New Business Law Reform Bill 2006: what is it trying to achieve?

The third Business Law Reform Bill was introduced in June and, like its predecessors, is designed to produce clearer, more efficient and more effective business law.

The Bill had its first reading in Parliament on 19 July 2006 and has been referred to the Commerce Select Committee. Public submissions closed on 25 August 2006 and a Report from the Commerce Committee is expected by 19 October 2006.

This Bill includes amendments to the Companies Act 1993, Dumping and Countervailing Duties Act 1988, Financial Reporting Act 1993, Friendly Societies and Credit Unions Act 1982, and the Insurance Companies' Deposits Act 1953. It is intended that it will be divided into separate Bills.

The Bill is designed to:

•  clarify and update the law affecting businesses;

•  remove conflicts between legislation; and

•  reduce compliance costs.

Principal Companies Act and Financial Reporting Act changes

Specific changes to the Companies Act and the Financial Reporting Act will be of particular importance to businesses.

Companies Act

The main purposes of the Companies Act 1993 changes are:

• to give effect to some of the changes referred to in relation to the Financial Reporting Act 1993 (noted below);
  
  
• to make it easier for reporting entities to provide annual reports to shareholders in electronic form;
  
  
• to improve the efficiency and effectiveness of cross-border enforcement of company law; and
  
  
• to remove filing requirements where the same or similar information is filed in another jurisdiction.

Annual reports

Under the proposed changes there will be no obligation to send a full annual report to all shareholders. Instead the board will be required to send a notice that contains a statement that:

• the shareholders have a right to request, free of charge, a copy of the annual report;



• they may receive it by electronic means; and
  
  
• indicates whether the board has prepared a concise annual report for the same accounting period.

In contrast, under the existing system the board is required to send a full annual report unless a shareholder has waived this by written notice.

It is further proposed that the obligations to prepare and make available annual reports and financial statements should not apply to non-active companies (to be determined under a new provision in the Financial Reporting Act 1993).

Extension of director banning provisions to directors who have been banned in overseas jurisdictions

The Companies Act provides for the prohibition of directors and managers of New Zealand companies and those of overseas companies that carry on business in New Zealand in certain circumstances. These include offences under New Zealand law relating to making false statements, carrying on business fraudulently, insolvent trading, and a range of Companies Act, Crimes Act 1961, and proposed Securities Markets Act 1988 offences.

The proposed changes in the Bill will now allow a court to extend this disqualification to anyone who has been prohibited in an overseas jurisdiction from becoming a director or manager for substantially similar offences.

Overseas companies

The Bill also proposes to reduce the burden of filing requirements (and corresponding fees) for some overseas companies under Part 18 of the Companies Act 1993. Initially it is likely that the change will only apply to Australian Companies (which make up 80% of the overseas companies registered in New Zealand), since most of the information required under Part 18 is already available on the Australian Securities and Investment Commission website.

Under the changes in the Bill overseas companies will not be required to provide information, notice of information, or documents under Part 18 if:

• the company is incorporated in a prescribed overseas jurisdiction; and



• the information or document has been given to, or is held by, a body or person in that jurisdiction whose functions correspond to those of the Registrar; and
  
  
• the information or document is of a prescribed class.

Financial Reporting Act

The Bill aims to improve the efficiency and effectiveness of the financial reporting system under the Financial Reporting Act 1993 (FRA) by, among other things:

• removing unnecessary or excessive preparation, audit, and filing requirements for certain companies. This is achieved by amending the definition of exempt companies and providing further exemptions for overseas companies by replacing section 19 of the FRA with new provisions. In addition provision will also be made for non-active entities to not have to prepare financial statements;
  
  
• establishing an exemption system that provides flexibility to exempt entities from unnecessary requirements in circumstances which cannot be provided for in the FRA itself. Both the Securities Commission and the Accounting Standards Review Board are given wider powers to achieve this outcome;
  
  
• providing a new definition of an issuer to include a person who receives money raised from the issue of securities to the public from a "conduit issuer". The effect of this change is that the directors of these persons will be required to comply with the preparation, filing, and audit obligations of issuers (unless they are exempted by the Securities Commission); and
  
  
• providing a new infringement regime for failing to file financial statements. This is in recognition that criminal prosecution (under the current system) is often out of proportion to the seriousness of failing to register financial statements. It is proposed that there would be an infringement fee of $7,000 for each offence because this amount reflects the level of fines currently being imposed by the courts.

 

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.