The package of proposals from Commerce and Consumer Affairs Minister Andrew Bayly to modernise, simplify and digitise the Companies Act 1993 will provide the first substantive reform of the Act in more than 30 years.

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.

They will be legislated for, after a full select committee process, through a Corporate Governance Amendment Bill, expected to be introduced early next year.

But this is only the first leg in the double. Still to come, and on a slower track, is the New Zealand Law Commission review of directors’ duties and related issues, led by Geof Shirtcliffe, a former Chapman Tripp partner.

Chapman Tripp has been arguing the need for a comprehensive refresh of New Zealand’s company law over several years now so we welcome these initiatives and will do all we can to secure the best outcomes possible.

Some of the key Corporate Governance Amendment Bill proposals

Major transactions

Changing the major transaction regime which allows transactions undertaken through subsidiaries to proceed without shareholder approval at the parent level.
Clarify that mere capital structure events (share issues, dividends, buy-backs) are not major transactions.

Directors’ duties (proceeding ahead of the Law Commission work)

Repeal the Companies (Directors’ Duties) Amendment Act, originally championed by Dr Duncan Webb MP as a Member’s Bill and taken over by Camilla Bellich. We consider the place of ESG considerations in modern governance is best dealt with in the context of the Law Commission review.
Make 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.
Clarify that general disclosure of director’ interest notices are sufficient only where the transaction is entered into in the ordinary course of business and on usual terms and conditions.
Clarify that the timeframe for avoiding interested director transactions if not at fair value is three months after the later of disclosure of the interest and entry into a transaction.
Clarify that the insider trading provisions applying to non-listed company director share dealings extend to transactions as joint trustee or through controlled companies while also introducing an “equal information” defence, modelled on the Financial Markets Conduct Act (FMCA), to the requirement that such transactions be at fair value.

Returns of capital

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 (see our Shareholder disclosure – lessons from Burger Fuel commentary).

Dividends and other distributions

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.
Clarify how the solvency test is to be applied for distributions where a company has preference shares on issue.

Modernisation and simplification of processes

Reverse a number of presumptions in the Act by allowing share buybacks, reissue of shares held as ‘treasury stock’, division of the share register, director indemnification and effecting insurance, unless a constitution says otherwise. On 14 August 2024, only 224,976 of 732,433 registered companies had a constitution filed at the Companies Office (so 507,457 had no constitution)
Expand the application of the simplified corporate procedures in section 107 of the Act – most notably, to the grant of options or issue of convertible securities, without the level of director certification currently required.
Remove requirements for public notices to be published in newspapers. Publication in the online New Zealand Gazette will be sufficient.
Better recognise validity of purpose statements in company constitutions.
Better automate the company name reservation systems.
Rationalise provisions on notification of share issues and to remove the requirement for registration of director certificates for share issues and to correct share consolidation and subdivision provisions.
Reconcile the prohibition on indemnity of directors with preservation of case law on shareholder ratification of director decisions.
Better align the definition of relevant interest for director share dealings with the exceptions in the FMCA.
Broaden the required director certifications to approve a company amalgamation.

Digitisation

Allow a disclosure document for listed company share buybacks to be released through the NZX Main Board rather than sent to each shareholder.
Remove the requirement for names in a share register to be alphabetically arranged. While this made sense for paper-based registers, it is unnecessary in electronic formats.
Allow certain company information to be posted on the company website for shareholders to access rather than having to post it to shareholders.
Clarify the manner in which a director may resign by electronic mail.
Better allow for notice of, and attendance at, creditor meetings using electronic technology.
Remove the requirement for certain documents to be signed before registered at the Companies Office, eliminate requirements for prescribed forms and allow for more technology-neutral document conveyance to the Companies Office.
Repeal obligations requiring physical storage of documents in New Zealand, allowing for some electronic records to be kept in the cloud.

New Zealand Business Number

Make it easier for government agencies to require a NZBN, and enable other Ministry of Business, Innovation and Employment (MBIE) corporate registers to update information using publicly available data from the NZBN register.

Insolvency Law Reforms

The Bill will also improve aspects of insolvency law, particularly in relation to voidable transactions and Ponzi schemes. We will be commenting on these separately next week.

From here

The official documentation relating to the reform project is available here. Chapman Tripp partner Roger Wallis’s role as a “specialist legal advisor on the Companies Act modernisation proposals” is acknowledged in the Cabinet Paper.

As already stated, the Corporate Governance Amendment Bill will go through the usual submissions process. This is a good opportunity to remove the anachronisms, administrative inflexibilities and other irritants in the Act so, if you have other changes you would like beyond those already in scope, now is the time to make that case.

Should you wish to make a submission or should you want to discuss the proposed changes, Chapman Tripp would be happy to help.