Business Law Reform Bill fast tracks its way into law

The Commerce Select Committee released its report on the Business Law Reform Bill on 18 October with only a few notable changes. This was followed by further amendments to the Bill through a Supplementary Order Paper on 14 November with passage of the Bill on 15 November.

Commerce Minister Lianne Dalziel has welcomed the passing of the Bill, which she notes demonstrates the Government's willingness to listen to business.

"The benefits provided by this legislation are tangible because the business sector, legal practitioners and enforcement agencies have suggested them. The passing of this legislation is yet another strong signal that the government is prepared to improve the regulatory environment for business."

The Business Law Reform Bill includes amendments to five Acts:

•  the Companies Act 1993;

•  the Dumping and Countervailing Duties Act 1988;

•  the Financial Reporting Act 1993;

•  the Friendly Societies and Credit Unions Act 1982, and

•  the Insurance Companies' Deposits Act 1953.

It's aim is to increase the clarity, efficiency, and effectiveness of the law around the operation of business. Specific changes to the Companies Act 1993 and the Financial Reporting Act 1993 (FRA) will be of particular importance to businesses.

Most of the proposed amendments in the Bill survived the Committee process but there are a few notable changes arising from the Report and the Supplementary Order Paper (SOP) issued on 14 November. The key additional changes to the Companies Act and FRA are outlined below.

Companies Act

Annual reports

The proposal to provide for the distribution of annual reports by electronic means was accepted but additional changes have been made to the new provisions, largely to improve the operation of the new system in practice. In brief these are:

• the wording of the provisions have been clarified to ensure that a company must send either a notice to shareholders informing them of their right to receive the annual report (or concise report where available) or a copy of the annual report each year. Both cannot be waived by shareholders;
  
  
• shareholders will be given 15 days to respond to the notice if they want to be sent a copy of the annual report; and
  
  
• if a shareholder elects to receive a report, the company must continue to send out the report each year until the shareholder revokes the request.

Financial Reporting Act

Further relaxation of rules for overseas issuers

One of the main new additions to the FRA amendments is the introduction of a new exemption power given to the Securities Commission over share purchase and option plans offered by overseas companies to their New Zealand employees.

The Committee's report noted that they had received a number of submissions indicating that the current requirement to prepare non-consolidated financial statements was cost prohibitive for many overseas companies that were not required to prepare such reports in their home jurisdiction.

Under the new section 35A of the FRA, the Securities Commission will be able to exempt any directors of an overseas issuer from the preparation, auditing and filing requirements for financial statements (and the associated offence provisions). The exemption, however is not available if it would cause hardship to New Zealand subscribers having regard to the different reporting requirements in the issuer's own country. The extent of exemption given can also go no further that what is reasonably necessary to address the matters that gave rise to the exemption.

Complementary powers of exemption have been given to the Registrar of Companies for non-issuer overseas companies.

The SOP has also removed the "fit and proper" test from the Securities Commission's and Registrar's exemption powers for these provisions.

Conduit issuers

The proposed extended definition of "issuer" to capture "conduit issuers" for recipients of money has been limited to situations where a recipient has received 10% or more of the money raised by the conduit issuer from the public, and the aggregate amount provided to the person and all related parties constitutes 75% or more of the money raised from the public.

The SOP has amended the provisions relating to the receipt of money from conduit issuers so that they are brought into force by Order in Council. This is to allow the Securities Commission to consider possible exemptions from the relevant provisions. These provisions have also been amended to clarify that they apply in relation to offers to the public that are made under the Securities Act.

Accounting Standards Review Board

The select committee's report notes that despite strong arguments against including the proposed new powers given to the Accounting Standards Review Board (ASRB) to exempt entities from unnecessary requirements in circumstances which can not be provided for in the FRA, the Committee has decided to retain the provisions. However in the SOP the ASRB's exemption making powers have been modified to:

• remove the ability to make individual exemptions;
  
  
• replace the "exceptional circumstances" test with a test that focuses on whether compliance with the relevant provision of the financial reporting standard would result in financial statements that are misleading or are likely to mislead; and
  
  
• remove the "fit and proper" test which is no longer considered to be necessary.

 

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