Note 32: Contingent Liabilities and Contingent Assets
Contingent liabilities and contingent assets involving amounts of over $10 million are separately disclosed. Any quantifiable contingencies less than $10 million are included in the “other quantifiable” total. Some contingencies of the Crown are not able to be quantified; these unquantifiable contingent liabilities and contingent assets are disclosed as at 30 June 2012 where they are expected to be material but not remote.
Contingent liabilities are:
- costs that the Crown will have to face if a particular event occurs, or
- present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liabilities).
Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. The contingent liabilities facing the Crown are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation.
In general, if a contingent liability was realised, or the amount becomes sufficiently reliable to record as a liability, it would reduce the operating balance and net worth and increase gross sovereign-issued debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to gross sovereign-issued debt.
Contingent assets are:
- possible assets that have arisen from past events but the amount of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.
| Note | Actual | ||
|---|---|---|---|
|
30 June 2012 $m |
30 June 2011 $m |
||
Quantifiable Contingent Liabilities |
|||
| Guarantees and indemnities | a | 422 | 210 |
| Uncalled capital | b | 6,327 | 5,287 |
| Legal proceedings and disputes | c | 411 | 331 |
| Other contingent liabilities | d | 584 | 1,313 |
| Total quantifiable contingent liabilities | 7,744 | 7,141 | |
Total Quantifiable Contingent Liabilities by Segment |
|||
| Core Crown | 7,575 | 6,884 | |
| Crown entities | 40 | 173 | |
| State-owned enterprises | 90 | 84 | |
| Inter-segment eliminations | - | - | |
| Total quantifiable contingent liabilities | 7,705 | 7,141 | |
a) Guarantees and Indemnities
Guarantees are legally binding promises made by the Crown to assume responsibility for a debt, or performance of an obligation of another party, should that party default. Guarantees generally relate to the payment of money but may require the performance of services. Indemnities are legally binding promises where the Crown undertakes to accept the risk of loss or damage that another party may suffer and to hold the other party harmless against loss caused by a specific stated event.
Guarantees given under Section 65ZD of the Public Finance Act 1989 are disclosed in accordance with Section 26Q(3)(b)(i)(B) of the same Act and in accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
| Note | Actual | ||
|---|---|---|---|
|
30 June 2012 $m |
30 June 2011 $m |
||
| Indemnification of touring exhibitions | i | 220 | - |
| New Zealand Export Credit Office | ii | 92 | 132 |
| Housing Corporation of New Zealand's Crown mortgage portfolio | iii | 40 | - |
| Air New Zealand's letters of credit and performance bonds | iv | 26 | 34 |
| Cook Island's Asian Development Bank loans | v | 11 | 12 |
| Terralink Limited's receivers and managers | vi | 10 | 10 |
| Transport Accident Investigation Committee | vii | 10 | 10 |
| Other guarantees and indemnities | 13 | 12 | |
| Total guarantees and indemnities | 422 | 210 | |
i) Indemnification of touring exhibitions
The Crown has an indemnity relating to touring exhibitions (artworks, etc) against any damages and losses that may occur during the tour. This indemnity ceased on 7 July 2012, with no claim made against it.
ii) Export guarantees made by the New Zealand Export Credit Office
The New Zealand Export Credit Office (NZECO) provides a range of guarantee products to assist New Zealand exporters manage risk and capitalise on trade opportunities around the globe. The obligations to third parties are guaranteed by the Crown and are intended to extend the capacity of facilities in the private sector.
iii) Housing Corporation of New Zealand guarantee to Westpac Bank
The Housing Corporation sold a significant portion of its Crown mortgage portfolio to Westpac Banking Corporation from 1996 - 1999. As a condition of the sale, the Corporation on behalf of the Crown has agreed to indemnify Westpac against any future losses arising from default.
iv) Air New Zealand’s letters of credit and performance bonds
The letters of credit are primarily given in relation to passenger charges and airport landing charges. The performance bonds are primarily given in respect to engineering contracts.
v) Guarantee for the Cook Island’s loans with the Asian Development Bank (ADB)
Before 1992, the New Zealand Government guaranteed the Cook Islands' borrowing from the ADB. These guarantees have first call on New Zealand's Official Development Assistance.
vi) Indemnification of receivers and managers of Terralink Limited
The Crown has issued a Deed of Receivership indemnity to the appointed receivers of Terralink Limited against claims arising from the conduct of the receivership.
vii) Funding guarantee to the Transport Accident Investigation Committee
The guarantee allows the Commission to assure payment to suppliers of specialist salvage equipment in the event of the Commission initiating an urgent investigation of any future significant transport accident.
