The Companies Act 1993 is now over thirty years old, and despite a few updates it hasn’t kept pace with changes in society over that time. As a result, the Government’s announcement of a “raft of reforms to modernise and simplify company law” has been widely welcomed.
Phase One
The first phase of the reforms are scheduled to be introduced to Parliament in early 2025. This will encompass a range of changes.
Modernisation and simplification
There are many simple updates proposed to bring the Act in to line with current expectations. These include:
- removing the requirement that certain type of information must be provided in hard copy by post or advertised in newspapers;
- requiring directors to provide email addresses;
- permitting a company’s share register to record that a shareholder is holding shares on behalf of a trust, if the shareholder chooses;
- providing that, in addition to a director or other person specified in the constitution, a director or other person authorised by the board can execute deeds on behalf of the company;
- allowing many documents to be uploaded to the Companies Register without a signature; and
- updating meeting procedures to allow remote attendance and electronic voting.
These changes will all reduce compliance costs for companies and the regulator.
Directors
A unique identifier will be introduced for directors and general partners of limited partnerships.
This will permit directors and shareholders to replace their residential addresses with an address for service on the Companies Register, addressing privacy concerns. The members’ bill currently before Parliament which would have allowed directors (although not shareholders) to withhold their residential addresses will presumably not go any further.
This change will provide additional protection against “phoenix companies”, where a new company is started with the same or similar name to a failed company, by making it easier to identify the individuals involved with the companies.
New Zealand Business Numbers
The reforms will also aim to increase the uptake of the New Zealand Business Number (NZBN), a unique global identifier available to every New Zealand business. This will allow people to be certain of the business that they are dealing with, regardless of whether they operate under their legal name or a different trading name. NZBNs were introduced in 2016, but they have not been widely utilised.
The NZBN register will:
- make unincorporated entities’ legal and trading names and owners and directors’ names public by default (with a power to supress the information if necessary);
- include the names and numbers of bank accounts, to allow for the cross checking of names to reduce fraud;
- allow businesses to identify themselves as small businesses and as Māori businesses.
Insolvency provisions
The Government also intends to strengthen the insolvent transactions provisions, which come into effect when a company is placed into liquidation. Currently any transactions entered into in the six months prior to the liquidation are voidable on the basis that they are presumed to have been made when the company was unable to pay its debts. The six-month period is extended to two years where they involve a related party. The proposed change is for the related party period to allow a four-year claw back period.
The reforms will also introduce a power to levy companies to help pay for the Insolvency and Trustee Service in performing the role of the Official Assignee. These costs are currently funded by the Crown.
Major transactions
The major transaction provisions of the Act require the approval of 75 per cent of shareholders for the acquisition or disposition of assets or liabilities amounting to more than half of the value of the company. This will be amended to ensure that the major transaction regime cannot be avoided by splitting the transaction into a series of smaller transactions, or by executing the transaction through a subsidiary.
The Act will also be amended to clarify that the major transactions provisions do not apply to transactions relating solely to the capital structure of the company (share issues, buybacks, dividends and redemptions). It is not necessary for these transactions to be regulated by the major transactions regime as they are already subject to specific requirements under the Act.
Reducing share capital
The current process for a company to reduce its share capital (other than through a share buy back) requires the approval of the court, which can be an expensive and drawn-out process. The reforms will allow a simplified process, requiring board and shareholder approvals and a directors’ solvency certificate.
Management of companies
When the Act was first introduced, it included many novel features which have now become commonplace. These features currently require companies to opt in to permitting them, through the company’s constitution. This will be reversed to an opt out requirement, so that the provisions would be permitted “unless expressly prohibited by the company’s constitution”. The relevant provisions relate to:
- share buy backs;
- a company holding and reissuing its own shares;
- allowing a share register to be divided into two or more registers and kept in different places; and
- indemnity and insurance for directors.
The repeals will also remove the recent addition to the Act clarifying that, when considering the best interests of the company, a director may consider matters other than the maximisation of profit (for example, environmental, social and governance (ESG) matters). This is being removed on the basis that it is unnecessary, as these considerations have always been permitted.
Phase Two – Directors’ Duties
A complete review of the directors’ duties provisions in the Act was called for by the Supreme Court in the Mainzeal decision (see our summary here). In June the Government asked the Law Commission to undertake a review of directors’ duties and liabilities, looking at:
- the overall burden of liability on directors, including its effect on directors’ willingness to take legitimate business risks, and
- the enforcement of directors’ duties, including whether the current modes of enforcement are effective and who should be responsible for that enforcement.
The Law Commission will start this review in 2025.
Beneficial Ownership Register
The Government has also indicated an intention to establish a Beneficial Ownership Register for companies, which will include a person’s:
- biographic information, including full name and date of birth;
- contact information, including an email address and residential address or address for service; and
- corporate information, such as the companies and/or limited partnerships of which the person is a beneficial owner.
Some of this information would be available on a publicly available register, and other information would only be accessible by specified Government departments.
The Beneficial Ownership Register is not included in the current round of reforms, but MBIE has confirmed that it is continuing to work on this project.
Comment
These reforms are a welcome update to our company law. With more than 700,000 companies of various sizes in New Zealand, the effects will be wide-ranging. We will provide further updates when more information is available.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
