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The package announced today to blow the cobwebs off the Companies Act and bring it into the digital age, together with the impending Law Commission review of directors’ duties, should help to galvanise the corporate sector, says Chapman Tripp.
The changes also seek to stamp out poor business practices such as phoenixing of companies to avoid paying creditors, including through the long awaited director identification number (DIN), called a corporate role-holder identifier.
The firm has been pushing the need for reform in these areas for years and is pleased that the challenge is now being taken up.
Among those provisions that will require legislation through a Corporate Governance Amendment Bill, expected to be introduced early next year, are:
- Changing the major transaction regime which allows transactions undertaken through subsidiaries to proceed without shareholder approval at the parent level.
- Repealing the Companies (Directors’ Duties) Amendment Act, originally championed by Dr Duncan Webb MP as a Member’s Bill and taken over by Camilla Bellich. This issue is best addressed by the Law Commisssion.
- Making the proceeds of reckless trading and other misfeasance claims taken by liquidators against company directors available only to unsecured creditors in the first instance followed by preferential creditors and then ordinary unsecured creditors. Secured creditors would only share in the proceeds once unsecured creditors are paid.
- Allowing capital to be returned to shareholders in a pro rata manner without having to go to the High Court for approval. This aligns us with the approach taken in Australia since 1998. Our present processes are costly and time-consuming. Shareholder approval will still be required so companies will need to demonstrate the rationale for the capital return and to comply with the solvency test.
- Allowing unclaimed dividends to be retained by the company and mingled with other assets after a period of time so that they do not remain on a company’s balance sheet as permanent liabilities but become contingent liabilities if later claimed.
Other changes will not require law reform but will remove some of the anachronisms, administrative inflexibilities and other irritants in the existing system, creating a more supportive framework for businesses to work within.
