APPENDIX 2(b): Key Differences Between Crown Companies and Statutory Corporations

GENERAL

• Some of the differences for the Statutory Corporation depend on what type it is in relation to its functions (e.g., Independent Crown Entity, Autonomous Crown Entity or Crown Agent) - see Appendix 1(c).
• Either option may provide for a not-for-profit objective.
• The health sector change legislation will be developed in liaison with the Crown Entities Legislation Steering Group. However, it is unlikely that the Crown Entities Bill will be enacted in time to facilitate its application to the health sector legislation. The former Bill will provide generic legislation for different types of Crown entities and set out the accountability framework and duties of members. It will need to be supplemented by specific enabling legislation.

Features	Crown Company	Statutory Corporation
Function	Typically established to undertake commercial or mainly commercial functions or to operate in a commercial environment	Used to undertake a wide variety of functions (e.g. regulatory, service delivery, advisory, devolved purchase)
Legal Powers	Subject to other legislation or general law, a separate legal person with full capacity, rights, powers and privileges. Unusual for company to have regulatory powers.	Depends on legislation. Typically, those of a legal person, although it may be subject to constraints (e.g. powers to borrow). Some Statutory Corporations have significant regulatory powers.
Governing Body	Board appointed by shareholding Ministers. Responsible only for governing company.	Typically, board or board-like body appointed by Responsible Minister, or by Governor-General on advice of Ministers, although there are some significant exceptions (e.g. schools). Responsible for governing organisation but may also have some operational responsibilities - notably small to medium-sized regulatory bodies (e.g. Human Rights Commission).
Responsible Minister	In the Public Finance Act 1989 the "Responsible Minister" comprises the two shareholding Ministers, one of whom is the Minister of Finance; otherwise the Responsible Minister is the portfolio Minister.	One Responsible Minister, normally portfolio Minister.
Ability to Attract Directors/Members with Requisite Skills	Directors with business skills are more likely to be attracted to become a director of a Crown Company because it conveys similar status, roles, rights, responsibilities, risks, rewards and sanctions as a director of a private company. Conversely, this option may deter people with other required skills who do not wish to become a company director.	Directors with business skills may be less keen to become a member of a Statutory Corporation. This is probably because the role of the member is less well understood and may pose greater reputational risks due to being perceived as closer to Ministerial control. Conversely, this option may attract people with other required skills who do not wish to become a company director.
Need for Legislation	A Crown Company can be established without enacting legislation by executive decision under the companies Act. This "off-the-peg" Act defines shareholders' powers, nature of board, directors' duties etc.). However, nearly all Crown Companies have some specific features modified by legislation (e.g., Public Finance Act 1989; Health and Disability Services Act 1993).	Most features of a Statutory Corporation have to be set out in full in legislation but generic features applied in Public Finance Act 1989.
Responsibilities of Directors/Members	Company law, especially on the responsibilities etc., of directors, is certain and publicly understood, having been settled by the courts over the past 300 years , which reduces the costs of anyone interacting or transacting with the company including, in particular, potential lenders.	The responsibilities etc., of the members need to be specified in detail in new legislation. It may take some time for this legislation, including its relationship with the proposed Crown Entities Bill, to be fully publicly understood, tested, and tried in the courts. Major transactions may involve other parties in greater legal costs in order to understand the risks of doing business with the corporation.
Relationship with Ministers	The relationship is between the Minister as shareholder of the company and the directors subject to any modifying legislation. The starting point for the directors is they must act in good faith in what they believe to be the best interests of the company. This position may be modified by sector-specific or generic legislation, including the Public Finance Act 1989. Ministers do, however, have significant influence through the powers to appoint and dismiss the governing body, change the constitution, direct the company over its statement of intent and any other powers of direction provided in legislation. If Ministers seek to influence the board in ways not legally contemplated he/she may become a "deemed director" and subject to the legal regime pertaining to directors. For other parties, determining the degree of ministerial independence usually requires analysis of the modifying legislation only.	The legislation must define the members' roles, rights, responsibilities, rewards, and sanctions including the degree of independence from Ministers. The Public Finance Act 1989 is also applied. Determining the degree of independence from the Ministers usually requires a complete understanding of the whole Statutory Corporation legislation. Ministers have a significant level of control over many Crown entities (e.g. the HFA), but quite limited control over some others, particularly Independent Crown Entities (e.g. Police Complaints Authority). With Autonomous Crown Entities and Crown Agents, Ministers may be at "arms-length" but they may be perceived as closer than with a company (whether true or not).
Scope of Business	Limited by sector-specific legislation, the company's constitution, statement of intent, Ministers' support of business plans and consideration of equity requests and issuance of Ministers' Expectations and with ability to remove directors who do not meet them	Defined by legislation, the corporation's statement of intent, Ministers' support of business plans and consideration of capital injection requests and issuance of Ministers' Expectations and with ability to remove members who do not meet them.
Accountability for Performance	Defined in terms of the readily understood relationship between shareholders and directors but modified by legislation (e.g. Public Finance Act 1989) to provide accountability to Parliament. Accountability to the Crown for performance may be perceived as stronger - and therefore more attainable - because company law provides the directors with much clearer responsibilities for operating in terms of directors' rights, obligations and potential liabilities than the current law on Statutory Corporations.	To be defined by legislation. Accountability arrangements would need to be specifically designed and members' rights and duties set out in legislation.
Potential Crown Liability	In principle Crown liability is limited by the limited liability of the company and section 54 of the Public Finance Act 1989 - Crown not generally liable for Crown entity liabilities. In practice, it may be difficult to rely on this entirely. However, potentially less risk of the Crown being taken to court or held liable for the company's actions as the Crown's control over it may be perceived to be less strong. Indeed, Ministers as shareholders cannot usually be cited in legal action against Crown companies unless Ministers have exercised a power outside of Companies Act or have become "deemed directors".	In principle, Crown liability is limited by section 54 of the Public Finance Act 1989 - Crown not generally liable for Crown entity liabilities. In practice, it may be difficult to rely on this entirely. Potentially greater risk of the Crown being taken to court or held liable for the corporation's actions, as the Crown's control over it may be perceived to be greater with no "shareholder's" protection for the Ministers.
Flexibility, Durability	A flexible form that can be easily established/ disestablished and flexible in terms of changing functions or direction while subject to the Public Finance Act 1989 or sector-specific legislation.	Experience shows that Statutory Corporations are less flexible and once set up in legislation will be harder to disestablish or change unless careful legislation to establish in the first place.

PHARMAC View

Advice provided by Bell Gully (Corporate Lawyer) in relation to the Pharmac structure sets out its conclusions over the relative benefits of a company structure compared to other entities. This advice concludes that "the limited liability status of a company would provide little additional benefit to PHARMAC and would impose additional Companies Act compliance obligations that are of relatively limited added value."

"It is not clear that a great deal of value is added by the existence of a further layer of reporting requirements and directors' duties under the Companies Act; particularly where the Organisation is not operating commercially for a profit and is not competing with ordinary commercial entities that are subject to the Companies Act."