 207) inaccordance with the applicable standards (or standards the Registrarwas 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 foritself or for its group if GEC was registered or deemed to be registered under Part 18and it had filed the audited group financial statements. But if GEC was not registeredor 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 overseascompany, 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 neededto 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 yearswhen 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 hada 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 pursuantto the requirements of the Financial Reporting Act 1993 and subsequently with theRegistrar of Financial Service Providers under the Financial Markets Conduct Act2013.69 For its part, GEII relied on the class exemption for US companies and filedwith 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 GECconsolidated 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 informationin the GEII statements had been subjected to the auditing proceduresapplied in the audit of GEC's consolidated accounts and in KPMG'sopinion they were fairly stated in all material respects in relation toGEC's statements.[101] On 19 July 2016 GEII filed financial statements for the year ended31 December 2015 with the Companies Office. By this time, the new financialreporting regime was in force. The statements filed by GEII comprised the financialstatements for GEII prepared as part of the audited GEC consolidated accounts andGEII's New Zealand branch statements, prepared and audited as if it were incorporatedin New Zealand (as per s 204 of the Companies Act). Additionally, as GEII noted inits correspondence with MBIE (Mr Rendle), the GEC financial statements wereregistered with "the New Zealand Companies Office" pursuant to the FinancialMarkets 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 bya letter from KPMG, the auditors of GEC, stating that the information in the statementswere subjected to auditing procedures applied in the audit of the GEC statements andthat, in KPMG's opinion, the information in the statements was "fairly stated, in allmaterial respects, in relation to the consolidated financial statements as a whole".[103] On 15 September 2016 the Registrar advised that the financial documents filedfor GEII could not be accepted. This was because: (1) the "overseas companyfinancial statements" had not been audited (as required by s 207 and 207A of theCompanies Act); (2) a cash flow statement was required; (3) a statement of accountingpolicies was required by NZ IAS 1; and (4) notes to financial statements were requiredby NZ IAS 1.7070 NZ IAS stands for New Zealand International Accounting Standards.[104] On 21 September 2016 Buddle Findlay, on behalf of GEII, sought clarificationof this rejection. As to (1) it sought clarification about whether the issue was with thequalifications of the auditor or the US auditing standards. As to (2) to (4), it noted thefinancial statements were prepared in accordance the US requirements. The letterreferred to s 203 and said that GEII was not required to prepare a statement of cashflows, a statement of accounting principles or notes to the financial statements underUS financial reporting requirements. The letter also sought confirmation that thebranch 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 ins 203. This was because the financial statements "have not actually been audited" inaccordance with New Zealand auditing standards or their US equivalent. Rather, theaudit report explained that the company's shareholder's accounts71 have been auditedand 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 complywith GAAP because there was no statement of cash flow, nor a statement of accountingpolicies and notes.[106] On 10 October 2016 Buddle Findlay emailed the Companies Office to requesta meeting to discuss the financial reporting provisions, on behalf of "our client – amulti-billion dollar international group that has a number of different operations inNew Zealand". Mr Rendle (MBIE) replied on 11 October 2016, copied to theCompanies Office and Mr McPherson, asking for details of the overseas company thatBuddle Findlay represented and the circumstances faced by that company which madethe reporting requirements "unduly onerous or burdensome". Buddle Findlayresponded on 12 October 2016 confirming the client was GEII. They also soughtconfirmation that no action would be taken against GEII for its non-compliance in themeantime.[107] By letter dated 14 October 2016 to Mr Rendle (MBIE), Buddle Findlay, onbehalf of GEII, provided further information for the purposes of "a high level71 Meaning GEC.72 Meaning GEII.discussion concerning the implications for GEII of [the] interpretation of sections 203and 207". The letter explained that GEII was a large overseas company as defined ins 198; it was a wholly owned subsidiary of GEC which was registered on the NewZealand Registrar of Overseas Issuers in connection with the operation of the GECemployee share scheme in New Zealand; and GEC was required under the FinancialMarkets Conduct Act 2013 to file audited group financial statements in accordancewith applicable US laws and a report from the auditor confirming the statementscomply with US GAAP.[108] The letter referred to the 2014 financial statements filed for GEII pursuant tothe 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 thatcomprises GEII and its subsidiaries (submitted forfiling on 19 July 2016) comply with the laws in forcein the US: and(ii) those requirements are:A. substantially the same as those of the Act; orB. sufficiently equivalent, in relation to thequality of financial reporting they achieve, tothe requirements of the Act. Please refer toparagraph 4.1 below which sets out ourproposed additions to the informationcurrently filed.(b) under section 207A(2) of the Act, that the Registrar issatisfied that:(i) the standards relating to auditing and assurance thatare in force in the US (i.e. that do not require GEII tosubmit independently audited accounts) are:A. substantially the same as those of the Act; orB. sufficiently equivalent, in relation to thequality of financial reporting they achieve, tothe standards referred to in the Act.3. Request for exemption3.1 If the Registrar considers it is unable to give one or both of the noticesrequested above, we request the Registrar grant an exemption underclause 207L of the Act and exempt GEII from the requirements of:(a) section 202 of the Act (to the extent that the Registrarconsiders the requirements of US GAAP are not"substantially the same" or "sufficiently equivalent") to NZGAAP; and(b) section 207 and 207A of the Act from the requirement to fileindependently audited financial statements provided that thefinancial statements that are filed are extracted from GEC'sconsolidated financial statements that are audited inaccordance with US GAAP.[109] It can be seen that GEII understood s 202 applied to it (because it hadsubsidiaries) and that it was therefore required to file the audited GEII group financialstatements and in compliance with NZ GAAP. It was seeking an exemption to this onthe 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: thefinancial statements were prepared in accordance with US GAAP; a statement of cashflows could be provided; the financial statements were not independently auditedbecause US law did not require that; there was a level of audit oversight because thestatements were extracted from GEC's audited consolidated accounts; having USaccountants prepare GEII financial statements in accordance with New Zealandrequirements would be unduly onerous and burdensome on GEII and outweigh thebenefits to the New Zealand public of having access to those financial statements; theNew Zealand public had access to the audited GEC consolidated statements and theaudited GEII branch statements; a notice or an exemption would avoid unnecessarycompliance costs in accordance with the objectives of the new reporting provisions inthe Companies Act which provisions were intended to relax the requirements; GEIIwas subject to a level of compliance in New Zealand through GEC; GEII wasregulated in the US by the US Securities and Exchange Commission; and a notice orexemption would address the issues that only arise because GEII was a subsidiary ofGEC and was not separately required to prepare audited financial statements under USlaw.[111] Mr Rendle, copied to Mr McPherson and others, advised Buddle Findlay on14 October 2016 that the letter would be considered and in the meantime noinfringement action would be taken against GEII. After this Buddle Findlay followedup their request for a meeting. This was declined in an email dated 7 November 2016from Mr Rendle. This email also advised Buddle Findlay that the Registrar was notprepared to provide a notice under s 203(3) for GEII's financial statements and notgrant GEII an exemption under s 207L.[112] The Registrar explained that s 203(3) required NZ GAAP compliant financialstatements for the overseas company that was registered in New Zealand as opposedto a shareholder of that company. The financial statements provided by GEII wereprepared in accordance with US GAAP and were not accompanied by an audit reportthat complied with s 207. As to s 207L, it did not appear that the requirements weremore 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 therequirements of the Act. The purpose of the exemption power is to ensure thatthe law does not impose requirements that are inappropriate for the particularcircumstances. As with any power to exempt persons from statutoryrequirements, it is important that the power ins s207L is not overused. TheRegistrar considers that the words "unduly onerous or burdensome" ins207L(2)(a) indicate that the circumstances faced by the company seeking theexemption must be serious and there must be a particularly high degree ofinconvenience. It should not apply to any overseas company that simply doesnot wish to comply with the requirements of the Act, or who finds complianceinconvenient or costly. The Registrar considers that the cost incurred by acompany in comply[ing] with the financial reporting requirements under theAct 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 DiscussionDocument, which led to the enactment of s 35B (the exemption power). However itomitted the point from that Document,73 picked up in the practice note74 and appliedwhen granting the 2012 class exemption,75 that it can be "unduly onerous orburdensome" for an overseas company to prepare stand-alone financial statements73 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'sconsolidated accounts provide sufficient information.76[114] Mr Rendle's 7 November 2016 email also advised Buddle Findlay that he waswilling to consider any further submissions. In accordance with that invitation, furthersubmissions were made in a letter from Buddle Findlay to Mr Rendle on 22 December2016. This letter requested the Registrar exempt GEII, pursuant to an exemption unders 207L, from compliance with:(a) s 201 except to the extent it required financial statements for GEII'sbranch in accordance with s 204; and(b) s 207E to the extent it requires GEII's financial statements to bedelivered to the Registrar for registration.[115] The letter proposed the exemption would be subject to the condition that, inaddition to the branch accounts, GEII prepare a schedule of financial position, aschedule of operations, and a schedule of changes in shareowner's equity. The letterattached 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'sglobal assets for FY 2015 were US$14.1 billion and global revenueswere US$13.3 billion.1.4 Of these 130 countries in which GEII operates and lodges financialstatements, New Zealand is the only country that is currently notaccepting GEII's financial statements as they are currently prepared.1.5 Given GEII's size and reach, for GEII to prepare the stand-alonefinancial statements requested by the Companies Office wouldinvolve an unprecedented level of upheaval, including potential re-organisation of the company, re-orientation of staff and establishmentof a dedicated team to focus on compliance. Resource would need tobe dedicated to areas that it would otherwise not be required and couldbe better used in other aspects of the business. These difficulties76 It is unclear in the practice note whether it was referring to the group of each overseas companyof which the overseas company is the parent company. However, in practice, as confirmed by the2012 class exemption, it was only the group consolidated accounts of the ultimate parent companyof the company carrying out business in New Zealand that was required.cannot all be quantified from a monetary perspective and accordinglyGEII have not attempted to do so.1.6 GEII has been able to quantify the external audit costs and haveadvised that if KPMG were to audit stand-alone financial statementsof GEII there would be substantially more audit work needed thancurrently required. GEII estimate KPMG's fee would beapproximately US$500,000.1.7 GEII would also like to advise that to date, in dealing with thisparticular 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 ofinconvenience for GEII would be so high that the company wouldneed to seriously consider whether to maintain its branch registrationin New Zealand. Closing the branch could result in a morecomplicated legal structure in New Zealand meaning furtherdisruption and cost.1.9 The GEII branch currently supports the Lighting, Power,Transportation, Oil & Gas and Corporate operations of GE in NewZealand. The GEII NZ branch has assets of NZ$48.9 million andrevenues of NZ$16.4 million.1.10 For the reasons set out in paragraphs 1.5, 1.6 and 1.7 above we submitthat compliance as required by the Companies Office would indeedbe unduly onerous and burdensome.[117] The submissions said that GEII might be one of only a handful of companiesthat has found itself materially inconvenienced by the approach being taken by theRegistrar. GEII understood that financial statements for Hawaiian Airlines Inc andCitibank 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 requirementsand, given the amount and quality of the information available to the public, therewould be no material detriment to users if GEII were granted the exemption. Theexemption would therefore be consistent with the policy of the provisions to reduceunnecessary compliance costs which provided little benefit to users.77[118] On 8 February 2017 Mr Rendle advised Buddle Findlay that the matter wasunder consideration.78 On 8 June 2017 Buddle Findlay advised Mr Rendle that GEIIhad filed its 2016 financial statements in the same format as for 2015.79 Buddle77 The submission went on to advance reasons why the Companies Office's interpretation of s 203was 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 discussingthe 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 anemail dated 22 June 2017 Mr McPherson provided internal advice that the 2016financial accounts had to be rejected because they did not constitute a complete set offinancial accounts in accordance with GAAP as required by s 201. On 17 July 2017the Companies Office rejected the 2016 financial statements. On 17 August 2017Buddle Findlay advised Mr Rendle of the rejection and sought confirmation thatinfringement action would not be taken while its exemption application was underconsideration. That was confirmed on 24 August 2017.[119] Around this time it is apparent from internal email messages betweenMr McPherson and Ms Voon Shan Kong (a MBIE solicitor) that work was beingcarried out by MBIE on GEII's exemption application. On 23 August 2017 MrMcPherson suggested to Ms Kong that the requirement for the accounts to be auditedwas likely to be what was of concern to GEII. He suggested speaking to "geoff" aboutwhat the legislation was intended to capture.80 On 24 August 2017 Mr McPhersonelaborated to Ms Kong as follows:there is a broader issue we should probably addressthe fundamental problem with those overseas companies that struggle tocomply is often that they have subsidiary companies and are in turnsubsidiaries of an ultimate holding company.in some circumstances the overseas company on the register does not preparefinancial statements because it is a subsidiary of an ultimate holding companywhich prepares consolidated financial statements.in other circumstances the overseas company on the register does prepareaccounts but does not prepare consolidated accounts because it is in turn asubsidiary of an ultimate holding company that prepares consolidatedaccounts for the entire group.S202(2) exempts an overseas company from the preparation of group accountsif its parent is either incorporated or registered in NZ (as the parent would filegroup accounts)this does not apply to most overseas companies on the register as their parentor ultimate holding company will not be on the nz register.most overseas companies would gladly submit the consolidated financialstatements for their ultimate holding company instead of those for thecompany on the register if they could take advantage of an exemption similarto 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 basisthat 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 theoverseas company on the register submit group accounts (irrespective of theexistence of an ultimate holding company) and that S203 does not refer to theexistence of the group accounts but to their form (accounting policies, contentetc)(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 ofwhat the intention was for overseas companiesand also what their view of S203 isa similar question relates to overseas companies without subsidiaries. If theoverseas company is a subsidiary of an ultimate holding company and for thatreason does not prepare accounts – is the intention to obtain the accounts ofthe overseas company on the register or would the group accounts of theultimate holding company suffice? – and does S203 allow that[120] I interpolate at this point of the narrative that in my view Mr McPherson hascorrectly set out the position as to when an overseas company on the register isrequired 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 unders 207L) could be used to allow an overseas company on the register to submit thegroup accounts of its ultimate owner, which is not on the register. He wonderedwhether 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 theywere considering a s 207L exemption application from GEII, a wholly ownedsubsidiary of GEC, both of which were incorporated in the US and GEII was registeredin New Zealand. The email asked whether policy work had been carried out relatingto the following three matters:811. Overseas company cannot take advantage of section 200(3) of theCompanies Act if the parent is not incorporated or registered in NZbut would volunteer to provide group accounts for the ultimateholding company (no matter where incorporated). Is it the policyintention that the financial reporting obligations be strictly imposedon 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 ofsection 202(2) if the parent is not incorporated or registered in NZ butwould volunteer to provide group accounts for the ultimate holdingcompany (no matter where incorporated). Is it the policy intentionthat the group financial reporting obligation be strictly imposed on theoverseas company registered in NZ?3. Is section 203 restricted to the content rather than the existence offinancial statements or group financial statements?[122] These questions were considered by Stephen Tat, in MBIE's policy team, whoasked Ms Kong to confirm that the 207L exemption was sought by GEII for its filingobligations under s 201. This was confirmed. Mr Tat advised the answers to all threequestions was "yes". Mr Tat advised that his team had discussed this and theconsensus was that any reform of the area was unlikely and not desirable. Therequirements on the New Zealand business of an overseas company were the cost ofdoing business in New Zealand and the exemption criteria was "quite a high test" inline with the intent that these companies should be meeting these requirements.[123] On 28 September 2017 there were further email exchanges between Ms Kongand Mr McPherson. Ms Kong queried whether the financial statements of GEII andGEC might be identical for all practical purposes, noting a report from Mr McPhersonin the previous year proposing an exemption for Hawaiian Airlines. Ms Kong alsonoted GEII's argument that its financial statements were in the same form as for the2015 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 itsfinancial position could be satisfactorily determined by reviewing its parent's financialstatements, and what little additional benefit might be gained from reviewing separatefinancial statements would not appear to justify the cost to Hawaiian Airlines ofrequiring it to prepare and file separate financial statements. Mr McPhersonresponded that this case involved an ultimate parent company whose only assets wereits shares in the subsidiary.[124] On 29 September 2017 Ms Kong and Mr McPherson discussed whetherCitibank NA had been granted an exemption. They identified that Citibank NA hadan exemption under the former legislation but did not have one now. This was becauseCitibank NA now filed its consolidated accounts, not its shareholder's accounts, whichwas as the legislation required.[125] In October 2017 a draft report on GEII's exemption application was internallyreviewed. Ms Kong had two particular questions at this time: whether GEII's estimateof US$500,000 for the requested audited financial statements was a reasonableestimate; and whether it would be too difficult to prepare the entity's financialstatements given the branch statements had been prepared (and whether there wouldbe much difference between them). The internal reviewer had no comments on thesepoints.[126] On 31 January 2018 Ms Kong emailed Mr Rendle a draft response to theBuddle Findlay letter for his review and suggesting a meeting for an hour to discussit. On 19 March 2018 Mr Rendle forwarded this email to Mr McPherson, copyingMs Kong and another, for his thoughts on the exemption application and the draftresponse. Mr Rendle asked a number of questions of Mr McPherson. These includedquestions about the plausibility of the estimated audit costs that would be involved ifthe exemption was not granted and whether there was support for GEII's claim of "anunprecedented level of upheaval". Mr Rendle asked if MBIE had an estimate of thenumber 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 newfinancial reporting provisions in the Companies Act was to relax thetest for when overseas financial statements can be registered?7. Do we need to consider what circumstances might justify exercisingthe power of exemption in s207L, at least hypothetically? Iunderstand you might already have discussed this with Voon.[127] Mr McPherson replied to Mr Rendle by email 20 minutes later. He did notknow what it would cost GEII to provide the audited accounts. He considered that ifthis exemption were granted it would be necessary to grant a generic exemption asevery company would have the same argument. He said:6. I'm not sure what the intent was – but that was certainly the effect formost overseas companies – they no longer have any financialreporting obligations and the focus shifted to the large overseascompanies – a very small minority7. those circumstances set out in my email to the securities commissionyears ago – I'll see if I can find it – copy attached – but most of themhave been addressed wit[h] the changes to the FRA/CA/FMCA – Ican'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 – howwould the registrar justify that? (including to someone who wanted access tocompliant financial statements for the company on the register)".[129] The email referred (and attached) to Mr McPherson's response was an emaildated 2 March 2007 when the introduction of the s 35B exemption power was underconsideration. This email discussed the situations which caused companies difficultiesin complying with the Financial Reporting Act requirements. One of these situationswas where a company incorporated in a foreign jurisdiction was a subsidiary ofanother company also incorporated in a foreign jurisdiction and the company wasrequired only to file accounts at the group level.[130] On 22 March 2018 Ms Kong provided a report to Mr Rendle recommendingdeclining GEII's application for an exemption. The advice in this report formed thebasis of Mr Rendle's decision.Decision[131] On 12 April 2018 Mr Rendle, as a Deputy Registrar of Companies (exercisingthe powers of the Registrar),82 advised GEII's solicitors he was not satisfied therequirements of s 207L were met. He was therefore declining the application for anexemption from the requirement to prepare and file audited financial statements ofGEII for the 2015 and 2016 financial years. In summary, this was because the assertedinconvenience and cost of complying with the financial reporting requirements did notmeet 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 requirementsof 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 exceptionto the requirements of the Act. Before granting an exemption the Registrarmust be satisfied that:• Compliance with the relevant provision would require the overseascompany to comply with requirements that are unduly onerous orburdensome;• Financial reporting requirements must be complied with in relation tothe overseas company under the law in force in the country where theoverseas company is incorporated or constituted and that thoserequirements are satisfactory; and• The extent of the exemption is not broader than what is reasonablynecessary to address the matters that give rise to the exemption.The purpose of the exemption power is to ensure that the law does not imposerequirements that are inappropriate for the particular circumstances. As withany power to exempt persons from statutory requirements, it is important thatthe power in section 207L is not overused, and it should not apply to anycompany which finds compliance inconvenient or costly.The Registrar considers that the words "unduly onerous or burdensome" insection 207L(2)(a) indicate that the circumstances faced by the companyseeking the exemption must be serious and there must be a particularly highdegree of inconvenience.I am not satisfied that the grounds on which GEII has sought an exemptionmean that it is unduly onerous or burdensome for it to comply with thefinancial reporting obligations imposed on it under the Act. GEII's revenueexceeds the threshold under section 45 of the Financial Reporting Act 2013meaning it qualifies as a large overseas company.I do not consider the following arguments should affect GEII's obligation toprepare 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 andlodges financial statements which requires stand-alone financialstatements;• an unprecedented level of upheaval, including potential re-organisation of the company, re-orientation of staff and establishmentof 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 registeringaudited financial statements will be greater for overseas companies thancompanies operating in New Zealand. By setting the "large" definition for anoverseas company at a significantly lower level than a New Zealand company,Parliament has determined that companies who meet those criteria are capableof bearing the resulting compliance costs.You have quoted Hawaiian Airlines Inc. as an example of a company that hasbeen granted an exemption recently from the requirement to prepare anystand-alone accounts. The Hawaiian Airlines case is distinguishable as theexemption was given (amongst other reasons) as the accounts of the parentand 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 makingthe parent company a "shell" company.You also cited the exemption given to Citibank as a company that has beengranted an exemption. We note that the exemption was considered under theFinancial Reporting Act 1993 rather than the current Act and in any case, therecent financial statements filed for Citibank N.A meet the requirements of theAct of which no exemption is required.The circumstances faced by GEII are not unique and the requirement to fileaudited financial statements does not appear unduly onerous or burdensomerelative 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 undersection 203(3) of the Act our interpretation of that section is somewhatacademic and I have not addressed that issue in this letter.Preliminary matters on the appealAppeal jurisdiction[133] A person aggrieved by an act or decision of the Registrar has a right of appeal.83On the appeal the Court "may approve the Registrar's act or decision or may give suchdirections or make such determination in the matter as the court thinks fit".84 GEIIand the Registrar submit this is a general appeal, where the appeal court considers thematter afresh on the material before it, and GEII bears the onus to satisfy the Courtthat it should differ from the decision under appeal. This is consistent with the weightof the authority concerning the appeal right concerned.8583 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 ofcompanies [2016] NZHC 3002, (2016) 11 NZCLC 98-048 at [5]; and Vicom New Zealand Ltd vVicomm Systems Ltd [1987] 2 NZLR 600 (CA), (1987) 2 TCLR 474 at 478. Cf. Clarke v Registrarof Companies [2018] NZHC 1608 at [3].[134] However these authorities do not consider an appeal from the Registrar'sdecision under s 207L (or its s 35B predecessor). As was observed in Brand vRegistrar of Companies:86[31] While s 370 is the only appeal provision in the Companies Act theRegistrar exercises a wide range of powers under the Act and the decisions heor she is required to make vary in complexity and kind. The nature of theappeal hearings will therefore vary reflecting the range of decision-makingsubject to challenge.[32] To better understand the nature of the Court's function in this appealI find it more helpful to consider the nature of the decision appealed from thanto simply observe that the appeal hearing is "de novo".[135] In this case, s 207L confers a discretion, subject to evaluative criteria, whichmust be exercised in accordance with its purpose. This may mean that the appeal willfocus on, for example, whether a relevant consideration was overlooked or anirrelevant consideration taken into account, in determining whether in the Court'sassessment the Registrar's decision was wrong.Appeal grounds[136] GEII's appeal originally sought to appeal the Registrar's decision to declineGEII's application "for an exemption under s 207L of the Companies Act 1993 fromcompliance with certain requirements of ss 201 and 207E of the Act". This wasconsistent with GEII's submissions dated 22 December 2016 which were in supportof an exemption from those provisions although its earlier correspondence, dated14 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 201and 207E" and to add after "the Act" the following: "(originally the exemption wassought in respect of ss 201 and 207E, but the appropriate sections for which theexemption is now sought are ss 202, 207 and 207E)".[138] The amendment is not opposed by the Registrar. However the Registrar saysthe amendment is relevant to the order I should make if the appeal is successful. The86 Brand v Registrar of Companies [2016] NZHC 2983.Registrar submits I should refer the matter back to the Registrar for considerationrather than determining whether the exemption should be granted because GEII nowseek exemptions from sections not considered by the Registrar.[139] GEII submits the criteria does not change depending on whether the exemptionis sought under ss 201 or 202 and the Registrar's decision does not refer to ss 201 or202. GEII says that, although GEII's application did not refer specifically to s 207, itwas clear from the information put before the Registrar that it was seeking anexemption from the requirement that its financial statements be audited.[140] I allow the amendment and will return to the question of remedy if the appealis 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 specialleave reflects the position that an appeal proceeds on the record and parties should notbe able to bolster their case with new evidence on the appeal.89 Generally, the evidencemust 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, anaccountant. This affidavit annexed, amongst other things, GEC's 2015 auditedconsolidated group statements as required by the US authorities, the GEII financialstatements derived from these statements, and the audited GEII New Zealand branchstatements. In the affidavit, Mr Hagen expresses the opinion that the breadth ofinformation from these statements would give New Zealand investors and creditors orother members of the public: more than sufficient reliable financial information to enable them to makeinformed business decisions in relation to GEII. Frankly I cannot see whatmore they could reasonably need; and87 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 wereobliged to prepare stand-alone audited financial statements for GEII includingthe 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 consolidatedaccounts, as these were referred to in GEII's exemption application. The Registrarnotes that Mr Hagen's expert opinion was not before the decision maker, but abidesthe 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 thedecision maker. It is nevertheless relevant because it provides evidence of whetherthere may be a case made for an exemption if the matter is reconsidered by theRegistrar and that evidence is before him or her. It is therefore potentially relevant tothe relief that might be granted on this appeal.[145] Less than a week before the hearing GEII provided an affidavit from DrossosHaramantas, the company secretary for GEII's New Zealand branch.91 The affidavitpurports 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 bebetween US$4.9 million and US$5.9 million plus out-of-pocket expenses estimated at5 per cent of the audit fee. The affidavit also advises that GEII presently operates in123 countries.[146] The Registrar opposes leave being granted to this evidence. This is becausethe affidavit has been filed late and could have been adduced earlier, it is scant ondetail, and it was not before the Registrar.[147] Other than to update the Court on the number of countries in which GEII nowoperates, I do not grant leave to adduce the affidavit of Mr Haramantas for the reasonson 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 theapplication for leave to amend the appeal was made.Assessment of appealThe submissions[148] GEII submits "unduly onerous or burdensome" in s 207L(2)(a) means whethercompliance would impose an excessive or unreasonable burden on GEII relative to thepotential benefits to the public. It submits this is consistent with the statutory objectiveof striking a balance between the benefits of accountability and transparency to usersand 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 itsNew Zealand branch was NZ$16 million, which is a small proportionof its total revenue of around US$13 billion. New Zealand is the onlycountry in which it operates which requires the financial statements inthe form required by the Registrar. The costs of compliance will berelevant only to New Zealand.(b) The estimated external audit costs are large and will also involve anenormous amount of work and involve disruption not capable ofmonetary quantification.(c) General Electric's global board is seriously considering whether tomaintain branch registration in New Zealand because the cost of doingbusiness 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 equivalentto approximately 66 per cent of New Zealand's GDP. GEII's NewZealand branch revenue is small relative to GEII's total revenue (seeabove) 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 theNew York, London and Frankfurt stock exchanges among others.Investors are protected by the regimes in those countries and there areno relevant investors in New Zealand for the Registrar to protect.Those who deal with GEII are likely to be large, financiallysophisticated commercial parties. The Registrar has not identified whatinformation is lacking for creditors or other counterparties of GEII whowish to assess the risk of a business failure by GEII.(c) Mr Hagen's opinion (set out above) is that there is more than sufficientinformation already available from the GEC and GEII financialstatements and the burden on GEII if stand-alone audited GII financialstatements are also required would far outweigh any benefit to NewZealand users.[151] GEII submits the Registrar, correctly, did not dispute the other two criteriaunder s 207L that: GEC and GEII's financial statements comply with US requirementsand they are satisfactory; and the exemption, if granted, would not be broader than isreasonably necessary to address the matters that gave rise to the exemption.[152] GEII's principal submissions as to why the Registrar's reasoning for decliningan exemption was flawed are:(a) The Registrar's decision was inconsistent with the purpose of the Act'sfinancial reporting provisions to balance the benefits to users againstthe compliance costs and with the approach taken by the Registrarunder s 35B.(b) It is clear from the Parliamentary materials that led to s 35B and itsreplacement, s 207L, that cost and convenience were validconsiderations in whether to grant an exemption. Section 207L doesnot prescribe any specific criteria for determining whether complianceis unduly onerous or burdensome. The legislative history shows thatParliament intended the Registrar to have regard to a range of factorsrelevant to detriment and cost. The matters GEII relied on weretherefore relevant.(c) The Registrar wrongly considered GEII's status as a large companydisentitled it to an exemption. The exemption applies to large overseascompany and Parliament has not determined that large overseascompanies are capable of bearing the resulting compliance costs.(d) The Registrar's view that GEII's circumstances are not unique was notsupported by any evidence. The legislation does not require GEII to bein a unique position in order to be granted an exemption. The sectionanticipates the possibility of a class exemption and historically classexemptions were granted. While there may be a number of USincorporated companies in a similar position, the Registrar is requiredto consider the burden on GEII if compliance is required.[153] GEII advises that GEC, although no longer an issuer subject to therequirements of the Financial Markets Conduct Act, remains willing to register itsfinancial statements as a condition of an exemption.[154] The Registrar submits the statutory framework and legislative historyestablishes that compliance with the standard requirements is to ensure thatinformation is available on all registered entities (New Zealand registered companiesand overseas companies carrying on business in New Zealand) on an equivalent basisand that information must be accessible within New Zealand. The information isimportant to assess and reduce the risk of business failure and to establish "levelplaying field" conditions. The exemption provision allows for adjustment to therequirements recognising that large overseas companies may find it more difficult toachieve complete alignment with New Zealand law. This is a limited and discretionaryexemption and must be considered specifically in relation to the applicant.[155] The Registrar submits that GEII conflates its position with that of GEC. If anexemption were granted to GEII, it would not enable relevant persons to ascertain theinformation required of other companies for registration. GEII seeks to adjust the NewZealand requirements through the discretionary exemption to respond to its needs. Inthis case the GEII financial statements proposed to be filed are: a) unaudited; b) notconsolidated; and c) omit basic information such as a statement of accounting policies,a statement of cash flows and notes and other explanatory information on thesignificant elements of the financial statements.[156] The Registrar accepts Mr Hagen is an acknowledged accounting expert and isopinion is entitled to respect. However any person who needs to refer to the registeredNew Zealand statements is entitled to make their own assessment and reach their ownopinion on the financial position of GEII; those persons are not assumed to have theforensic accounting skills of Mr Hagen; the assessment of whether disclosure isadequate is made by the Registrar with reference to the financial statements registeredin New Zealand; and consolidation of the financial information of a subsidiary in thefinancial statements of its parent does not automatically mean that the financialstrength 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 abalance between the public interest in ensuring necessary financial information isavailable to those who need it and the compliance costs in ensuring that informationis available. Here, because GEII has significant business interests, there are a widevariety of industries that may need to access GEII's financial information in order tomake business decisions. The consequences of any business failure of GEII would besignificant. The matters missing from GEII's proposed accounts are directly materialto the assessment of the business risk.[158] The Registrar submits the assessment of what is "unduly onerous orburdensome" must be made in context. "Unduly" requires an applicant to show a realand 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 notpossible on technical grounds, or is unnecessary in that no material benefit is derivedfrom compliance.[159] The Registrar says the costs and inconvenience asserted by GEII are the normalconsequences of the financial reporting regime and are the cost of doing business inNew Zealand. They are merely figures asserted by GEII and may not be excessive inlight of GEII's size, its relationship with GEC, the scale of its business interests inNew Zealand, and other options for a business structure. The Registrar is not requiredto investigate these matters. It is for the applicant to persuade the Registrar. TheRegistrar was not persuaded in this case.Analysis[160] The exemption power must be exercised in accordance with its purpose. Thepurpose was to deal with circumstances where New Zealand's reporting requirementswere more demanding than the requirements in the company's home jurisdiction andthe costs of compliance with the New Zealand requirements were not justified by thebenefits of additional disclosure. That was the purpose of its predecessor legislation.It was again the rationale put forward when its reintroduction in the FinancialReporting Bill was recommended by officials in their report to the Commerce SelectCommittee dated 15 April 2013. It was recognised that the exemption power couldalso be used where a company had difficulty in complying with the timeframe forpreparing and filing the statements (although amendments to the timeframes had alsobeen made to respond to this concern).[161] This purpose was consistent with the new regime for financial reporting regimebeing brought in at this time. The new regime was intended to strike an appropriatebalance between the costs of reporting, and the benefits that users obtained fromfinancial reports in making economic decisions or from promoting accountability andtransparency. The major change was to remove requirements imposed on medium andsmall companies. It was necessary to impose financial reporting requirements on largecompanies, including large overseas companies, because of their economicsignificance and, consequently, the significant impact if they failed.[162] It was recognised, however, that there had been difficulties for overseascompanies who were part of a group and who were not required in their homejurisdiction to file statements other than for the group as a whole. The new regimeenabled group financial statements to be filed for the company on the New Zealandregister. As Mr McPherson noted when considering GEII's application, this did notassist overseas companies on the New Zealand register who had subsidiaries, butwhose 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 thatwas on the New Zealand register.92 This applied across the board to all overseascompanies regardless of their jurisdiction of incorporation. If the New Zealandrequirements exceeded the requirements of an overseas company's home jurisdiction,there remained the possibility of an exemption. The obvious example where this mightarise was where the ultimate parent company of the group was not on the New Zealandregister. The 2012 class exemption recognised this. At that time the Registrar wassatisfied the costs of the New Zealand requirements were unduly onerous andburdensome for group companies from the US, the United Kingdom, Australia andSingapore relative to their benefits.[164] The legislative history does not suggest the exemption power was intended tohave a different scope or use under the new regime. Rather, it was anticipated thatproblems could still arise for large overseas companies who were part of a groupdespite the new provisions in ss 200 to 207. The test for when the power could beexercised 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 tosatisfy the Registrar that the compliance costs were "unduly onerous or burdensome"relative to their benefits. An important factor in that under the previous regime wasan assessment of the regime to which the overseas company was subject in its homejurisdiction. The legislative history does not suggest this was no longer to be animportant factor under the new regime.[165] In this case the Registrar's decision did not take into account the purpose ofthe exemption. That seems to have arisen because those considering GEII'sapplication were focussed on the scope and intent of ss 201, 202 and 203. Sections201 and 202 were seen as setting the bar that all large overseas companies now had tomeet and constituting the cost of doing business in New Zealand, subject to the92 This was expressly the position from 30 May 2017.possibility under s 203 that the statements could be prepared in accordance with thehome country's GAAP. The exemption power was to have a narrow scope, potentiallyexempting the form of the accounts only. The Registrar's advisers were concernedthat every company could make the same argument as GEII and it would not bepossible to justify the exemption in this case.[166] This approach was contrary to the exemption's purpose discussed above.93 Thewords of the exemption power confirm that this approach was contrary to the purposeof the exemption. The power enabled the Registrar to exempt any large overseascompany or "any class of overseas companies". It therefore contemplated classexemptions as had been the previous practice, which might potentially apply to a largenumber of companies. The exemption could be granted from "compliance with anyprovisions of sections 201, 202, 207, and 207E". It was therefore available to exempta large overseas company from filing audited statements for itself or its group. It couldbe granted if compliance was "unduly onerous or burdensome". Consistent with theexemption's purpose, "unduly" was a relative term. As had been the case with thepower under the predecessor legislation, whether compliance was unduly onerous orburdensome needed to be assessed against the benefits from compliance.[167] GEII's application was not approached in this way. The focus was on the factthat GEII was a large overseas company and could therefore be assumed to be able toafford to bear the costs of compliance. No assessment was made of what users of thefinancial statements, likely to be creditors, would gain from audited financialstatements for GEII over and above what they would have from: the auditedconsolidated financial statements of GEC; the financial statements for GEII asprepared for the audited GEC consolidated statements (albeit not comprising inentirety "financial statements" as defined in the New Zealand legislation); the auditedbranch accounts for GEII; and the information about GEII's directors, address forservice, and constitution which it was required to file as a registered overseascompany.93 At [160]-[164] above.[168] Nor was any consideration given to whether GEC was a reporting entity underthe Financial Markets Conduct Act and whether this meant there might be informationavailable to the New Zealand public about GEC that was comparable to if GEC beenregistered under Part 18 of the Companies Act.94[169] For these reasons I consider the Registrar approached the application in thewrong way and therefore failed to take into account considerations that were relevantto GEII's application. The Registrar therefore erred when deciding that GEII'sapplication should be declined.Remedy[170] I consider the appropriate remedy is to quash the Registrar's decision and torefer the matter back for reconsideration. The Registrar is the appropriate person toassess whether the application should be granted when all the relevant considerationsare before him or her. Those considerations include an assessment of the costs relativeto the benefits in light of all the information that those who deal with GEII in NewZealand will have available to them. They include a consideration of the regulatoryregime to which GEII and GEC is subject in its home jurisdiction. They do not includethe fact that it is possible that other large incorporated companies from the US (or fromsome other countries) carrying on business in New Zealand may be able to make outa similar case for an exemption.Costs[171] GEII submits there should be an order for costs in its favour. GEII says MBIErefused to meet with it after rejecting the GEII 2015 financial statements, did notconsider the exemption application for eight months, Ms Kong's advice misinterpreteds 207L, Mr Rendle appears not to have reflected on whether an exemption wasappropriate, 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. TheRegistrar 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 apotentially relevant consideration.GEII seeks an exemption from the legislative regime and appropriately bears the costsof doing so. Notwithstanding the criticisms that are made of MBIE's approach to itsapplication, I consider the record shows that that MBIE diligently went aboutconsidering the application. The legislative regime is not straightforward. Ms Kong'swork 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 recommendationthat had been made. While I have found the Registrar's decision was in error, that isan insufficient basis on which to order costs.[173] Costs should lie where they fall in these circumstances.Mallon J