Yesterday the Commerce and Consumer Affairs Minister, Andrew Bayly, announced the Government's plan to undertake the first major reform of the Companies Act 1993 (Companies Act) and related corporate governance legislation since the Companies Act first came into force. The proposed reforms ultimately aim to make New Zealand an even safer and more attractive place to do business, including by modernising the law, combatting poor business practices and ensuring it is fit for purpose in light of the current business environment. The reforms will be undertaken in a phased, two-stage, approach.
Phase one
The first phase of the reforms to address poor business practices is already underway, and will involve corporate governance reforms and non-legislative improvements, including:
- Changes to reduce the compliance burden, including by improving digitisation to allow more things to be done online
- Changes to modernise and simplify the law, including to:
- provide a new process for reducing a company's share capital without court approval subject to a board resolution and agreement of shareholders
- exclude certain transactions relating solely to the capital structure of a company (such as share issues, buybacks, dividends and redemptions) from the rules relating to major transactions
- strengthen the rules relating to major transactions to prevent them from being avoided by implementing a transaction through a related series of transactions
- Changes to improve aspects of insolvency law, such as amendments to address voidable transactions and Ponzi schemes and introducing a formal power to levy companies to help pay for the wind up of failed companies by the Official Assignee
- Introducing unique identifiers for directors and general partners to aid transparency, combat poor business practices (such as 'phoenixing' to avoid paying creditors), and changes aimed at improving privacy and safety, including allowing directors and shareholders to provide an address for service to the Companies Office rather than their residential address
- Measures to improve use/uptake of the New Zealand Business Number.
The Bill containing this initial package of legislative amendments is expected to be introduced in early 2025 and will be subject to a select committee process.
Phase two
The second phase of the reforms - expected to commence in early 2025 - will involve a review by the Law Commission of directors' duties and related issues of director liability, sanctions and enforcement. In completing this review it has been signalled that the issues raised in the Mainzeal case, which was a recent topic du jour (for more on the decision read Supreme Court releases Mainzeal judgment), will be closely reviewed by the Law Commission.
The Government's announcement has been made following two years of engagement with stakeholders and experts in the field of company law. More information about the proposed reforms including the Cabinet paper can be found here.
We expect that a number of industry participants will wish to make submissions on the various proposed changes to the Companies Act once the invitation to submit is announced in early 2025.
Buddle Findlay welcomes the reforms and will continue to keep a close eye on developments. If you want to know more about how the proposed reforms may affect you, or wish to make submissions, please get in touch with our experts.
This article is co-authored by Hayley Shallard (solicitor), Tom Montgomerie (senior associate) and Cora Morrison (senior associate).
