Last week, the Government announced its decision to progress reforms to modernise the Companies Act 1993 and related corporate governance legislation. This will be carried out in two phases:
- Phase 1 focuses on changes to the Companies Act to better reflect the modern New Zealand business environment, simplify compliance, deter and detect poor business practices and increase uptake of the New Zealand Business Number. Phase 1 will be legislated for as part of the Corporate Governance Amendment Bill, which is expected to be introduced to Parliament early next year.
- Phase 2 will follow a Law Commission review of directors’ duties and related issues of liability, penalties and offences, and enforcement, including issues raised by the Mainzeal case. This review is expected to commence in 2025.
The corporate governance reforms
The key aspects of the Phase 1 corporate governance reforms are summarised in the table below.
None of the Phase 1 proposals represent significant shifts in policy of the overall scheme of the Companies Act. Rather, the proposals address a number of specific issues encountered in practice and are designed to make things easier for businesses, by saving time and money or clarifying provisions. As such, many of these reforms will be a welcome step for many New Zealand companies.
|
Topic |
Summary of proposed change |
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Measures to modernise, simplify and digitise the Companies Act |
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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. |
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Major transaction approval – application to capital-related matters |
Clarify that the major transaction rules do not capture share issues, buybacks, dividends or redemptions. |
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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. |
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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. |
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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. |
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Introduction of unique identifier numbers for directors and shareholders |
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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. |
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Insolvency law improvements |
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Claw back period |
Extend the claw back period to four years for transactions undertaken with related parties prior to liquidation. |
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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. |
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Improving the uptake of the New Zealand Business Number (NZBN) |
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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). |
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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. |
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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. |
Next steps
The Corporate Governance Amendment Bill is expected to be introduced to Parliament early next year. Public submissions on the Bill will be invited as it progresses through the select committee stage.
Further background information (including Cabinet papers and other official Government documents related to the Phase 1 reforms) can be found here.
If you would like assistance in preparing a submission or would like to discuss how the Bill might affect your business, please contact your usual Bell Gully adviser or any of the authors of this note.
* James Cooney was involved as part of the targeted consultation process in providing feedback to the Commerce and Consumer Affairs Minister Andrew Bayly in relation to the proposed changes.