RETIREMENT VILLAGES ASSOCIATION. Retirement Villages Association. SUBMISSION to the COMMERCE SELECT COMMITTEE

Transcription

1 Retirement Villages Association RETIREMENT VILLAGES ASSOCIATION SUBMISSION to the COMMERCE SELECT COMMITTEE on the SECURITIES TRUSTEES AND STATUTORY SUPERVISORS' BILL MAY 2010

2 SUBMISSION ON THE SECURITIES TRUSTEES AND STATUTORY SUPERVISORS BILL The Retirement Villages Association wishes to appear before the Committee to speak to its submission. TO: THE COMMERCE COMMITTEE The Retirement Villages Association of New Zealand Incorporated (the RVA) represents the interests of owners, developers and managers of retirement villages throughout New Zealand. Our 270 member villages operate some 17,750 dwellings (both villas and apartments) which are home to 20,000 older New Zealanders. This figure is approximately 80% of the registered retirement village industry. 1 KEY POINTS 1.1 The retirement villages regime is a "code" Since 2003 a detailed and comprehensive regime for retirement villages has been in place in New Zealand. This industry specific regime sets out the full range of matters relevant to a retirement village, for the specific purpose of providing strong consumer protection for the elderly. Under the retirement villages regime, the Registrar of Retirement Villages is the appointed regulator in respect of statutory supervisors and other registration and performance matters. The retirement villages regime was introduced due to the inappropriateness of the application of general securities law and regulation to retirement villages, due to the fact the investment is not a financial investment but an investment in a right to occupy together with a right to related services. See section 2 for a detailed explanation L2 Joining a retirement village does not present the same risks The risks associated with joining a retirement village differ significantly to that of an investment in securities offered by finance companies and other entities, principally because of the comprehensive regulatory regime introduced for retirement villages in Most importantly, under the Retirement Villages Act (the RV Act) each retirement village resident obtains the benefit of a memorial, which must be noted on the land title applicable to the retirement village unit in which they have acquired occupation rights. The Cabinet Paper and Regulatory Impact Statement relating to the Bill did not mention the existence of this memorial protection. This memorial ranks in priority to all other security interests (including any mortgagees of the owner/operator) and ensures that the resident's occupation right agreement cannot be cancelled, the resident cannot be evicted or excluded from using any of the village's facilities, and the retirement village may only be disposed of as a going concern. Notwithstanding the difficult economic conditions during 2009, no resident of a registered retirement village lost their home.

3 1.3 The Registrar of Retirement Villages should oversee statutory supervisors The RV Act already provides for the Registrar of Retirement Villages to approve the appointment of retirement village statutory supervisors. Retirement village statutory supervisors should continue to be approved and overseen by the Registrar of Retirement Villages rather than the Securities Commission, given the Registrar's expertise in monitoring retirement villages and its overall responsibility for ensuring compliance with the retirement villages regime. It is inefficient to introduce a further regulator into the industry. See section 2 for a detailed explanation 1.4 The Registrar's oversight of statutory supervisors could be strengthened The Registrar already has wide powers to oversee an operator's management of a retirement village and the statutory supervisor's supervision of the village (see section 2). For this reason, Part 3 of the Bill in its current form does not apply to retirement village statutory supervisors, which is an acknowledgement that the Registrar of Retirement Villages is intended to remain the primary regulator of the industry. This part gives the Securities Commission certain powers to make directions to trustees and statutory supervisors, and to require trustees and statutory supervisors to provide certain assurances and reports. The Registrar's powers and oversight function can be further strengthened through making the amendments to the RV Act referred to in section Our suggested approach will result in more efficient regulation than under the current Bill Our suggested approach has a number of benefits from a regulatory and cost perspective, including the following. See section 2 for more detail (a) The regulator with the greatest expertise in, and understanding of, the retirement village sector will be responsible for appointing (and will have the ability to remove) statutory supervisors, and ensuring statutory supervisors fully discharge their duties. (b) It would avoid dual and overlapping regulatory roles for the Registrar and the Securities Commission, which would require significant co ordination between the two organisations (similar to the Companies Office and the Securities Commission which is considered suboptimal). It would also avoid additional costs for statutory supervisors and operators, which would be passed on to residents. (c) As a result, the Securities Commission will have greater resources to direct towards licensing and monitoring trustees and statutory supervisors relating to other securities, within the Commission's area of expertise, without being forced to direct its resources towards retirement villages (there are currently 318 registered retirement villages in New Zealand).

4 L6 A key risk area can be fixed by Parliament One gap in the current retirement villages regime is the risk to residents of unregistered villages. These residents do not enjoy the benefit of the memorial noted above. Parliament could remove this gap by giving the Registrar the power to declare an entity a registered "retirement village", upon which the residents would immediately acquire the benefit of the memorial to protect their tenure (see full details of this in section 3, paragraph (d)). Overview of our submission We set out in section 2 an overview of the relevant aspects of the existing retirement villages regime applying to statutory supervisors, which provide protection to residents, and explain why the dual regulator proposal is inefficient and not an optimal regulatory outcome. In section 3 we set out specific changes to the Retirement Villages Act which we submit could be made under the Bill in order to increase the Registrar's powers. In addition to providing this written submission, the RVA wishes to appear before the Committee to speak to its submission.

5 2 CURRENT RETIREMENT VILLAGES REGIME STATUTORY SUPERVISORS 2.1 General overview of regime The retirement villages sector is now governed by an extensive regime, which is intended to operate as a code for all retirement villages in New Zealand. Specific obligations of retirement village operators and rights of retirement villages residents are set out in the regime, which comprises the: Retirement Villages Act 2003; Retirement Villages (General) Regulations 2006; Retirement Villages (Disputes Panel) Regulations 2006; and Retirement Villages Code of Practice While the Department for Building and Housing administers the RV Act, in practice the Registrar of Retirement Villages has the key oversight role in ensuring that operators and statutory supervisors comply with the regime when operating and supervising retirement villages. The Department for Building and Housing takes responsibility for day to day compliance matters relating to facilities and services (particularly arising under the Code of Practice). The Retirement Commissioner provides an independent review function for the legislation overall, and oversees the disputes panel system under the RV Act. The retirement village sector does not need another regulatory body. 2.3 Difference in role of a retirement village statutory supervisor In practice, the role of a statutory supervisor of a retirement village differs significantly from a trustee of debt securities. An interest in a retirement village is not a financial investment; it is the acquisition of the right to occupy a unit in a village for a resident's lifetime. The statutory supervisor deals with many issues relating to the operation of that retirement village and the relationship between the operator of the retirement village and residents, which are industry specific issues. 2.4 Parliament has already taken steps to ensure that residents of registered retirement villages are protected as to their ability to remain in their homes, in the event of the insolvency of a retirement village operator. This differs again from the position of the holder of debt securities or other types of participatory securities (putting to one side the current Government guarantee of certain types of debt securities). 2.5 Inefficiencies of adding a further regulator The Bill, as currently drafted, does not intend to replace the Registrar as the primary regulator of the industry, but rather proposes to split the functions of regulation between the Registrar and the Securities Commission. The principal reason for this approach appears to be an assumption that from a regulatory perspective this is an efficient approach as corporate trustees are significant participants as statutory supervisors in the retirement village sector, and therefore it is desirable for one regulatory body to appoint and supervise trustees and statutory supervisors of retirement villages. 2.6 We strongly disagree that this is an for the following reasons: efficient regulatory approach. This is primarily

6 (a) The roles and risks are significantly different as already set out in this submission. (b) The Bill gives the Securities Commission certain powers and oversight roles in relation to statutory supervisors; however the Registrar of Retirement Villages retains key powers within the retirement villages regime. The Registrar of Retirement Villages is responsible for ensuring that there is compliance with the retirement villages regime (including by statutory supervisors); however the Registrar's power to remove a statutory supervisor for non performance is to be removed and given to the Securities Commission. (c) The Bill would result in a duplication of obligations for statutory supervisors and confusion between the roles of the regulators. For example, under clause 24 of the Bill statutory supervisors would be required to report to the Securities Commission on a regular basis, as well as being required to report annually to the Registrar under section 42 of the RV Act. (d) As a result of this duplication, and the addition of a further regulator, statutory supervisors would incur increases in compliance costs. These increases would be ultimately passed on to the village residents, who would arguably obtain little extra benefit for their extra money spent This overlapping of regulatory roles is analogous to the overlapping roles of the Companies Office and the Securities Commission in relation to general securities regulation, which is considered to be suboptimal. If for any reason there was less than absolute optimal co operation and co ordination between the officers of the Securities Commission and Registrar of Retirement Villages, which inevitably there must be from time to time, this will result in poor and inefficient regulation. An alternative approach, depending on Parliament's plans to establish a "Super Regulator", is to include within the Super Regulator's functions the current role of the Registrar of Retirement Villages, so that within the Super Regulator there could be established a unit which dealt with the retirement villages regime. Current powers and responsibilities relating to statutory supervisors The current regime already empowers the Registrar to appoint and supervise statutory supervisors to help protect residents' interests, without significant further legislation being required, and certainly without the appointment of an additional regulator to the sector. There are some improvements to the current regime which could be made, which we address in section Specific aspects of the current regime which relate to the appointment and removal of statutory supervisors, and the performance of a statutory supervisor's role, include the following. (a) The Registrar must approve a statutory supervisor's appointment, and has the power to revoke the appointment (section 37, RV Act). (b) The Registrar must approve a statutory supervisor's removal, except in limited circumstances (section 39, RV Act).

7 (c) A statutory supervisor must monitor the financial position of the village and report annually to the Registrar and the village residents (section 42, RV Act). (d) The statutory supervisor has a range of powers to protect the residents, including the power to direct the operator to operate the village in a particular manner if it has concerns about the operation of the village, the power to make a public statement and the power to require the operator's auditor to provide information about the village (sections 43, 44, 46 and 47, RV Act). (e) The statutory supervisor must represent the interests of the residents in negotiations with any receiver, liquidator or statutory manager appointed for a retirement village operator (section 24, RV Act). (f) The Registrar has wide powers of inspection, including the power to obtain any document relating to a retirement village (section 97, RV Act), in addition to the Registrar's broad power to remove a statutory supervisor. (g) The relationship between a village operator and the village's statutory supervisor must be governed by a deed of supervision, which must address a wide range of matters which provide protection for the residents of the village (section 38, R V Act, and Regulations). This deed is contractually enforceable by the statutory supervisor against the village operator. For instance the deed sets out the exact terms within which the operator may carry out certain activities (including delegation of tasks, setting and changing fees, borrowing funds and developing the village) and the village operator's obligations under the Financial Reporting Act (h) A deed of supervision must provide that a statutory supervisor must: (i) exercise reasonable skill and care in ascertaining whether the financial position of the village, the residents' security interests and the management of the village is adequate; and (ii) if the statutory supervisor believes they are inadequate, fully exercise its powers under section 43 unless the residents' interests are not materially prejudiced. (Regulation 47) (i) A village operator must promptly notify the statutory supervisor of certain matters relating to occupancy rights and certain disputes (sections 34 and 55, R V Act) In combination these provide a broad and encompassing set of powers and responsibilities for statutory supervisors, and a strong ability for the Registrar to ensure retirement village statutory supervisors fully discharge their responsibilities and exercise their powers as appropriate. However, we recognise that a number of further amendments to the RV Act could be made to strengthen the Registrar's oversight function (as distinct from splitting this function between the Registrar and the Securities Commission). These are set out in section 3 below.

8 3 AMENDMENTS TO EXISTING RETIREMENT VILLAGES REGIME In order to provide the Registrar with strengthened powers to ensure that retirement village statutory supervisors fully perform their intended role to a high standard, we submit that clauses 66 to 68 of the Bill be replaced with provisions having the following effect. (a) Amend section 37 of the RV Act to: (i) set the criteria which the Registrar must assess before determining whether to approve a retirement village statutory supervisor (similar to clause 15 of the Bill) or revoke an appointment; and (ii) allow the Registrar to impose conditions on the appointment of a retirement village statutory supervisor (including for example the duration of the appointment and the requirement to apply for a renewal before the appointment expires similar to clauses 10, 11 and 20 of the Bill). (b) Insert a new section 37A to give the Registrar the specific power to require a retirement village statutory supervisor to report on matters relevant to the statutory supervisor's appointment and ongoing suitability and performance of its role (similar to clause 24 of the Bill), and any particular aspect of the village's operations. (c) Amend section 42 of the RV Act to: (i) prescribe in more detail the contents of the annual reporting by the statutory supervisor to the Registrar and residents; and (ii) require a statutory supervisor to promptly report to the Registrar if the statutory supervisor has breached its obligations (similar to clause 25 of the Bill), or it considers that a retirement village operator is in breach of its obligations relating to the village. (d) Amend section 6 of the RV Act to give the Registrar the power to: (i) declare that any property, buildings or other premises are a "retirement village" for the purposes of the RV Act; (ii) require the Registrar General of Land to note a memorial on every computer register relating to the village, under section 21(3) of the RV Act; and (iii) require the appropriate "operator" for the village to immediately comply with section 10 of the RV Act (i.e. register the village and the necessary documentation, and appoint a statutory supervisor). The key advantage of giving the Registrar this power is that residents would then automatically acquire the protection of the memorial under section 22 of the RV Act (see paragraph 1.2 above), and the Registrar can then require that the operator fully comply with the retirement villages regime, including by the appointment of a suitable statutory supervisor. This situation was relevant to the highly publicised Crossdale Courts incident in Christchurch, which comprised housing units for the elderly, but had not been

9 registered as a retirement village. The owner defaulted on a mortgage payment, which has resulted in the residents facing eviction, given they did not have the protection of a memorial. The matter remains before the courts. The Minister of Housing has the power under section 103 of the RV Act to recommend an Order in Council declaring an entity to be a "retirement village". However, the Supreme Court has ruled that it does not automatically follow that a declaration under section 103 requires memorials to be entered on the relevant land titles.1 This power does not therefore necessarily give residents the protection of a memorial. It is also administratively more efficient for the Registrar rather than the Minister to exercise the proposed new power set out above, given the Registrar's expertise in retirement village matters, and the greater chance of this power being exercised before residents of unregistered retirement villages lose their homes. If the Registrar had been given the proposed new power set out above, it could have exercised this power to ensure the Crossdale Courts residents had definitive security of tenure without the risk of being evicted due to the owner's default. This is the key risk issue for residents, and should be addressed by Parliament. 4 GENERAL Thank you for considering the RVA's submission. We look forward to speaking to the Committee and answering any questions you may have. Yours faithfully C4Ilyns.lohn er.egu#lve Director z Cashmere Capital Limited v Carroll [2009] NZSC 123