Companies Act reform - changes to ‘modernise, simplify and digitise’ underway

Topic

Summary of proposed change

Measures to modernise, simplify and digitise the Companies Act

Capital reductions

Allow capital to be returned to shareholders in a pro rata manner without having to go to the High Court for approval, subject to shareholder approval.

Major transaction approval – application to capital-related matters

Clarify that the major transaction rules do not capture share issues, buybacks, dividends or redemptions.

Major transaction approval – potential avoidance

Change the major transaction rules so they are not able to be subverted by structuring major transactions through a subsidiary or as a series of smaller transactions.

Unanimous approval

Extend the process to allow all entitled persons to agree to certain actions, by extending section 107 of the Act to issues of options and convertible securities, crediting unpaid share capital, and acquisitions of shares to be held as treasury stock.

Unclaimed dividends

Allow unclaimed dividends to be retained by the company, after a period of two years and making reasonable efforts to contact the shareholder. The shareholder would retain a claim to the money should they subsequently come forward. Unclaimed dividends would become a contingent, rather than permanent, liability on a company’s balance sheet.

Constitutions – change in certain default settings 

Make certain provisions of the Companies Act ‘opt out’ rather than ‘opt in’. Currently, certain actions by a company are only allowed if expressly permitted by its constitution. The reforms would allow share buy backs, the reissue of shares held as treasury stock, division of the share register, and director indemnification and insurance ‘unless expressly prohibited by a company’s constitution’.

Reversing the Directors’ Duties Amendment Act

Repeal section 131(5) of the Act, which has only been in force since August 2023. That provision added an avoidance of doubt provision 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). The repeal is proposed because the law already allows directors to take into account ESG factors and therefore this new subsection is redundant. Bell Gully opposed the introduction of section 131(5), as we considered it to be unnecessary. 

Notice requirements – public notices 

With the increasing decline in newspaper distribution and the corresponding increasing reliance on online sources of information, remove the requirement for notification through newspaper. The same information is available online through The Gazette.

Notice requirements – by website

Introduce a ‘notice of access’ regime to permit companies to notify shareholders and creditors of a website where information (e.g., in relation to an annual report or an upcoming AGM) may be obtained, rather than having to send this information to each individual shareholder and/or creditor. Similar regimes have recently been introduced in Australia and the UK.

Share registers – trusts

Allow share registers to reflect that a shareholder is holding shares on behalf of a trust, in order to assist identification of different holdings held by the same person.

Introduction of unique identifier numbers for directors and shareholders

Director and shareholder unique identifier numbers

Introduce unique identifier numbers for directors and shareholders. This proposal aims to deter and detect poor business practices (such as phoenixing) by making individuals readily identifiable and less likely to be confused with others of the same name or by registering under a variation of their name.

Address for service rather than home address

Currently, the residential addresses of company directors and individual shareholders are readily accessible on the Companies Office website. An existing Bill (which Bell Gully has commented on here and is currently before Select Committee), would allow directors to apply to the Registrar of Companies to have their home address removed from the register if disclosure is “likely to result in physical or mental harm” to the director or a person who lives with the director. 

The proposed reform would instead allow directors and shareholders to prevent their home addresses from being publicly disclosed by using a unique identification number which is linked to an address for service. The new proposal is therefore more comprehensive than the existing Bill. The member who proposed the existing Bill has said that she will withdraw her Bill if a more comprehensive solution is introduced.  

Insolvency law improvements

Claw back period

Extend the claw back period to four years for transactions undertaken with related parties prior to liquidation.

Levy for the Insolvency and Trustee Service

Expand the levy making powers in the Act to help fund the Insolvency and Trustee Service, a business unit of MBIE responsible for performing the statutory function of the Official Assignee.

Improving the uptake of the New Zealand Business Number (NZBN)

NZBN as a condition of service

Make it easier for government agencies to require a NZBN as a condition of service (by removing a process that requires agencies to undertake a regulatory analysis, consult with the Office of the Privacy Commissioner and obtain Cabinet’s approval for an Order in Council before doing so).

Public information default setting

Make more information public on the NZBN register by default, including unincorporated entities’ legal and trading names, and the names of their owners and directors.

Link to other registers

More closely link the NZBN register with other MBIE registers by enabling the NZBN to be used as a ‘permitted business identifier’ and for core business information held on the NZBN register to update other registers administered by MBIE (via direct exchange of information).  Other MBIE registers include, among others, the Companies Register, the Financial Service Provider Register and the Limited Partnerships Register.