1100 foreign firms failing to file accounts

More than 1100 foreign-owned companies have been fingered as potentially failing to file accounts as required by law, about a third as many as a year ago.

Information supplied to the Sunday Star-Times under the Official Information Act shows most companies were compliant. But of 6153 overseas-owned companies with reporting obligations, 1113 (or 18 per cent) appeared to have breached their filing obligations as of July 31.

Robert Rendle, senior solicitor for the Ministry of Business Innovation and Employment, said those companies would be subject to a compliance programme "and reminder notices and infringement notices will be issued where appropriate".

The information release followed a request more than a year ago for the names of at least 1000 foreign-owned companies that were potentially in breach of the Financial Reporting Act.

The ministry initially refused to release the information, saying it could "prejudice the maintenance of law, including the prevention, investigation and detection of offences, and the right to a fair trial."

The SST complained to the Ombudsman and the ministry provided information 15 months later.

It reveals the names of thousands of foreign-owned companies identified as potentially in breach of their obligations, ranging from well-known multinationals such as car hire firm Hertz to secretive entities owned by trusts in Caribbean tax havens.

About 400 companies were registered at an address in the Wellington suburb of Johnsonville and owned and directed by 60-year-old Australian Charles Baker, a resident of St Kilda, Victoria.

The Ministry of Business

Innovation and Employment said directors would be given up to three reminders and three months grace either to file accounts or show they were not obliged to.

"The Companies Office considers it is preferable to encourage companies to comply and to give them an opportunity to do so before any infringement notice is issued," said a spokesman.

An infringement notice carries a fine of $7000 per director.

"This is a significant amount, and is payable by the directors personally as opposed to the company," said the spokesman. "Accordingly it is considered necessary to allow directors a full opportunity to explain any defence that they may have to an alleged infringement offence."

Of the companies identified in the year to March 2013, the Ministry said 520 company directors had been issued with infringement notices.

As well as handing out infringement notices, the Company Registrar can prosecute serial offenders. The maximum penalty on conviction is $100,000 per director.

There have been 28 such prosecutions since July 2005.

Accountant Bruce Sheppard, a former associate board member of the Financial Markets Authority, said the financial reporting regime was fundamental to the integrity of the register.

"When [non compliance] gets above 10 per cent you run the risk that it becomes systemic," he said.

"Those that are non-compliant effectively end up in arguably a competitive advantage situation in that they continue to trade in the dark, while the complaint parties are trading in sunlight.

"That incentive grows over time. You have to get it down below 10 per cent and you have to rigorously police the perimeter."

The requirement for overseas-owned companies to file accounts is based on the information benefit to their New Zealand creditors, who could find it more difficult to pursue foreign directors and shareholders if the company failed.

As well as foreign-owned companies, New Zealand companies with more than 25 per cent overseas ownership are required to file accounts if they are over a certain size.

The Financial Reporting Act 2013 set the threshold at either total assets of more than $20 million or revenue of more than $10m, in each of the previous two years.

Changes to financial reporting law have reduced the maximum penalty to $50,000.

Sunday Star Times