The Companies Office misapplied filing rules when demanding US listed company General Electric prepare and file audited financial statements for subsidiary General Electric International at an annual estimated cost of US$500,000. Bureaucrats asked themselves the wrong question: can the company afford to pay rather than does the information demanded provide any useful benefit?
Incorporated in the United States, General Electric International Inc is a wholly-owned subsidiary of General Electric. It does not have to file audited financial statements in the US, instead having its financial position consolidated into financial statements for parent General Electric. GE International provides support services in New Zealand for power utilities, oil and gas. In 2015, it earned $16 million from its New Zealand operations; chicken feed compared with the US$13 billion GE International earned through 2015 in some 120 other countries around the world. Since 2014, New Zealand has been the only country demanding GE International file audited financial statements. New Zealand companies legislation requires overseas corporates to publish financial information with the Companies Office. This is a creditor-protection issue. Creditors dealing with overseas interests need to know if they are dealing with a customer of substance; if it all goes belly-up, they need a sense of what assets might be available in this country to pay debts. It is prohibitively expensive to chase debtors around the world trying to get payment. In the past, filing in the New Zealand Companies Office copies of overseas parent company financial statements, or group accounts, has sufficed. Companies Office says legislation changed the rules with effect from 2014. Staff demanded GE International prepare and file audited financial statements and a cash flow statement, all complying with NZ international accounting standards. An offer to file financial information for GE International prepared as part of General Electric’s US consolidated accounts was refused. This did not satisfy a requirement to comply with NZ accounting rules.
Justice Mallon ruled Companies Office staff had failed to properly consider GE International’s request. The 2014 rules permit exemptions, as did the previous rules, when it would be ‘unduly onerous or burdensome’ to prepare and file financial statements not complying with NZ accounting rules. Companies Office staff had incorrectly concentrated on whether GE International could afford to do the extra work, rather than identifying whether there was any advantage in so doing. Accounting experts said US accounting rules are robust and will suffice for filing in New Zealand. Companies Office was ordered to reconsider GE International’s request for an exemption. The intent of the 2014 law change was to reduce compliance costs where costs imposed provide little of benefit to users. Financial statements for parent General Electric are on the public record; New Zealand filing is required under the Financial Markets Conduct Act since employees here participate in an employee share purchase scheme.
re General Electric International Incorporated – High Court (17.12.18)
19.026