The Education Act has changed.

The new legislation comes into effect on 19 May 2017. 
We have created an overview of these changes.

NZSTA will continue to update you with factsheets, newsletters and through our website.
You can call 0800 782 435 or email actupdates@nzsta.org.nz.

 

Definitions

Borrowing

Acquisition of securities (investments)

Guarantees and indemnities

Derivatives

Borrowing

Borrowing is the act of obtaining funds from a lender on the understanding that they will be repaid. It includes agreements such as hire purchases or finance leases, as well as overdraft facilities. It does not include purchases on credit or the use of a credit card. A definition of "borrowing" is contained in the Crown Entities Act, and is replicated in Annex E on our website.

The current 'generic' authorisation for board borrowing is preserved under draft regulation 5A.  Boards can borrow from any source as long as the annual costs to them of repaying all outstanding borrowings (including interest and principal) is no greater than one-tenth of the operating grant or grants paid by the Ministry of Education.

Any borrowing beyond this limit will require separate approval.  Such borrowing would include overdrafts and short-term or long-term loans from banks or other financial institutions.

 

Acquisition of securities (investments)

The term "security'' covers equity securities (for example, shares) and debt securities (for example, term deposits, debentures, bonds, certificates of deposit). It also covers units in unit trusts. A detailed definition is included in the Act, which refers to the Securities Act 1978 (see Annex E on our website).

Boards are able to acquire debt securities (including term deposits) denominated in New Zealand dollars and issued by any entity (including registered banks and registered building societies) that is rated not less than A- (Standard & Poor's Ratings Group) or A3 (Moody's Investor Services).

Boards are also able to acquire public securities (for example, Treasury bills and Government stock).

Any other investment will require separate approval.

Guarantees and indemnities

A guarantee is the mechanism by which one person or entity assumes responsibility for paying another's debts or fulfilling another's responsibilities.  Indemnity is security against damage, loss or injury.

Indemnities that are included in many day-to-day business transactions (insurance agreements, banking arrangements, hire purchase agreements) and those that are part of contracts entered into as part of a board of trustee's ordinary business are allowed by virtue of the 'permitted' list in draft regulation 6(2).   

Boards are also allowed to indemnify a board member, office holder, committee member, employee or other individual in relation to claims or proceedings provided the preconditions contained in s. 163 of the Crown Entities Act are met.  Other situations where boards guarantee or indemnify other parties or people - such as in IT and construction contracts other than standard over-the-counter contracts - are not provided for and will require authorisation.   

You are encouraged to review the full "permitted" list in draft regulations (in Annex D on our website).

Derivatives

In common terms, a derivative is a contract or security that derives its value from that of an underlying asset or from the value of a rate (e.g. an interest rate or currency exchange rate) or index of asset value (as a stock index).

The definition of a derivative transaction used in the Act is very broad, and covers foreign exchange transactions, swaps, forwards, and options of various forms. The full definition is replicated in Annex E on our website.

Under draft regulation 7, boards will be able to undertake foreign exchange cash-for-cash transactions with a dealer.  Foreign exchange transactions with a NZ registered bank or an overseas bank that meets the A- or A3 credit rating test are similarly authorised, as long as they are for the purpose of board members' or employees' travel and related expenditure in foreign countries, or to undertake authorised investments or guarantees and indemnities.  Boards are also able to enter into futures contracts to cover foreign exchange exposure arising from transactions authorised by draft regulation 7. 

Boards are able to purchase and exercise "options" in relation to the purchase or lease of property (real estate) and to goods not traded in commodities markets.

Also permitted are futures contracts for investment in securities undertaken in terms of draft regulation 3.

Again, you are encouraged to review the full 'permitted' list in draft regulation 7 (in Annex D on our website).  

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