Approval for Agenda
Title: Establishment of a holding company
Report to: Finance and Strategy Committee
Author: Kirsty Colquhoun, Policy Analyst, Treasury
Date: 10 September 2008
Democracy services file:
Keywords: Holding company, Auckland International Airport Ltd, governance,
1.0 Summary and conclusions
This report outlines the high-level benefits and costs/risks of establishing a holding company for a
range of council assets and activities. Officers believe that the case for establishing a holding
company is compelling, with a wide range of potential benefits and very limited potential costs or
risks. This report therefore seeks approval to establish a holding company without further delay.
This report does not include in-depth assessment or analysis of any specific assets or activities
to be transferred into a holding company. Instead, this report uses examples to illustrate potential
benefits and costs. Once council has established a holding company, officers propose
completing a rigorous assessment of each relevant asset or activity on a case-by-case basis
before making any recommendations to council about transfers to the holding company structure.
The precedent for New Zealand councils to own and manage key assets and activities through
holding companies is well established and officers have been advised by PwC that it is generally
considered best practice among local government (based on benchmark comparisons with other
New Zealand councils). The types of assets and activities owned and managed this way vary
significantly between councils, but there are some examples with particular relevance for
Auckland City Council, such as airports, treasury functions and property (development) interests.
In addition, Auckland City Council has already investigated the establishment of a holding
company for its shareholding in Auckland International Airport Limited (AIAL) and for its interest
in Westhaven marina.
The key benefits of owning and managing an asset or activity through a holding company relate
to improved governance. Specific governance benefits council will potentially gain from the use
of a holding company structure include:
• an increased commercial focus
• enhanced decision making, drawing on the combined expertise of a board of experienced
• a separation of commercial decision making from political decision making where
• faster decision making on matters that are purely commercial in nature
• more focused monitoring of financial performance and the business environment
• an enhanced ability to identify the true cost of an activity.
As well as owning assets on council’s behalf, the board of the holding company could also
perform a governance/monitoring role for some of council’s other assets and activities for which a
transfer to a holding company is not a viable option.
In addition to the governance benefits, a holding company structure should also provide council
with a greater variety of borrowing/funding options, including:
• the possibility of raising debt in foreign currencies
• the possibility of issuing redeemable preference shares to members of the public (RPS).
Further potential benefits for council of a holding company structure could include:
• enhanced risk management / liability protection
• enhanced monitoring of AIAL performance and the ability for a holding company board to
give more focus to managing a shareholding relationship with the AIAL board and
Officers recommend the establishment of a holding company now and then transferring assets or
activities on a case-by-case basis. Officers believe that the benefits accruing from having one or
two key assets transferred into a holding company structure in the near-term would outweigh the
potential benefits from waiting until an optimal holding company structure can be determined
(which would require a full assessment of all assets and activities).
Once council gives approval to establish the holding company, officers will immediately
commence the establishment process. This will involve the preparation of the company’s
founding documents and the appointment of one or two “placeholder” directors (such as the Chief
Executive or General Counsel).
Following the approval to establish the company, officers will also begin the process of assessing
on a case-by-case basis which assets and activities should be transferred to the holding
company. These assessments will tie in with various reviews of council activities that are
currently planned or underway. In line with the prior public consultation, the council’s ownership
interests in AIAL and Westhaven Marina will be among the first assets to be so assessed.
Once council agrees that any particular asset or activity should be transferred (following public
consultation if required), officers will work through all of the implementation issues associated
with the transfer including:
• amending the constitution and/or statement of intent to ensure the appropriate degree of
council control over the asset or activity
• the recruitment of directors
• the appropriate legal ownership structure
• the appropriate capitalisation of the company.
There are a number of potential costs and risks associated with the holding company structure
and the subsequent transfer of assets and activities. The costs will include legal costs, directors’
fees and costs associated with the public consultation requirements. The potential risks include a
reduction in direct council control over assets (although control over important matters can be
retained via a statement of intent) and public perceptions about the council’s motivation in
moving assets to a holding company. However, the costs and risks associated with the first step
of actually establishing a holding company (with no assets or activities transferred at this stage)
That the Finance and Strategy Committee:
A. Notes that owning and managing key council assets and activities through a
holding company is consistent with best practice and has the potential to provide
many governance benefits for Auckland City Council, while also providing council
with a greater variety of borrowing/funding options.
B. Approves the initial establishment of a holding company, on the basis that no
assets or activities are to be transferred to the holding company at this stage.
C. Agrees that officers assess relevant assets and activities on a case-by-case basis
and report back to council with recommendations about transferring (or not
transferring) each asset or activity to a holding company.
3.1.1 Previous work
The proposal to establish a holding company has been considered for some time.
A brief history of this issue and how it has reached this stage is presented here.
• 2003 – council consulted on a proposal to establish a holding company for its
AIAL shares, however a decision was not made at that time
• 2006-2016 LTCCP – council consulted on the proposal to establish a holding
company for its AIAL shares (and other assets such as Westhaven Marina),
and provision was made for this in the final LTCCP.
• Combined Committees resolved to agree in principle to the establishment of
such a holding company, pending further investigation into implementation
issues. This report forms part of that further investigation. The relevant
resolutions (B and C) were:
o That the establishment of a holding company for Auckland City’s
Auckland International Airport Ltd shareholding, together with other
commercial shareholdings be agreed in principle, pending further
investigation of implementation issues
o That officers report back to the Finance and Corporate Business
Committee in due course with an implementation plan for the
establishment of a holding company for the airport shares.
• June 2008 – the Finance and Strategy Committee considered a report
outlining debt funding alternatives available to Auckland City Council. Part of
the report discussed the establishment of a holding company for council’s
commercial entities, which could make other funding sources available to
council (in the context of council’s projected borrowing requirements to 30
June 2011). The relevant resolution (E) was:
o That it be noted that officers are investigating the option of
establishing a holding company for Auckland City Council’s
commercial entities, which could potentially improve governance of
these entities and also provide other funding sources and will report
to the Finance & Strategy Committee in September 2008, with as
much as possible of the report being on the public agenda.
3.1.2 Current provision for holding company
As described above, council consulted on the proposal to establish a holding
company through the 2006 – 2016 LTCCP process. The statement of proposal in
the draft LTCCP outlined the parameters of the proposal:
• to establish a holding company that would be 100 per cent owned by
Auckland City Council
• the holding company would be a council-controlled organisation, as defined by
the Local Government Act 2002
• Auckland City Council would transfer its 12.8 per cent shareholding in AIAL to
the holding company
• Auckland City Council would continue to own the 12.8 per cent shareholding
in AIAL, through its 100 per cent ownership of the holding company
• the holding company would not be permitted to sell or transfer any of the AIAL
shares without council approval
• the LGA 2002 would preclude sale of any of the AIAL shares, or of the holding
company, without consultation with residents and ratepayers, using the
special consultative procedures set out in the Act
• the LGA 2002 would also preclude disestablishment of the holding company
without consultation with residents and ratepayers, using the special
consultative procedures set out in the Act
• while the holding company would effectively hold the voting rights associated
with the shares, mechanisms would be put in place to ensure that the holding
company was required to seek approval from council for the way it proposed
One of the key reasons for the establishment of the holding company would be to
provide additional focus to the governance of the AIAL shares, and any other
assets or activities placed in the holding company. This would help to ensure that
council’s investments and commercial activities are governed effectively. Further
discussion of the benefits to council of a holding company structure is provided in
section 3.2 of this report.
3.1.3 Precedent set by other councils
Research has shown that a range of city, district and regional councils around
New Zealand have established holding companies1. A holding company is a well-
understood framework for operation and governance of council’s CCOs – officers
have been advised by PwC that it is generally considered best practice among
local government (based on benchmark comparisons with other New Zealand
The activities managed by these companies vary, and the most common include:
• electricity lines companies
• public transport operations
• airports (and airport shares – Manukau City Council)
Including Manukau, Waitakere, Christchurch and Dunedin City Councils, New Plymouth and Timaru District Councils
and Auckland, Bay of Plenty and Wellington Regional Councils. A table showing the various holdings of each of these
councils is attached as appendix 1.
Other activities that are included in one or two councils’ holding companies, and
that may be of interest to Auckland City Council include:
• treasury function (funds management)
• civic building(s)
• convention centre
• property development company.
Another activity that may be of interest to Auckland City Council in relation to the
holding company is the building consultancy established and owned by Manukau
City Council – Manukau Building Consultants Ltd (MBCL). MBCL is owned directly
by the council rather than its holding company. MBCL provides building consent
processing and compliance services for people undertaking building work in
Manukau City. To facilitate the use of this CCO, Manukau City Council amended
their building consent process to allow applicants to choose a “building processor”,
who carries out the technical processing and compliance inspections for the
process. Processors (including MBCL) accept applications and carry out the
technical work, but the consent is currently still issued by the council, once
assured of compliance by the processor. There may be potential for a subsidiary
to issue the consents itself in the future – MBCL is currently applying for Building
Consent Authority status. This model could potentially be adapted to work for
Auckland City Council if council so desired – ACE could be one of the activities
considered for inclusion in the holding company structure in the future following
3.2.1 Governance benefits
The key benefits of owning and managing an asset or activity through a holding
company relate to improved governance. This section outlines some of the
various ways in which a holding company structure could potentially add value
through improved governance. Here hypothetical examples are used for
illustrative purposes only to demonstrate how these benefits could be realised
by Auckland City Council. The use of these examples should not be taken to
mean that officers are advocating that any particular activity or asset be
transferred – officers will keep an open mind on this until a rigorous review of each
asset or activity has been undertaken.
Increased commercial focus
Moving an activity to a holding company where it will be subject to monitoring by
directors with commercial expertise may mean a shift in managerial focus away
from normal council processes and towards a more customer-focused and more
commercially aware way of operating.
For example, as a major regional tourist destination, the zoo has a number of
income streams but it currently receives operating subsidies from council (as well
as capital funding). With the requirement to report to a board with more
commercial expertise than the current enterprise board, the zoo could become
more efficient in its operations, or new funding models may be explored – both of
which could increase the zoo’s non-council income and potentially reduce the
This shift towards a more commercial focus does not necessarily mean higher
fees for users or less ratepayer funding for the zoo. Rather, the council could set
parameters around fee levels (to retain accessibility) and non-commercial
objectives, and make funding decisions then let the directors of the holding
company focus on maximising value for money while operating within these
Enhanced decision making, drawing on the combined expertise of a board
of experienced professional directors
In addition to performing a monitoring function, a holding company board can also
add value by providing informed and specialist advice. For example, City Parks
Services (CPS) already has a strong commercial focus due to the way it is forced
to compete with private companies for contracts for work for external customers.
However, with oversight by a board of directors who have strong commercial
expertise, CPS may be better able to grow its revenue and boost its productivity,
thereby becoming more profitable for the council.
One issue is putting together a board with all of the relevant skills to manage a
diverse range of council assets (for example, assets such as council’s
shareholding in AIAL, the zoo, the art gallery and the funds management function
of council). One way to deal with this is to have a board comprised of directors
with good general commercial expertise and then bring in expert advisors/decision
makers as required.
Separation of commercial decision making from political decision making
Under a holding company structure there is a significant degree of flexibility in how
much control that could be delegated to the holding company board. At one
extreme, the board could be completely independent but then council would lose
control over its assets. At the other extreme, the council could retain all decision
making powers, but then the benefit of having a board would be significantly
The key mechanisms for retaining decision making powers by council are through
incorporating the relevant provisions into the holding company’s constitution and
its statement of (corporate) intent. These documents can be prepared so that
decisions of a political nature or those with major strategic implications for the city
are required to be made, or at least approved, by council. Decisions that are of a
purely commercial nature would be left to the board.
For example, if the council’s property assets were owned and managed through a
holding company, the council could choose to make decisions about proceeding
with strategic property acquisitions, committing to the use of council-owned
property for strategic projects and whether or not to dispose of any surplus land.
The board of the holding company would then operate within these parameters
and make decisions about how best to execute these transactions and about the
most efficient way to manage the property assets on a day-to-day basis.
Faster decision making on matters that are purely commercial in nature
In the above example, the commercial decisions around swimming pools would
not need to be made by council and could be made efficiently by the board.
Importantly, this more efficient decision-making capability may provide the board
with a greater chance of being able to capitalise on time critical opportunities as
Those decisions of a political nature, administered via a statement of intent, would
still go through the normal council decision making channels.
More focused monitoring of financial performance and the business
The board can use its expertise to review financial performance of selected
council assets and activities and to request additional information where the board
thinks that is important. The board will also be better placed to monitor the
general business environment in which holding company interests operate. The
board can then report to council or committee at a high level with its overall
conclusions about how an activity is performing and with expert recommendations
about any changes.
By way of example, both the art gallery and libraries operate with a
community/social focus. However, by giving the holding company board a
monitoring role, the financial performance and efficiency of these entities could
potentially be improved. If this were achieved, it could lead to cost savings for
An enhanced ability to identify the true cost of an activity
For some council activities, the true, stand-alone cost of their operations is
currently not completely understood. For example, the council’s various marina
assets are operated by different groups within council and are not subject to
specific separate reporting requirements. Also in some instances, costs
associated with commercial marina operations (which exclusively benefit marina
berth holders) are combined with costs of providing public amenity at the marinas.
If the council’s commercial marina assets were separated out and transferred to a
CCO owned by the holding company, this would help make their true costs (and
revenues) more visible.
There are potential benefits for council from transferring its monitoring role for The
Edge and potentially ownership of the assets (council owned theatres) to a holding
company. If the assets were transferred it may allow the true cost of the venues to
be assessed and monitored, which may result in other financial benefits for
Using a holding company board in governance/monitoring capacity
As well as owning assets on council’s behalf, the holding company board could
also perform a governance/monitoring role for some of council’s other assets and
activities (where transfer to the holding company’s ownership is not a viable
option). This could still confer many of the governance benefits of the holding
company while retaining control of essential council services.
The model used by Brisbane City Council may be of interest to council – it has a
commercial division which operates relatively independently from council (while
still remaining in-house) and is monitored by an advisory board. Officers propose
investigating this model as a possible structure for some assets that could benefit
from more commercial focus but for other reasons should remain within council.
Need to transfer assets to gain benefits
Many of the above benefits could be achieved without transferring council assets
or activities to a holding company. However, there are still a number of compelling
reasons for establishing a holding company:
• it is generally considered best practice among local authorities for assets
such as ports and airports
• some benefits are enhanced with an ownership transfer, e.g. by
transferring ownership of council’s AIAL shares the voting rights would be
held by the holding company, giving stronger commercial oversight
• there are additional benefits related to council’s funding options (discussed
in section 3.2.2 below) which can only be realised with an ownership
3.2.2 Funding benefits
Latest projections are that Auckland City Council will require in excess of $500
million of new borrowings over the next three years. Given that other local
authorities’ projected debt funding requirements have also increased significantly,
we need to be cognizant of the domestic market’s capacity to absorb such large
amounts of debt from one sector.
A subsidiary holding company structure should provide council with a greater
variety of borrowing options, with regard to both diversification of funding sources
and regulatory / compliance considerations. For example, officers see the
following two capital raising options via a subsidiary holding company as providing
potential additional options over funding through channels normally utilised by
Debt raised in foreign currencies
Despite foreign currency borrowings not necessarily translating into cheap funding
when converted back to NZ$, the considerably greater ‘depth’ afforded by offshore
markets would provide much needed diversification of funding sources, particularly
when put into the context of the significant increase in council’s projected
Under section 113 of the Local Government Act 2002 (LGA), “No local authority
may borrow or enter into incidental arrangements2, within or outside New Zealand,
in currency other than New Zealand currency.” In other words, local authorities
may only borrow in NZ$.
Some preliminary legal advice received by officers has indicated that the
prohibition on local authorities borrowing in foreign currencies contained in the
LGA might not extend to subsidiary holding companies. If this preliminary advice is
confirmed, the use of a holding company may open up far larger, more liquid
markets as potential sources of funding.
Redeemable preference shares
It may also be possible for the holding company to raise capital through the issue
of redeemable preference shares (“RPS”) to the public. RPS are a form of capital
that carries characteristics of both debt and equity, and are therefore commonly
referred to as ‘hybrid’ equity. Following is a list of attributes common to RPS and
the form of capital most closely aligned to each attribute:
1. Carry no voting rights Debt
2. Pay a fixed ‘dividend’ Debt
3. Have a finite life expectancy (i.e. may be Debt
repurchased by the issuer at a predetermined
A generic term referring to items such as risk management contracts (hedges).
4. ‘Dividend’ may be deferred / accumulated in Equity
the event that there is insufficient cash to
5. RPS rank behind all other debt in the event of Equity
The technical aspects of RPS and the level of risk associated with this type of
investment would appeal to a particular investor demographic, looking for
alternatives to ‘senior3’ debt as an investment option, therefore potentially
providing further diversification of council’s funding sources.
3.2.3 Other benefits
There are a number of other benefits council could realise by establishing a
holding company to own/monitor some of its assets and activities.
Risk management/liability protection
If council were to separate its compliance function into a CCO (as Manukau City
Council have done), the separation of that function from council could assist with
managing exposure in the future to liability for issues such as weather tightness
(“leaky homes”). It is unlikely that this would impact on the council’s
current exposure, but may assist with managing exposure to future claims. The
CCO could be required to procure its own insurance to cover its activities. Such a
company could be held within the holding company structure. Officers will obtain
legal advice on the extent to which the creation of a CCO could protect the
The use of a holding company may give council greater flexibility when executing
Improving the AIAL shareholding relationship
In the case of the council’s AIAL shareholding, a holding company board made up
of people with relevant expertise would likely be able to perform an enhanced
monitoring role. The holding company board could also give more focus to
managing council’s relationship with AIAL’s board and management.
Shifting the monitoring of The Edge (and potentially the council owned theatre
assets) to the holding company could have the added benefit of reducing the
confusion/conflict between council’s dual roles of funder and client.
3.2.4 Costs / risks / other considerations
There are a number of potential costs and risks associated with the establishment
of the holding company and the subsequent transfer of assets and activities.
Initial cost of establishment
There will be minor legal costs associated with establishing the holding company
itself. These will result from the preparation of the holding company’s founding
documents (constitution, statement of intent) and registration of the company. The
value of this legal work is estimated at approximately $5,000 and the council’s
internal Legal Services Group proposes to undertake this work. These legal costs
The type of debt typically issued by a local authority. Ranks behind the IRD and employees’ salaries, but
ahead of all other creditors, in the event of default.
do not include any costs associated with the transfer of any asset or activity - this
work will effectively create a “shell” company.
Aside from any public perception issues (discussed below) these minor legal costs
will be the only costs/risks associated with establishing a holding company as the
first step in the process of transferring assets or activities. In light of the significant
governance and funding benefits that may ultimately be realised from proceeding
with this course of action, officers consider the cost of taking the first step to be
Further legal costs
On the other hand, the legal costs associated with any future transfer of specific
assets or activities to the holding company structure are likely to be significant.
Any large potential costs will be investigated as part of the analysis that officers
undertake in relation to each relevant asset or activity. However, the overall
objective of transferring assets or activities to the holding company structure will
be to achieve gains in terms of improved governance that far outweigh the
associated transfer costs, based on a case by case assessment.
The appointment of directors with strong commercial expertise to the board of the
holding company will involve a material ongoing cost in terms of directors’ fees.
As with the legal fees discussed above, the objective will be to appoint directors
that can add value far in excess of the fees they receive.
Political sensitivity and public perception
The transfer of ownership of strategic or significant assets can be a sensitive issue
with the public and it will be important that the council communicate effectively the
reasons for doing so and the benefits to Aucklanders. There have already been
some concerns raised by members of the public about the possibility of
establishing a holding company being used as a step towards selling council’s
There may be objections to the proposal for the holding company board (which is
likely to have predominantly directors with a commercial focus/background)
performing a monitoring role for activities with more social/community objectives
(e.g. the libraries or art gallery). This could be mitigated by developing statements
of intent to ensure non-financial performance measures are used, and also by
having experts in the field providing advice to assist the board when it discusses
In some cases, for example the Hauraki Gulf Island wharves and airfields, full
commercial focus may not be entirely appropriate – since these assets are
essential transport infrastructure for island residents. However, under a holding
company, council could retain the ability to oversee pricing to mitigate this
Through transferring ownership or control to a holding company, council would be
moving those assets/activities away from public/community influence and
segments of the community may see it as council losing control of the activity. This
risk can be mitigated through the development of controls, such as reporting
requirements and statements of (corporate) intent, which outline specifically which
decisions the holding company board is authorised to make, and which must be
referred back to council.
Officers believe that the risks around possible public misconceptions, as
discussed above, can be adequately mitigated through the development and use
of an appropriate communications strategy.
The Local Government Act (2002) (LGA) states that a proposal to establish a
council-controlled organisation must be adopted in accordance with the special
consultative procedure before a local authority can establish or become a
shareholder in the council-controlled organisation (s56).
Council consulted on the establishment of the proposed holding company through
the 2006-2016 LTCCP so it for the provision already exists. This consultation
specifically related to the AIAL shares, so the transfer of these shares to a holding
company would not need to be consulted on again.
The transfer of other activities to the holding company will very likely require
further consultation. For assets defined as strategic assets by the LGA or by the
council’s significance policy, a change of ownership or governance is not
permitted without consultation. Consultation is also required in order to establish a
CCO, which may be required for some activities that might be considered for
inclusion in the holding company structure.
Profiteering / price rises
There is a concern that with some assets (e.g. the marinas) there may be a
perception that council aims to maximise profits at the expense of users by having
a greater commercial focus. Mitigation of this risk relies on strong communication
that there will be little change in the situation compared to now – the marinas are
already run on a mostly commercial basis. In addition, any increase in charges is
likely to be used to develop a higher quality marina in return, rather than diverting
profits to council.
Procedures will need to be put in place to ensure that directors of the holding
company always act in a prudent manner and in accordance with the council’s
appetite for risk. This can be managed by ensuring a rigorous process is
undertaken to appoint the holding company’s directors.
It is possible that, for some activities – especially if in-house operations are
transferred to a CCO owned by the holding company - there may be increased
administrative costs through use of the holding company structure. This will need
to be carefully considered on a case-by-case basis as activities are assessed for
possible transfer to the holding company. While administrative costs may rise in
some cases, there are many other benefits that may outweigh these potential
3.3.1 Do not establish a holding company
If council resolves not to establish a holding company, then no company will be
created and officers will cease all work on this issue. If the council then wanted to
revisit the concept of a holding company at some point in the future, a new public
consultation process would have to be undertaken. Due to the large potential
benefits council could gain from establishing and transferring assets to a holding
company, officers do not recommend this option.
3.3.2 Establish a holding company and transfer assets on a case-by-case
Under this option, officers would complete a rigorous assessment of the benefits
and costs of transferring each relevant asset or activity into a holding company.
Each assessment would also consider the option of retaining the asset or activity
within core council but leveraging the commercial expertise of the holding
company board through some kind of advisory, governance or monitoring
These assessments will tie in with various reviews of council activities that are
currently planned or underway (e.g. Auckland Zoo, City Parks Services). In line
with the prior public consultation, the council’s ownership interests in AIAL and
Westhaven Marina will be among the first assets to undergo this type of
If after one of these assessments (and any required public consultation) the
council agrees to transfer a particular asset or activity to a holding company,
officers will work through all of the issues associated with implementing that
transfer. The general implementation issues are discussed in section 3.4 below.
As each asset or activity is likely to involve its own unique set of complex issues,
investigating one asset at a time is likely to see some of the benefits discussed
above realised much sooner.
To expedite the potentially long and costly process of transferring an asset to a
holding company, the company could be set up now as a “shell” company. This
initial step would involve only minor costs and would facilitate a quicker and more
efficient transfer later.
Officers recommend this option – considering the transfer of assets and activities
on a case-by-case basis strikes a sensible balance between realising benefits in a
timely manner and ensuring that optimal decisions are made on some very
3.3.3 Establish a holding company once an optimal structure is determined
Alternatively, officers could explore the possibilities for transferring all of the
relevant council assets and activities to a holding company and then report back to
council once we have determined what the optimal holding company structure
might be. This optimal structure would include a full list of the assets and activities
to be transferred, as well as details on the optimal legal structure and capitalisation
of the company.
This option could have the following potential benefits:
• being better able to ensure that a board of directors is appointed with
precisely the right mix of knowledge and experience that will benefit all of
the company’s holdings
• all of the decisions pertaining to the holding company could be made at
one point in time and with more complete information (potentially
minimising some legal costs)
• by waiting, the council may also have a better idea of whether and how any
changes in Auckland’s regional governance may affect this proposal.
While this option has some appealing potential benefits, officers do not
recommend this approach due to the considerable amount of time required to
complete a full assessment of all of the relevant assets and activities. In
particular, officers believe that the governance benefits from having one or two key
assets transferred into the holding company sooner would outweigh the potential
benefit of waiting to find the “perfect” mix of skills for the board.
3.4 Next steps
If the council agrees with officers’ recommended option, officers will immediately proceed
with the actual establishment of the holding company and commence work on the
detailed assessment of the relevant assets and activities.
3.4.1 Initial establishment of the holding company
Officers will develop a generic constitution and statement of intent. These
documents will initially simply set out the holding company’s overarching purpose
of improving the governance of council assets and activities. Once decisions have
been made about which assets or activities may be transferred to the holding
company, these documents can be amended to be made more specific.
Registration of a company requires at least one director to have been appointed.
As the decision(s) around which assets to be transferred to the holding company
will follow, officers recommend appointing one or two “placeholder” directors in the
interim. Interim directors could be senior council officers, such as the Chief
Executive or General Counsel.
At the time of establishment, no assets will be transferred to the holding company,
and there will be no immediate funding or capitalisation of the company. This will
follow later. A summary of the full process to establish the holding company is
attached as Appendix 2.
3.4.2 Assessment of council assets and activities
Once the holding company has been established and registered, officers will begin
the process of assessing, on a case-by-case basis, whether or not key council
assets and activities should be transferred to the holding company. Each
assessment will also consider the option of retaining the asset or activity within
core council but leveraging the commercial expertise of the holding company
board through some kind of advisory, governance or monitoring arrangement.
In line with prior public consultation, the council’s ownership interests in AIAL and
Westhaven Marina will be among the first assets to go through the assessment
These assessments will also tie in with various reviews of council activities that
are currently planned or underway (e.g. Auckland Zoo, City Parks Services). The
council’s Treasury Group will report to the Finance and Strategy Committee in
October with an update on their rolling review process, which periodically
examines the relevance, performance and potential improvement of council
services and activities. Incorporating an assessment of the pros and cons of
transferring to a holding company into these reviews may be an efficient way of
undertaking this assessment for some activities.
3.4.3 When a transfer is recommended
Once officers have completed their initial assessment and consider any asset or
activity suitable for transfer, we will begin to work through all of the associated
• identifying any requirements for public consultation to be undertaken
before the council makes any decision on whether or not to transfer the
assets or activity in question
• amending the constitution and/or statement of intent to ensure the
appropriate degree of control over the asset or activity is retained by
• the recruitment of directors with appropriate skills and experience
• determining the appropriate legal ownership structure (e.g. ownership by
the holding company versus ownership by a subsidiary of the holding
• the appropriate capitalisation of the company, which will be reliant on the
mix of assets or activities within the holding company
3.5 Budget Implications
The legal work for the initial establishment of a holding company (with an estimated value
of approximately $5,000) is all to be funded from within existing budget provisions.
Therefore adopting the recommendations of this report will not have any budget impact.
However, future work to transfer assets and activities into a holding company structure is
likely to involve some significant costs in terms of further legal work and directors’ fees.
These costs will be considered as part of the assessment of the pros and cons of
transferring specific assets or activities into a holding company structure.
Dunedin City Council Annual Report 2006
Local Authority Governance of Subsidiary Entities, Controller and Auditor General,
Name and title of signatories Signature
Author Kirsty Colquhoun, Policy analyst
Reviewer Ross Tucker, acting Business advisory manager
Reviewer Chris Carroll, acting Treasury group manager
Approver Andrew McKenzie, General manager finance
Appendix 1: Other councils’ holding company assets and activities (owned and managed)
New Plymouth District M
Christchurch City M M M
Environment Bay of Plenty
M = manages on council’s behalf (vs ownership)
Appendix 2: Holding company establishment process summary
Step Task Undertaken by Comment
1 Draft a statement of proposal (SOP) for special consultative procedure. Details Treasury Completed
on the types of activities of the holding company are required.
2 Approve/reject the SOP The full elected council Completed
3 Consultation (SOP) Stakeholders Completed (2006-
- If assets/activities other than AIAL shares are to be included in the holding 2016 LTCCP)
company, further consultation is required.
4 Approve/reject the establishment of the holding company The full elected council To do
5 Prepare the founding documents: Legal Services(or external To do
• Company constitution lawyer)/Treasury
• Statement of intent (SOI)
6 Select and appoint directors according to the policy on appointment and DRAS/FSC/ The full elected To do
remuneration of board members of council organisations and the founding council/
documents. Treasury/Recruitment consultants
7 Register the company on New Zealand Companies Register. Need the following Corporate Counsel Projects and To do
information in the process: transactions/Treasury
• Company name
• Company address
• Annual return filing month
• Directors’ details
• Share parcels
• Apply for IRD number and register for GST (optional)
• Payment details
8 Capitalise the company Legal Services/Treasury/ To do