New Zealand is undergoing the first major overhaul of the Companies Act 1993 (the Act) in over 30 years.
This overhaul will have different practical effects for private v public companies. The reform is set to be implemented in two phases:
Phase one commences early 2025, focusing on modernising and simplifying the Act to reduce compliance burdens and eliminate outdated provisions.
Key changes include:
- Allowing companies to reduce share capital with board and shareholder approval, without needing costly court approval.
- Clarifying that capital structure-related transactions are not considered 'major transactions' (transactions that are defined as large by value for example).
- Expanding the scope of actions that can be taken with unanimous shareholder consent.
- Addressing unclaimed dividends by allowing companies to mingle them with company funds after two years.
Phase two of the reforms focuses on a review by the Law Commission of directors’ duties and the related issues of director liability, sanctions and more effective enforcement. This stage will look at the issues raised in the Mainzeal case, among other matters. It is expected that the Commission will commence this work in 2025.
How these reforms will impact NZ Companies
The Act governs how the 730,000 companies in New Zealand are established, operated and dissolved. The Act is more than 30 years old, with amendments over that time. While in many respects the Act is still fit for purpose, the Government is looking to make targeted improvements to benefit businesses and the New Zealand economy.
The package of reforms will address issues with New Zealand’s company law. The reforms will:
Modernise, simplify and digitise the Act
These changes will better reflect the modern business environment and make the best use of modern technology by addressing out-of-date, ambiguous or overly complex elements of the Act. They will help reduce compliance costs for companies and the regulator.
Introduce a unique identifier for company directors and general partners
This will help with identifying and enforcing poor and illegal business practices, including phoenixing (creating a new company to carry on business at the detriment of stakeholders in the old company), by making it easier to identify all the companies a director is associated with. It will also permit directors and shareholders to replace their residential addresses with an address for service on the Companies Register. This will address the safety and privacy concerns that directors and shareholders have about their home addresses being publicly available.
Improve outcomes for creditors
These changes to insolvency law follow the recommendations of the Insolvency Working Group (which was set up in 2015, to look into aspects of New Zealand’s insolvency law). They include extending the period during which transactions with related parties can be voided, to four years, when a business is insolvent.
Improve uptake and use of the NZBN
These changes will make it easier for businesses to connect and transact with each other and the government, using their NZBN (a globally unique New Zealand Business Number). For example, the changes will make it easier for government agencies to require a NZBN, and enable other MBIE corporate registers to update information using publicly available data from the NZBN register.
In summary, once implemented the Companies Act modernisation and law reform can only bring benefits to New Zealanders in business, and should create a positive flow-on effect for the economy.
Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.
JOHNSTON ASSOCIATES, Level 1, One Jervois Road, Ponsonby, T: 09 361 6701, www.johnstonassociates.co.nz
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