A Report on certain statements made in respect of Air New Zealand Limited in September 2001 [2002] NZSecCom 4 (26 April 2002)

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A Report on Certain Statements made in Respect of Air New Zealand Limited in September 2001

1.1 Air New Zealand Limited is a company incorporated in New Zealand with shares listed on the New Zealand Stock Exchange and the Australian Stock Exchange. In the month of September 2001 the affairs of the company were subject to intense media scrutiny, trading in its shares was at times volatile with several trading interruptions, questions were asked as to the adequacy of disclosure by the company, and the New Zealand Government was in active negotiations at various times regarding the future of the company. Events culminating in the week beginning 24 September 2001 led the Commission to announce on 26 September 2001 an inquiry to review trading in the shares of Air New Zealand Limited.

2.1 The Commission published its Terms of Reference on 28 September 2001. The full text of the Terms of Reference is set out in Appendix A. The Commission wished to review the circumstances surrounding trading in the shares of Air New Zealand during September 2001, statements in the media attributed to persons who appear to have had price sensitive information, and halts in trading and reinstatement of trading by the New Zealand Stock Exchange.

Ms Jane Diplock (Chairman)
Mr Falcon Clouston
Ms Elizabeth Hickey
Ms Cathy Quinn
Mr Michael Webb

2.3 This report covers the first part of the Commission's inquiry. It is a report on the Commission's inquiry into:

It was these statements that led directly to the trading halts. The report also considers:

2.5 This is not a report on negotiations that took place between parties in respect of Air New Zealand Limited. It is not a report on compliance by Air New Zealand Limited with its continuous disclosure obligations during September 2001. Continuous disclosure obligations arise under the Listing Rules of the NZSE. The Market Surveillance Panel has undertaken a review of compliance by Air New Zealand Limited with its disclosure obligations under Listing Rule 10.1 and has published a report of its findings. Those matters are not the subject of this inquiry.

2.6 The second part of the Commission's inquiry will consider questions arising from the New Zealand Stock Exchange's decisions to impose and subsequently lift trading halts in Air New Zealand Limited in September 2001. The Commission will not consider the specific matters of compliance by Air New Zealand Limited already covered by the Market Surveillance Panel report. The market in shares in Air New Zealand Limited during the latter half of September was volatile. Some brokers have expressed unease about the management of trading in the shares of Air New Zealand Limited. Superficially this relates to the timing of the start and duration of the trading halts. The Commission will be considering these matters in the context of a wider examination of the New Zealand Stock Exchange's policies and practices for monitoring of continuous disclosure by listed issuers and for taking action where it appears there is not an informed market for trading in the shares of any issuer. This second part of the inquiry will require further work. The Commission is currently working on this.

3.1 The Commission determined the procedures for this inquiry in a formal meeting. The Commission obtained evidence from the following:

3.2 As more evidence became available it was necessary to seek additional answers from some of the witnesses.

3.3 Privacy and Confidentiality Orders were in place throughout the inquiry. Where interviews were recorded, full transcripts were provided to the Commission. Where interviews were not recorded, the record of evidence was agreed with the relevant parties prior to consideration by the Commission. Written submissions were also provided to the Commission.

3.4 Where an inquiry raises questions about the personal actions and intentions of affected parties it is important for the integrity of the inquiry process that every person with a material interest is afforded the opportunity to appear at a meeting of the Commission.

3.5 Having received evidence from all relevant witnesses, the Commission prepared a confidential consultation draft report and invited comment from affected parties. These parties were given a full opportunity to respond with submissions and to provide further evidence if they so desired. The key people and their lawyers were then invited to make oral submissions addressing in particular those matters that had been identified as central issues.

3.6 The Commission requested and received further evidence and submissions from some of the affected people. A further confidential consultative draft was produced and a further opportunity to comment was provided to the parties most affected.

3.7 The Commission has carefully considered all submissions received throughout this process before finalising this report.

4.1 We refer to a number of entities throughout this report. We have not used the full names of each. The following is a list of the abbreviations used:

5.1 Air NZ is one of New Zealand's largest companies. In June 2000 (the last full year reporting date before the events in question) it had assets of almost $8.8 billion and shareholders' equity of $1.4 billion. Before restructuring in October 2001 it employed over 9200 staff based in New Zealand, and almost 700 staff overseas. It is estimated that the employment of 26,000 other New Zealanders was indirectly dependent upon Air NZ. Air NZ provides a comprehensive network of air services to urban and provincial New Zealand, and maintains links with key offshore cities and regions in Australia, Asia, the United States, Europe and the Pacific Islands.

5.2 Air NZ was privatised in 1989. Under the company's constitution the New Zealand Government holds a single convertible preference share known as the "Kiwi share". This confers special rights, including a right of veto over changes in the capital structure of the company and certain alterations to the constitution. Air NZ's ordinary share capital, during the period relevant to this report, was divided between A and B shares. The A shares could only be held by "New Zealand Nationals" as defined in Air NZ's constitution. Both classes were listed on the NZSE and the B shares were listed on the ASX. As at September 2001, BIL and SIA held 30% and 25% of the total shareholding respectively. For completeness, in December 2001 Air NZ's shareholders approved a capital restructuring resulting in a substantial issue of new ordinary shares and convertible preference shares to the Crown. In the restructure A and B shares were consolidated into a single class of ordinary shares, 2,923 million of which are on issue and are listed on both the NZSE and the ASX. The Crown now holds approximately 74% of the ordinary shares. In addition it owns 100% of the 1,280 convertible preference shares, which are not listed on either stock exchange.

5.3 In 1996 Air NZ acquired 50% of Ansett, the parent of Ansett Australia Ltd and holder of 49% of the shares in Ansett International Ltd. In 2000 Air NZ acquired the balance of the shares in Ansett.

5.4 By the beginning of 2001 the trading performances of both airlines, but especially Ansett, had deteriorated. The Board of Air NZ recognised that Air NZ required significant capital expenditure (up to NZ$8 billion) over the next five to seven years. There followed discussions with various interested parties, including Qantas (following an approach to Air NZ from Qantas) and SIA (which was a 25% shareholder at the time). Air NZ told the Commission that in the meantime Ansett continued to incur heavy trading losses which impacted the Group's financial outlook and this was signalled to the market by Air NZ on several occasions, including February 2001 and the end of March 2001.

5.5 By the beginning of September 2001 the board had made an offer to acquire the low-cost Australian domestic airline, Virgin Blue, as part of a strategy for restoring Ansett's profitability. But the Ansett losses were taking a toll on Air NZ itself. Although liquidity was not an immediate concern, the sustainability of the Ansett losses was. Further, 13 September 2001 was the latest date for Air NZ to report its financial position to 30 June. There was a possibility of a revaluation of Ansett in the Air NZ accounts, with possible breaches of banking covenants resulting, if Ansett were revalued below A$400 million.

6.1 We set out here a broad outline of events in September 2001. We refer to some of these events in more detail below.

4 September	Air NZ bid for Virgin Blue rejected.

9 September	Agreement in principle for BIL and SIA each to contribute $150 million in equity and New Zealand Government to lend $550 million as lender of last resort.

12 September	Terrorist attacks on New York (11 September New York time). Qantas announce they will not purchase Ansett. Air NZ notified. Ansett placed in voluntary administration.

13 September	NZSE suspends trading in shares in Air NZ at Air NZ's request. Air NZ announces annual results to 30 June 2001. Announcement of rescue package. Subject to conditions, BIL and SIA are to contribute $150 million each in equity, Government is to lend $550 million. Trading in Air NZ shares resumes.

21 September	Independent directors advise the Crown negotiating team that they cannot continue without a new urgent Government-supported recapitalisation plan.

23 September	Settlement with Ansett administrators negotiated in principle.

23-24 September	Cameron & Co, advisers to the Crown, formulate a proposal that the Government take an equity stake in Air NZ.

24 September	Air NZ writes to the Crown, by way of a letter addressed to Mr Cameron, requesting that the Government underwrite equity of $850 million. The contents of this letter were reported to the Minister of Finance. Prime Minister reported a number of times in the media as saying that statutory management is a viable option. There had been media speculation and comment from others about the prospects of statutory management for some time.

25 September	Ad Hoc Ministerial Committee agrees negotiating parameters for the crown negotiating team to see if a proposal that the Government provide convertible debt and take an equity stake in Air NZ could be developed and gain acceptance. The Prime Minister answers questions on Air NZ in what was described by her Office as a "stand up" interview. Responses by the Prime Minister to questions from reporters about Air NZ shareholders reported on TV One News approximately 5 ½ hours later.

26 September	Media reports of the Prime Minister's responses. Media reports that Office of Prime Minister has approached leading broking houses. The New Zealand Herald reports both the alleged approaches to broking houses and the Prime Minister's answers to the questions put to her on 25 September. NZSE halts trading in Air NZ shares as a result of the reported comments of the Prime Minister. NZSE lifts trading halt after explanation of Prime Minister's comments by Air NZ.

27 September	Mr Terry responds to questions about Air NZ from journalists at a media conference in Singapore following the announcement of the financial results of BIL.

28 September	Mr Terry's comments in Singapore reported in New Zealand NZSE halts trading in Air NZ shares, and then suspends at the request of Air NZ (in place until 4 October).

7.1 The Board of Air NZ comprised a number of directors, some of whom were appointed by the major shareholders, BIL and SIA, and some of whom were independent directors who appear to have formed a committee to consider the recapitalisation options given the conflict that the SIA directors had (as they were proposing an option). This occurred in May 2001. The independent directors included the Acting Chairman, Dr Farmer. In early September Mr Waller, a senior partner of PricewaterhouseCoopers in Auckland, and Mr France, an independent chartered accountant and formerly a partner of PricewaterhouseCoopers, were engaged to advise Air NZ. As Air NZ's strategies for the acquisition of the Virgin Blue airline and subsequently the sale of Ansett to Qantas failed, Air NZ negotiated a recapitalisation package that was announced with its financial results on 13 September. Under this agreement BIL and SIA each agreed to contribute a further $150 million in capital, and the Government agreed to act as a lender of last resort for $550 million. The package was conditional upon due diligence by each of BIL, SIA and the Crown, as well as consent from the company's bankers.

8.1 By the beginning of September 2001 Air NZ was considering options for recapitalisation. From the point of view of the Government the Air NZ issue was being managed at four levels.

8.2 The package of 13 September came to be viewed by the market as being insufficient to meet Air NZ's capital needs, as the implications of the terrorist attacks of 11 September for the global aviation industry became more evident. The parties were undertaking due diligence, as agreed under the terms of the package. There were some concerns that the major shareholders would use the due diligence process to opt out of the package.

8.3 It is clear, however, that the position of the company was increasingly seen as precarious. In the week beginning 17 September the media began to speculate on the possibility of statutory management, liquidation or receivership. Such speculation was strongly fuelled by comments made during that week by Dr Cullen or his spokespersons, and to a lesser extent the Prime Minister, which conveyed the idea that statutory management was a real possibility. On Thursday 20 September Dr Cullen told Morning Report, in response to a question about the Government taking an equity stake in Air NZ:

"I think there are very serious risks for the Government because then we're signing up to parts of the liabilities of Air New Zealand. I doubt you are going to see the Government rushing in with a large amount of equity to rescue Air New Zealand. There are other processes which can be gone through which can continue an Air New Zealand operation in being."

8.4 For his part Mr Cameron was concerned that Air NZ might lose the support of one or more of its bankers, which could have resulted in statutory management. Treasury had already researched statutory management as an option. The chief executives group met on the evening of Thursday 20 September. Mr Cameron and various officials attended the meeting. The following day the Department of the Prime Minister and Cabinet prepared a briefing paper on statutory management, and this was given to the Prime Minister. The Prime Minister has said to the Commission:

"I did not read the briefing paper on statutory management prepared by my Department on 21 September 2001, at the time. The introductory paragraph made it plain that it dealt primarily with the procedure to be followed in order to place Air NZ in statutory management. There was no need for me to be familiar with the details of the process at that time."

8.5 By Friday 21 September Air NZ's Board, following advice from Mr Waller and Mr France, had concluded that Air NZ required an injection of equity to produce shareholder funds of $1 billion. Further, without a commitment by the major shareholders to provide additional capital or the Crown either committing to underwrite an equity issue or contribute capital the directors would be forced to ask for the appointment of a statutory manager.

8.6 On the evening of Friday 21 September, the position appeared bleak. Dr Farmer, Mr Waller and Mr France left the meeting of the Board of Air NZ to speak to Mr Cameron. They told him that the independent directors had concluded that they could not continue to allow the business to operate on its existing basis after Sunday night without Government support for Air NZ. Mr Cameron told the Air NZ team that the Crown was very reluctant to take equity without resolution of the potential liability for the debts of Ansett.

8.7 On 22 September Messrs Waller and France, independent directors of Air NZ, Treasury officials, Mr Cameron and Mr Beattie attended a meeting that was held in the Wellington offices of Cameron & Co. The importance of reaching settlement with Ansett administrators was discussed.

8.8 Dr Farmer, Mr France, Mr Waller and Mr Galbraith QC flew to Melbourne early on the morning of Sunday 23 September and met the Ansett administrators and their legal advisor. During the course of Sunday they negotiated a settlement in principle. However, on Monday 24 September the major shareholders still refused to vary the arrangements agreed in the 13 September package, and specifically refused to fund the Ansett settlement by contribution of capital without first completing due diligence. The Crown, represented by Treasury officials, was aware of the possibility of a settlement with the Ansett administrator, prior to 24 September when Mr Cameron circulated a draft term sheet.

8.9 On Sunday 23 September Mr Cameron began to formulate a proposal for the Crown to take an equity stake in Air NZ. Over the course of the weekend and Monday Mr Cameron spoke several times to Dr Cullen, who was at his home in Napier.

8.10 The Prime Minister, who had spent the weekend in Auckland, did not return to Wellington until Tuesday morning. In the course of Sunday 23 and Monday 24 September the Prime Minister gave several interviews in which she referred to statutory management as a viable option. On Monday 24 September the price of shares in Air NZ fell further. The A and B shares, which had opened the month at $0.90 and $1.06 respectively, closed on 24 September after heavy trading at $0.18 and $0.155 respectively (their lowest levels ever). This was a drop of 38% for the A shares and 40% for the B shares from their Friday closing price. The New Zealand Herald of 25 September attributed that drop to the Prime Minister's comments.

8.11 By Monday evening the Cameron proposal had been expanded into a draft "term sheet" setting out the terms upon which the Crown was prepared, in the first instance, to fund the Ansett settlement by way of a loan to Air NZ, and later, to take an equity stake in Air NZ. It was distributed to Treasury and Dr Cullen's Office. From Dr Cullen's Office it was sent to the Office of the Prime Minister, and faxed from there to the Prime Minister at her home in Auckland and to Dr Prebble on holiday in Russell. We understand this was the first the Prime Minster knew of the proposal. A meeting of the Ad Hoc Ministerial Committee was scheduled for 10.00 am on Tuesday 25 September. In advance of this meeting Treasury prepared for Dr Cullen a briefing paper that discussed three options: statutory management, Crown-led recapitalisation with the other major shareholders, or recapitalisation by the Crown alone. The Cameron proposal, by contrast, developed only the last of these options.

8.12 The Ad Hoc Ministerial Committee met at 10.00 am on Tuesday 25 September in the Prime Minister's office. Several participants attended by telephone, including Dr Prebble. Before the meeting Dr Prebble dictated a note over the telephone to his staff in Wellington. The note was intended for the Prime Minister. It was delivered to her at the meeting but was not discussed. The Prime Minister had left Auckland on an 8.30 am flight and went into the meeting directly on her arrival at her office. The Prime Minister has told the Commission that she did not read Dr Prebble's note at the time. It included a comment that if and when a recapitalisation package was in place statements by the Government should be directed towards support of Air NZ.

8.13 At the meeting of the Ad Hoc Ministerial Committee Mr Cameron spoke to a document prepared by him on 24 September entitled "Air New Zealand Current Situation and Options". It recorded that there had been two major developments in relation to Air NZ. The first was that the independent directors had concluded that the September 13 package would not ensure the viability of the company, which required immediate equity support to continue trading. The second was that "the Chairman of Air New Zealand and the company's advisors have negotiated a Heads of Agreement with the Voluntary Administrator (VA) for Ansett". The document then addressed the "stark choices" in relation to Air NZ. One was for the Government to finance the Ansett settlement and provide the independent directors with comfort to continue trading while a new recapitalisation plan was developed. Alternatively, if the government was unable to assist, "the company will commence its path towards Statutory Management or liquidation with the likelihood that this course of action will be irreversible". The document then discussed the alternatives of Government recapitalisation and statutory management in more detail.

8.14 The meeting discussed the amount of capital required, rather than the number of shares that the Crown would acquire. It was obvious from the level of capital required that the Crown would acquire a majority holding. There was discussion of the proposed settlement in principle with the Ansett administrator. The meeting was told of the refusal by the major shareholders to fund the settlement. Advice was given that the settlement could be lost without an immediate commitment by the Crown. It was suggested that an application could be made the following day (Wednesday) to the Australian Federal Court for approval of the settlement, but in the end court approval took a further two weeks.

8.15 The outcome of the meeting was that the Committee agreed "negotiation parameters" for the Crown negotiating team whereby the Crown might take an equity stake in Air NZ. That entailed a proposal that the Government fund the Ansett settlement by way of convertible debt of A$150 million and take a share placement in Air NZ of up to $700 million. The Ad Hoc Ministerial Committee accordingly approved the proposal to the major shareholders outlined in Mr Cameron's draft term sheet with some variations.

8.16 We have been told the mood of the meeting was cautious. Mr Cameron emphasised that several steps were required before the proposal could be made to work. According to Dr Prebble the meeting represented progress, but not a watershed: there were still a number of matters to be worked through. The Commission is of the view this was a very important meeting because the Crown, albeit subject to conditions, agreed that it would provide equity to Air NZ. Mr Cameron himself thought the chances of success were 50/50 and cautioned against relying on any aspect of the proposal as a certainty. Nonetheless Mr Cameron thought that his proposal was an important initiative and that the information contained in it was price sensitive. It was agreed at this meeting that there was to be no public announcement about the prospect of a new transaction until the matters for negotiation were settled.

"I had no reason to form a view as to whether or not the particular information referred to was price sensitive at the time I received it, and have not formed any view since then."

The Commission accepts the Prime Minister's evidence. However, the Commission is of the view that the information was price sensitive. The brokers interviewed generally regarded each of these matters as price sensitive, although they were not unanimous in their views. As noted above, Mr Cameron was also of the view that the information was price sensitive.

9.1 At 7.30 am on Tuesday 25 September Dr Turkington of the broking firm Forsyth Barr Frater Williams Limited left a message on the Prime Minister's answer-phone saying that he wished to discuss Air NZ. Dr Turkington knows the Prime Minister through a connection with the Auckland Philharmonia. The Prime Minister returned his call on her way to the Beehive, before the 10am meeting, at approximately 9.45am. He took the call in his firm's broking room.

9.2 There followed a conversation in which Dr Turkington urged the Government to consider a rights issue as a means of raising capital for Air NZ. In her turn the Prime Minister asked Dr Turkington what the market reaction would be to participation by the Government as a new equity funder of Air NZ, on terms that it would sell down its shareholding to the public once the viability of the airline had been restored. Dr Turkington told the Commission in evidence that this was put to him on a purely hypothetical basis. He said:

"Having initiated contact, I took the major part in the conversation and the Prime Minister for the most part merely listened. The prospect of the Government taking an equity stake in Air New Zealand was obviously not new. I was not given any indication at all on any aspect, either of the Government's stance with the airline, or any indication of the view the Government took about the financial health of the airline. In short, [the Prime Minister] made no disclosures to me and I did not come away from the conversation any wiser about any aspect of the Air New Zealand matter than I had been before it."

9.3 Dr Turkington later reported this conversation to Mr Edgar, chairman of the Forsyth Barr Group Limited, and spoke on the same day to Mr Cameron, but to no one else. Dr Turkington did not discuss the full content of his conversation with the Prime Minister with Mr Cameron. Dr Turkington only told Mr Cameron that the conversation had occurred.

9.4 Mr Cameron says that he may have made a passing reference, in a conversation with Dr Farmer, Mr Waller and Mr France, to the fact that the Prime Minister had been contacted by a broker or brokers on the prospects for a rights issue.

9.5 The Ad Hoc Ministerial Committee had met at 10.00 am. At approximately midday the Prime Minister spoke at a conference at the Quality Inn Hotel. As she left the hotel some 30 minutes later she stopped to give a brief interview to Ms Robyn Janes, a journalist with TVNZ. This had been informally arranged through Mr Lewis the press secretary accompanying the Prime Minister on her arrival at the conference. Mr Lewis told Ms Janes that the Prime Minister was unlikely to talk about Air NZ. Ms Janes interpreted this to mean that there was nothing new to add that day about Air NZ.

9.6 Mr Vernon Small of The New Zealand Herald was part of the group that formed around the Prime Minster for the interview. Ms Janes had earlier been asked by a TVNZ producer in Auckland to ask the Prime Minister a question about "mum and dad" shareholders in Air NZ. Ms Janes first asked, "Air NZ - anything to report today?", to which the Prime Minister responded, "Nothing to report". Ms Janes then asked, "What's your recommendation to mum and dad shareholders at the moment?" The Prime Minister replied, "I'd recommend they hang on to them because I am absolutely convinced that Air NZ has a viable future". Mr Small, who thought that this statement was a news scoop, asked two further questions about Air NZ. In one Mr Small asked: "When you say people should hold on to their shares, are you saying that it won't go into statutory management, or implying that it could trade out if it did go that way?" To this the Prime Minister replied: "I think that whatever the path that is chosen, Air NZ has a very viable future as a company". The full text of the interview is annexed as Appendix B.

9.7 The Prime Minister's statement that shareholders in Air NZ should hang on to their shares was carried that evening on TV One News at 6.00 pm and prominently reported in The New Zealand Herald the following day. Neither report included the Prime Minister's comment to the first question "nothing to report" or to the later question about statutory management. Instead, as we describe in more detail below, the Prime Minister's statement in relation to mum and dad shareholders was put in a somewhat different context from that given by the Prime Minister. This included, in the case of The New Zealand Herald, that the Office of the Prime Minister had tested the market reaction to increasing the Government's commitment to the bailout.

9.8 We set out in this paragraph a summary of the Prime Minister's evidence as presented to the Commission in respect of statements made by her:

9.9 In her evidence to the Commission the Prime Minister has emphasised that her principle focus was on the airline business.

9.10 The Commission considers from the Prime Minister's statements and her evidence that she did not draw a distinction between the survival of the airline business and the survival of Air NZ as a public company.

9.11 The NZSE asked Air NZ to clarify the Prime Minister's statement as reported. Pending clarification, the NZSE imposed a halt on trading in the shares of Air NZ that took effect before the market opened on 26 September. Air NZ later issued a statement saying that it considered the media had made more of the Prime Minister's comments than was warranted. The halt was lifted at 2.12pm following distribution of the Air NZ statement. A standard 15 minute halt was then imposed at 2.36pm to allow distribution of the MSP's statement regarding the resumption of trading. Trading closed at the normal time of 4.00pm. Trading was limited to a total of 1 hour 33 minutes instead of the usual seven hours. In that time 3,641,441 A shares and 6,012,519 B shares were traded. The shares closed at $0.34 (A shares) and $0.30 (B shares). On Thursday 27 September both classes closed at $0.40. Closing prices on Monday 24 and Tuesday 25 September respectively were $0.18 and $0.27 (A shares), and $0.155 and $0.25 (B shares).

10.1 Mr Greg Terry is the chief executive officer of BIL and was a nominee of BIL on the Board of Air NZ until his resignation on 3 October 2001. At 5.00 pm on Tuesday 25 September Mr Terry attended by telephone a meeting of the Board. At that meeting the independent directors informed the Board that there was now a reasonable chance that a recapitalisation would be put in place. Mr Terry advised the Board that on Thursday 27 September BIL would be releasing its annual results, and confirmed that there would be no comment on current discussions or proposals regarding Air NZ.

10.2 In Singapore on Thursday 27 September Mr Terry spoke at a media conference to announce the financial results of BIL. He was reported in the media as having said in relation to the price of Air NZ shares: "I would have thought that at 30 [cents] it could bounce to 60 fairly quickly if there was an announcement that it will continue and it will continue with full support". This statement was made in response to a question asking what value BIL had placed on its stake in Air NZ on a per share basis. The relevant extract from a transcript of Mr Terry's remarks is annexed as Appendix C.

10.3 Mr Terry's remarks were reported in New Zealand on Friday 28 September. Before the market opened the NZSE imposed a trading halt on Air NZ shares, and subsequently the shares were suspended by the MSP at the request of Air NZ until a comprehensive announcement about the future of the company could be made. The MSP's initial suspension was until the close of business on Monday, 1 October. The Panel imposed a further suspension, at the request of Air NZ, from close of business 1 October until Air NZ "makes any further announcement". The company made a further announcement on 4 October and the MSP lifted its suspension at 2pm.

10.4 We set out in this paragraph a summary of Mr Terry's evidence as presented to the Commission:

11.1 For some months institutions had been selling down holdings in Air NZ. Brokers rated Air NZ negatively. During the week beginning Monday 24 September most buyers were retail investors. They were certainly attracted by the apparent cheapness of the stock, and may also have been buying out of a sense of patriotism and loyalty. Parcels traded tended to be modest in terms of value. According to brokers interviewed, the concept of statutory management was probably neither well understood by, nor of particular concern to, many retail investors, although more sophisticated retail investors were concerned by the discussion of statutory management. Many retail buyers were individuals who either had never previously invested in the market or had not traded for some time. Such was the trend of buying by new or hitherto dormant clients that some broking firms insisted on payment before transacting an order to buy Air NZ shares.

11.2 After closing at a record low on Monday 24 September shares in Air NZ rallied on the morning of 25 September, before the Prime Minister was interviewed and well before her comments were reported. Annexed to this report as Appendix D are graphs of Monday 24, Tuesday 25 and Wednesday 26 September, showing the intra-day trading in the shares in Air NZ by volume and price. On Tuesday 25 September, trading in the A shares opened at $0.22, up 4c from the closing price the day before, rose to $0.25 by mid-morning and closed at $0.27. Trading in the B shares opened at $0.19, up 3.5c from the closing price the day before, and traded for most of the day in the range of $0.22 - $0.24 before closing at $0.25. On Wednesday 26 September, both A and B shares opened markedly higher, at $0.35 and $0.30, although the market did not open on time. The A shares initially dropped but recovered to close at $0.34. The B Shares initially rose sharply from the opening price to $0.34, before dropping back to close at $0.30.

11.3 It is clear that the price of Air NZ shares had started to rise on Tuesday 25 September from their lowest levels on Monday well before the Prime Minister's remarks were made to TV One News and The New Zealand Herald, let alone broadcast or reported. Whether the price would have continued to rise as it did without the Prime Minister's remarks being reported, and the trading halt imposed, is unknown.

11.4 The Commission interviewed a number of brokers. Some brokers were selected because of their reported comments in the media. Other brokers were selected to ensure the Commission received evidence from brokers who dealt with retail investors and those who dealt with institutional investors. The unanimous impression of these brokers is that retail investors took encouragement from the Prime Minister's remarks, which were seen as a "marvellous signal", a "positive sign", a "strong signal". According to some brokers the phones rang "red hot" after the Prime Minister's statement on Tuesday 25 September was reported. For the month of September 2001 trading on Wednesday 26 September was the sixth heaviest day of trading for A shares and the fifth heaviest day for B shares. Although the trading halt, which was lifted at 2.51 pm, prevented trading in Air NZ shares for most of the day, brokers continued to take orders during the halt, in line with usual practice, and these were then matched when the halt was lifted.

11.5 For the purposes of comparison we set out daily volumes of trading in the weeks beginning 17 and 24 September 2001:

11.6 The figure of 23,900,657 in the B shares on Tuesday 25 September includes a single trade of 12.75 million shares between two funds in New York under the management of the same funds manager. It is difficult to draw any conclusion from volumes of trading in the shares of Air NZ on the two days following the report of the Prime Minister's remarks made on Tuesday 25 September. On Wednesday 26 and Thursday 27 September volume of trading in the A shares was consistent with trading in the previous week. On 26 and 27 September volume of trading in the B shares was towards the top end of the range of trading in the previous week, but no more.

11.7 Some evidence of the strength of retail buying is found in the following analysis provided by ABN Amro Craigs Ltd, a retail broker. The table lists the number of trades, whether buy or sell orders, effected on behalf of clients by that firm in Air NZ shares in the period 21-27 September 2001. The inference is that larger shareholders were selling shares in Air NZ in this period, and that smaller shareholders were buying, as the number of "sells" was smaller than the number of "buys".

11.8 At the close of trading on Thursday 27 September both A and B shares stood at $0.40, an increase on the closing prices from Monday 24 September of 122% for the A shares and 150% for the B shares.

11.9 Some brokers interviewed thought that the trading halt imposed on Wednesday 26 September ought not to have been lifted until the recapitalisation proposal had been clarified. A comparison was drawn with the Australian Stock Exchange where the shares were suspended on Thursday 13 September and remained suspended until Friday 19 October. One broker described the trading halt as a "pressure cooker", which intensified interest and speculation. Another thought the speculative aspect was "overwhelming" at the time, and that there was not a strong argument for making a market in the shares of Air NZ.

11.10 A number of the brokers said it was not an unusual phenomenon for retail investors to come into the market as they did with Air NZ. This had happened with other shares when there had been a dramatic fall in value over a relatively short period of time. Many of the brokers said however that September 2001 was a somewhat exceptional month in terms of the amount of publicity that surrounded Air NZ. In their experience they had not seen as much comment and speculation as there was about the prospects of a company. In their opinion this undoubtedly would have fuelled the interest of the retail investor. The records of Computershare Registry Services Limited (the share registry for Air NZ) reflect this. As at 1 December 2000, Air NZ had a total of 40,453 holders of A and B shares. As at 8 November 2001, it had a total of 50,136. This represents an increase of almost 24% in shareholder numbers over the period.

11.11 The Commission asked the NZSE for its views on the usefulness of trading halts and suspension, which we summarise here. The NZSE considers that as long as the market is uniformly informed (or uniformly uninformed) about matters that have not yet occurred - as opposed to matters that have already occurred - the market should be allowed to trade unless quotation should be suspended under the Listing Rules. Denying security holders a market on which to sell their securities, and investors a market on which to buy, removes a right and freedom. It should be done only sparingly and with good justification. Increasingly there are opportunities for the securities of listed issuers to be traded off-market, or in non-regulated markets. Halting trading for other than short periods can encourage development of these alternative non-regulated markets. Both the NZSE and Air NZ consider that the decisions to lift the trading halts were correct. The NZSE believes that it is supported by a majority of brokers in this respect.

On the basis of the evidence considered by it, the Commission reaches the following conclusions. However, the Commission notes that it is not the function of the Commission to make determinations as to liability under the law.

12.1 The Commission inquired of all broking firms in New Zealand, regarding media reports of approaches to broking houses by the Office of the Prime Minister about possible steps to be taken by the Government in relation to Air NZ. Each firm stated that it had not been so approached.

regarding the media reports of approaches to broking houses by the Office of the Prime Minister about possible steps to be taken by the Government in relation to Air NZ. Each of these departments stated that they were not aware of any person who had approached broking houses in respect of any aspect of any proposal for Government financial support for Air NZ, whether by way of refinancing, recapitalisation, underwriting or otherwise. Further each individual that answered on behalf of each department stated in evidence that they had reached that answer after questioning each person in their department who was involved in the matter. Specifically in relation to the Office of the Prime Minister (which was identified in The New Zealand Herald report) Ms Simpson told the Commission:

"I can confirm that no one in the Office of the Prime Minister was authorised to approach any broking house on this topic [possible steps to be taken by the Government in relation to Air NZ]. I am confident that I would have been aware at the time had any such initiative been taken, and it was not. Further, since the matter was raised in the media, I have checked with all those employed within the Office of the Prime Minister that might possibly have taken such a step, and can confirm that no such steps were taken."

12.2 It is possible that the conversation that took place between the Prime Minister and Dr Turkington on the morning of Tuesday 25 September 2001 became known to others and was misreported as an approach by the Government. Whether that occurred, and, if so, how, is not known to the Commission. The Commission is of the view that, on the evidence available to it, nothing was said or disclosed during the course of that conversation regarding the affairs of Air NZ that was inappropriate or indiscreet. We conclude that the Office of the Prime Minister did not approach broking houses about possible steps to be taken by the Government in relation to Air NZ.

13.1 Under our Terms of Reference we considered whether questions arose with regard to insider trading or tipping in terms of Part I of the Securities Amendment Act 1988. Appendix E of this report contains an outline of the relevant provisions of this legislation.

13.2 From the evidence before us, including our review of trading records and interviews with brokers, we have found no evidence of insider trading by any person in the shares of Air NZ during the period of this inquiry.

14.1 The independent directors had told Mr Cameron on Friday 21 September that they could not continue beyond Sunday 23 September without Government support for the company. Mr Cameron had also learned from the directors that there was a possibility of an Ansett settlement, and had been advised of the settlement in principle negotiated on Sunday 23 September. That information was conveyed to the Prime Minister in the preamble to Mr Cameron's term sheet and at the Ad Hoc Ministerial Committee meeting on Tuesday 25 September. That information was inside information as defined by section 2 of the Securities Amendment Act 1988. We conclude that as at Tuesday 25 September 2001 the Prime Minister was an insider of Air NZ with inside information as defined by section 3(2)(e) of the Securities Amendment Act 1988, having obtained the inside information through the chain of the Air NZ independent directors and Mr Cameron and having been present at the Ad Hoc Ministerial Committee meeting.

14.2 Under section 9(1) of the Securities Amendment Act 1988 an insider of a public issuer who has inside information about the public issuer and who "advises or encourages any person to buy or sell securities of the public issuer" is liable to the persons listed in section 9(2).

14.3 In the following paragraphs we consider the statements by the Prime Minister in the context of tipping for the purposes of section 9 of the Securities Amendment Act 1988. In relation to Air NZ the interview was as follows:
Robyn Janes: Air NZ - anything to report today?

Robyn Janes: What's your recommendation to mum and dad shareholders at the moment?

Prime Minister: I'd recommend they hang on to them because I am absolutely convinced that Air NZ has a viable future.

Vernon Small: Stephen Franks was saying that the government should give an assurance to people buying tickets that there will be an airline. Can you give that assurance?

Prime Minister: I am certainly having tickets bought for me on Air NZ and I have every confidence it's going to be flying.

Vernon Small: When you say people should hold on to their shares, are you saying that it won't go into statutory management, or implying that it could trade out if it did go that way?

Prime Minister: I think that whatever the path that is chosen, Air NZ has a very viable future as a company.
14.4 It is clear that the Prime Minister did not advise any person to buy or sell shares in Air NZ.

14.5 This leaves a question as to whether the Prime Minister "encouraged" any person to buy or sell shares in Air NZ for the purposes of the Securities Amendment Act 1988.

14.6 The tipping provisions of the Securities Amendment Act 1988 do not refer to "holding" shares, only to buying or selling. However, the Commission considers that a statement by an insider with inside information that shareholders should "hold on" to or "not sell" their shares can, in some circumstances, constitute tipping. This can be so if the overall context of the statement and the tone and terms of the statement infer the sending of a more positive message than a simple "hold".

14.7 The Securities Amendment Act 1988 does not define the word "encourage" and the term has not been considered in the context of this legislation by the courts. The Court of Appeal in Colonial Mutual Life Assurance Society Limited v Wilson Neill Limited made a number of statements about liability under the Securities Amendment Act 1988 in light of the legislative scheme of the Act. The Court in that case was of the provisional view that an absence of moral fault would have no bearing on liability under section 7 or section 9, other than on questions relating to penalty. In relation to "inside information" and "insider" the Court adopted objective tests. The Court of Appeal's approach in the Wilson Neill case suggests that an objective test may be applied to the consideration of the actions of insiders.

14.8 We accept that the Prime Minister did not intend to encourage any person to buy shares in Air NZ. However it is clear from evidence received by the Commission that some market participants, mostly retail investors, were encouraged to buy Air NZ shares by the Prime Minister's statements as they were reported. In assessing whether or not this is sufficient to be able to say that the Prime Minister "encouraged" any person to buy shares it is important to consider the context in which the statements were made and the manner and context of the reporting of the statements.

14.9 The first question relating to Air NZ was: "Air NZ - anything to report today?" As her press secretary had earlier predicted, the Prime Minister replied, "Nothing to report". The Prime Minister has explained that in her view "this made it clear that nothing had changed since earlier interviews". In other words, as far as the Prime Minister was concerned, the public perception of her comments, had they been reported verbatim and in full, ought to have been that there were no developments, good or bad, which she was able to report.

14.10 Following her statement that shareholders should hang on to their shares, the Prime Minister was asked two further questions. One related to assurances as to the purchase of airline tickets. The last question referred expressly to the Prime Minister's statement that shareholders should hang on to their shares. She was asked:

"When you say people should hold on to their shares, are you saying that it won't go into statutory management, or implying that it could trade out if it did go that way?

"I think that whatever the path that is chosen, Air NZ has a very viable future as a company."

14.11 The manner in which the Prime Minister's remarks were reported is also significant. The story was first reported on TV One News at 6 pm on Tuesday 25 September. The story began with the presenter Simon Dallow saying: "The Prime Minister is urging small investors not to sell their Air New Zealand shares". The story was then taken up by reporter Owen Poland. At this point the transcript reads:
"Reporter: Julian Warren bought a thousand Air New Zealand shares for eighteen cents yesterday. He now wants a fund set up to save the airline.

Julian Warren (Air NZ supporter): If we can all contribute to some sort of fund now, very quickly indeed, and save Air New Zealand, and give it some liquidity, then that trust fund would presumably, I would imagine, be capable of some ownership or stake in the running of Air New Zealand.

Reporter: The shares gained a little altitude after yesterday's record loss, and the Prime Minister's urging small investors not to sell.

Helen Clark (Prime Minister): I'd recommend they hang on to them, because I'm absolutely convinced that Air New Zealand has a viable future.

Bruce McKay (DF Mainland analyst): So any investor who was contemplating buying some shares at the moment really has to look at it on the basis they may perhaps lose all their money."

14.12 The New Zealand Herald of Wednesday 26 September reported the story under the headline "Don't Sell Up, PM Urges Shareholders". The first sentence of The New Zealand Herald story read:

"Prime Minister Helen Clark has advised investors to hold on to their shares amid reports that her Office has tested market reaction to the Government's increasing its commitment to the multimillion-dollar bailout of Air New Zealand."

The juxtaposition of the Prime Minister's statement that shareholders should hang on to their shares and testing by her Office of market reaction may have given a different impression of what she had actually said.

14.13 We conclude that the way in which the Prime Minister's comments were first reported was relevant to the perception of these statements by the market. First, the media focused on only one of the answers that she gave to questions on Air NZ, where the overall tone of her comments may have been balanced by a full reporting of the interview. Secondly, we conclude her statement that shareholders should hang on to their shares because she was absolutely convinced that Air NZ had a viable future was either linked with an incorrect report of the Government testing the market (The New Zealand Herald) or with the suggestion that buying Air NZ shares was patriotic, public-spirited and necessary to save the airline (TV One News). Thirdly, the statements by TV One News that "the shares gained a little altitude after yesterday's record lows, and the Prime Minister's urging small investors not to sell" may have given the wrong impression that the market was already reacting to the Prime Minister's statements. In fact we consider that none of the movement in price on Tuesday 25 September should be attributed to the Prime Minister's statements, as these statements were reported for the first time at 6pm, some time after the market closed.

14.14 The Crown's legal advisers invited the Commission to find that the Prime Minister's statements could not have constituted tipping in any event because the statements were made to representatives of the news media for public release. The Crown submitted that a statement made to "every" person cannot be a statement made to "any person" for the purposes of liability for tipping under the Securities Amendment Act 1988. The basis for this submission was that generally liability for tipping arises where a statement is directed at a person or persons in order to confer on them an advantage not available to others in the market, and so in terms of the scheme of the legislation a public statement should not be considered a tip.

14.15 The Commission agrees that if a statement is made with the full intention and in the reasonable expectation that it will be immediately reported to the market at large then this should not be viewed as tipping. No advantage to any person is likely to be intended or achieved in the circumstances. Both positive and negative statements about the affairs of listed issuers are routinely made by those issuers to shareholders and the market, and are important to maintain an informed market.

14.16 However, the Commission is of the opinion that the fact that a statement is made solely for public release is not in and of itself the end of the matter in terms of liability for insider trading. The release of a statement that includes inside information or that might reasonably be viewed as an encouragement to trade needs to be managed carefully.

14.17 The Commission has previously stated its opinion that a piece of information should be considered "publicly available" for the purposes of insider trading legislation only once it is available to participants in the market in which the securities are traded, and probably also to potential participants, that is, those who might act on the information. This is consistent with the approach taken in overseas jurisdictions, notably the United States. Making a statement to the news media for reporting does not make the information publicly available. Whether information is publicly available is a question of fact and will depend on the extent to which the statement is reported, and the timing of that reporting. For this reason the Commission is of the opinion that any insider should take great care about the procedures to be adopted in making any price sensitive statement about a public issuer. This reinforces our view, recorded below, that statements about listed public issuers made by insiders should where possible be made through the market information mechanisms provided by the NZSE.

14.18 In the present case we conclude that the Prime Minister's statements were not intended to "encourage" but that encouragement was taken from her comments, as reported.

14.19 We consider that an insider of a company does not "encourage" another person to buy shares in that company for the purposes of the legislation merely because the other person takes encouragement from what the insider says. This is certainly so if the reaction of the person taking encouragement is inappropriate. Against that background we focus on the phrase "encourages any person to buy". It is important to read the phrase as a whole and in the context of the purpose of the legislation in which it is found. The following elements are important:

14.20 We think five points emerge as important in considering the Prime Minister's statements in the context of section 9:

14.21 In the present case, applying these factors to the statements of the Prime Minister, we conclude that she did not "encourage" any person to buy shares within the meaning of section 9 of the Securities Amendment Act 1988.

14.22 Moreover, although encouragement was taken from the Prime Minister's statements as reported, the market was informed of the statements by the time trading commenced on Wednesday 26 September. We have no evidence of loss that could be attributed to her statements.

15.1 On Monday 24 September Mr Terry attended by telephone a meeting of the Board of Air NZ which received a report of the settlement in principle with the Ansett administrators. On Tuesday 25 September Mr Terry attended by telephone a meeting of the Board of Air NZ where the independent directors informed the Board of Air NZ that there was now a reasonable chance that a recapitalisation would be put in place. Mr Terry confirmed at this meeting that no comment would be made on current discussions or proposals regarding Air NZ at the announcement of BIL's annual results. Therefore, as at Thursday 27 September, Mr Terry, as a director of Air NZ, was aware of the settlement in principle with the Ansett administrators, and was aware at least that there was a reasonable chance of recapitalisation by the Government. We have already concluded that this information was price sensitive.

15.2 We conclude that Mr Terry was an insider with inside information at the time of his statement on Thursday 27 September (NZ time).

15.3 In the following paragraphs we consider the statement by Mr Terry on 27 September regarding Air NZ's share price that "30 could bounce to 60 fairly quickly if there was an announcement that it will continue and it will continue with full support" in the context of tipping for the purposes of section 9 of the Securities Amendment Act 1988.

15.4 The Commission does not consider that it matters that the statements were made offshore by an overseas resident, as they relate to a New Zealand listed company.

15.5 We do not consider that Mr Terry advised any person to buy or sell shares in Air NZ.

15.6 As with the Prime Minister, this leaves the question as to whether Mr Terry "encouraged" any person to buy or sell shares in Air NZ for the purposes of section 9 of the Securities Amendment Act 1988.

15.7 The Commission considers that a statement about the share price by an insider with inside information, particularly when it predicts an upward movement, can constitute tipping. Mr Terry's statement must be considered taking account of the factors set out in paragraphs 14.7 and 14.14 to 14.17 of this report.

15.8 We accept that Mr Terry did not intend to tip. Mr Terry informed us that he "intended to do no more than illustrate what might happen should certain circumstances occur". However, we consider that objectively Mr Terry did more than that. He addressed directly the question of price and forecast that the share price of Air NZ could double if there was an announcement. He would have been aware at the time that an announcement from the Government was likely.

15.9 Unlike for the Prime Minister, we do not think that the context and reporting of Mr Terry's comments were in any way mitigating in an assessment of the appropriateness of his comments.

15.10 As outlined above, we consider that an insider of a company does not "encourage" another person to buy shares in that company, for the purposes of the legislation, merely because the other person takes encouragement from what the insider says. As above, we identify the following elements as important:

15.11 We think three points emerge as important in considering Mr Terry's statements in the context of section 9:

15.12 In the present case, applying these factors to the statement of Mr Terry, we conclude that he did not "encourage any person to buy" shares within the meaning of section 9 of the Securities Amendment Act 1988.

15.13 Moreover, although encouragement may have been taken by Mr Terry's statement, we observe that following the report of Mr Terry's statement the NZSE imposed a trading halt until a statement had been made by the company. Air NZ then asked that trading be suspended. This remained in place until an announcement was made about recapitalisation on 4 October 2001. We have no evidence of loss that could be attributed to Mr Terry's statement.

16.1 The circumstances of this case raise difficult questions about the tipping provisions of the Securities Amendment Act 1988. They highlight the tension between imposing liability only where tipping was intended, with the consequential problems of proof, and attaching liability where the tipping was not intended. We consider the uncertainty created by this to be undesirable. We note that the Government intends to carry out a full review of insider trading laws, including an examination of liability provisions. We recommend that the question of tipping be included in this review.

17 WHETHER THE PRIME MINISTER'S COMMENTS WERE APPROPRIATE IN THE CIRCUMSTANCES

17.1 The Prime Minister has said in evidence to the Commission that her statement on Tuesday 25 September regarding shareholders was appropriate in the circumstances. We do not agree. We accept the Prime Minister's contention that her motivation was the national interest. In evidence provided to the Commission the Prime Minister stated:

"I did not have a view, at the time or otherwise, as to whether the Air New Zealand share price was likely to go up or down, either in the short or long term. That was not a particular concern of mine - my focus was in ensuring that the Government preserved a national airline, and that I in particular reassured the public that the Government was doing all it could to achieve that goal."

17.2 The Prime Minister was at the time an insider of the company. She is an influential figure whose statements are accorded significant weight by the New Zealand public. Air NZ was a publicly listed company, and one in which there were a large number of retail investors. In the circumstances we consider that any statement she made about Air NZ would be likely to be given the highest significance by investors.

17.3 The Crown submitted that the Commission should not judge the Prime Minister's comments by the standard it would apply to market participants. The submission was not that the Commission should apply a lighter standard, but that it should take into account the unique position of the Prime Minister, her relative distance from the detail of the Air NZ situation, and the national interest imperatives that apply to her conduct. However, the Prime Minister is the lead spokesperson of the Government. We consider that the circumstances were such during late September, in particular at or immediately following the meeting of Tuesday 25 September, that warnings should have been given to all Ministers to take great care in their statements about Air NZ. They were only advised at the meeting on 25 September that there should be no public comment on the specific point of the prospect of a new transaction until it could be properly disclosed. We consider this insufficient in the circumstances.

17.4 The interview itself was not an ambush. In view of the volatility of Air NZ's share price and the speculation about statutory management we consider that a question about the fate of minority shareholders should have been anticipated and that the Prime Minister should have been specifically advised on how to respond to questions about shareholding in Air NZ. The Prime Minister was not so advised.

17.5 In any event we consider that the Prime Minister's responses should have distinguished questions about shareholding from issues of confidence in the viability of the airline's business. She should have responded to questions about shareholding in a different manner. Statements were made that we consider to have been inappropriate both from a securities markets' perspective and by the standards which we consider the Crown, and the Prime Minister as its representative, should have followed when making statements about Air NZ.

17.6 The willingness of the Government, confirmed by the decision of the Ad Hoc Ministerial Committee, to recapitalise Air NZ on its own was price sensitive information. The Prime Minister has stated in evidence that there was no connection between the decision of the Ad Hoc Ministerial Committee approving Mr Cameron's proposal to the major shareholders and her recommendation some two hours later to shareholders in Air NZ that they should hang on to their shares. The Commission has not received any evidence to the contrary. The Crown's legal advisers advanced the proposition that the Prime Minister's response would have been the same regardless of the outcome of the meeting, short of misleading investors. Even on the basis of this assertion, however, it seems to us unlikely that the Prime Minister would have given the same response to the question about shareholding had the Ad Hoc Ministerial Committee meeting decided the Crown was not willing to consider recapitalisation of Air NZ under any circumstances or that statutory management was the only option.

17.7 Although it is difficult to judge the extent to which this occurred, we are satisfied that investors, mostly unsophisticated, were influenced by her statement in the form in which it was reported. It was taken by the market to signal clear support by the Government for Air NZ. The Crown has submitted that the comment was simply consistent with the Prime Minister's previous line of providing reassurance about the future of Air NZ as an airline. We believe a distinction should be drawn. The Prime Minister's statement on Tuesday 25 September was an express comment about shareholding. Her responses appear to have addressed the issues raised by the reporter by expressing an opinion as to what shareholders should do. A statement referring to shareholders should not have been made in advance of orderly disclosure to the market, through the proper channels, of information about the possible recapitalisation by the Government. The subsequent revelation that the statement was given when a decision by the Government had only just been made to negotiate an equity stake in Air NZ is significant and inevitably raised questions about the proper functioning of the New Zealand share market.

17.8 That is not to say that a major stakeholder, including the Prime Minister as head of Government, should not make public statements. On the contrary, there will be many occasions when it will be important for a stakeholder to comment on events or developments in a listed company. We also accept that there may be broader sensitivities for the Prime Minister and Ministers in responding to questions. However, where there is a commonality between the government's national interest and the interests of the investing public, we consider the timing and medium of communication of information is critical, particularly where the information may be price sensitive. We consider that potentially important statements or comments about any publicly listed company should be disclosed to the market through appropriate channels, for example, the NZSE, and in accordance with appropriate rules or guidelines about the timing of release of information to a market. The emphasis on disclosure in this way ensures that the market is uniformly informed. The risks that statements such as those made may give rise to questions as to whether the "tipping" provisions of the Securities Amendment Act 1988 apply is a further reason why the making of such a statement in these circumstances is inappropriate in our view.

17.9 The Commission is surprised that neither the Prime Minister nor Dr Cullen were specifically briefed during the period of negotiations for the recapitalisation of Air NZ as to the appropriateness of comments by Government spokespersons in relation to matters affecting shareholding in Air NZ. We note a warning about making any public announcement was given to those present at the Ad Hoc Ministerial Committee meeting on 25 September. However, the Crown accepts that there was no structured or special advice to Ministers.

17.10 We are also concerned that there are no general guidelines in place to assist Ministers and their advisers when dealing with situations involving publicly listed companies. We recommend that such guidelines or procedures be drawn up for the guidance of Ministers and their spokespersons when commenting on events affecting publicly listed companies in New Zealand in circumstances where the Government has, or is reasonably perceived to have, price sensitive information not available to the market. We believe the existence of such guidelines could assist to avoid situations such as those that were the subject of our inquiry. They could assist to maintain public confidence in the integrity of an informed share market. We accordingly recommend that the Department of the Prime Minister and Cabinet or other appropriate Department should devise suitable guidelines and that these should be made available to Ministers and their advisers. The Crown has told the Commission it recognises the desirability of appropriate guidelines and has already begun to develop them.

18.1 The comments of Mr Terry, who at the time was a director of Air NZ, were interpreted by the market to indicate an undisclosed favourable event (as it transpired, recapitalisation by the Government). We conclude that Mr Terry's remarks were inappropriate, quite aside from any question of tipping. Difficulties are faced by a director who, as a spokesperson for a public company, is required to answer questions which relate to the fair value of a significant asset of the company. Notwithstanding this, the proper functioning of an orderly, informed market is jeopardised when an insider of a public issuer with inside information publicly makes a statement about possible movements in the level of the share price at a time when the market is already subject to extensive rumour and media speculation.

_____________________________
Jane Diplock
Chairman of the Securities Commission

PURSUANT to section 10 of the Securities Act 1978 the Securities Commission has decided to undertake an inquiry to review the circumstances surrounding the trading, halts in trading and reinstatement of trading in the shares of Air New Zealand Ltd ("Air New Zealand") during September 2001 ("the relevant period"):

SUBJECT to the discretion of the Commission to amend these Terms of Reference as it may consider fit.

PM: if we have children in need of care and protection, then obviously the social welfare system picks them up. What we always indicated was that we wanted to take the women and children and the associated families, and that we would take other minors under 18.

PM: It is interesting to know how these kids came to be roaming the world in this way, but we don't have the answer to that. We will just have to look after them as best we can.

Q: What sort of pressures will this place on New Zealand in terms of looking after them?

PM: I think we will respond to the pressure. I have been really encouraged by the positive attitude across many groups in the community who want to be part of providing help and support and being part of seeing people make a go of being in this society.

PM: We accept the responsibility of looking after those teenagers properly. We are going to make it work for them.

PM: I think it's just too early to say. There could be kids who need to be reunited with their families somewhere else. We are just going to have to look at each case on its merits.

PM: Anyone who comes to New Zealand as a migrant can then at some point look at what possibility there might be for other close family to come. We accept that with all migrants we receive, whether they are refugees or people who come in under the point system. We haven't had unaccompanied minors before. There is a particular outcome of the humanitarian crisis of the Tampa.

PM: I'd recommend they hang on to them because I am a absolutely convinced that Air NZ has a viable future.

Q: Stephen Franks was saying that the government should give an assurance to people buying tickets that there will be an airline. Can you give that assurance?

PM: I am certainly having tickets bought for me on Air NZ and I have every confidence it's going to be flying.

Q: When you say people should hold on to their shares, are you saying that it won't go into statutory management, or implying that it could trade out if it did go that way?

PM: I think that whatever the path that is chosen, Air NZ has a very viable future as a company.

GT: ...I don't think we can do any more than continuing to ...pause...The legacy issues are dealt with. We now have cash and a group of businesses. We now need to invest that cash very wisely and continue to grow the NAV. It'll take time for the world to decide the reputational issues that this is a company that has a successful track record. I think we were starting, before the Ansett situation, we were starting to get rid of all that sort of press. We were starting to see it in our share price. A profit for the year last year would have helped. Unfortunately, of course, there's been a further set-back.

Eric Ellis: What was the Air New Zealand stake written down to on a per share basis?

GT: Well, I would have thought, you know, 30 could bounce to 60 fairly quickly if there was an announcement that it will continue and it will continue with full support.

Next journalist asks question about future investment activity in Singapore and by other core investments.

"an insider of a public issuer who has inside information about the public issuer and who -

"An insider of a public issuer who has inside information about the public issuer and who-

To find out whether there has been insider trading consideration must be given to whether information is inside information and whether any person who was an insider with inside information bought or sold securities or tipped another to buy or sell securities.

Air NZ	Air New Zealand Limited
Ansett	Ansett Holdings Limited
BIL	BIL International Limited
MSP	Market Surveillance Panel
Qantas	Qantas Airways Limited
NZSE	New Zealand Stock Exchange
SIA	Singapore Airlines Limited
TVNZ	Television New Zealand Limited
Virgin Blue	Virgin Blue Airlines Pty Limited

		A Shares	B Shares
September	17	3,493,777	4,191,537
	18	3,323,605&	5,167,957
	19	2,991,779	4,949,497
	20	3,127,873	4,000,485
	21	3,049,268	7,882,787
	24	5,470,768	11,229,694
	25	6,191,661	23,900,657
	26	3,641,441	6,012,519
	27	4,139,084	6,593,364
	28	Trading halted, quotation suspended.

		A Shares		B Shares
		Buys	Sells	Buys	Sells
September	21	35	26	33	19
	24	43	25	31	33
	25	95	38	154	93
	26	54	27	112	35
	27	64	40	21	13

New Zealand Securities Commission

A Report on certain statements made in respect of Air New Zealand Limited in September 2001 [2002] NZSecCom 4 (26 April 2002)