Biggest Companies Act overhaul in decades on the agenda

23/08/2024·3 mins to read

Biggest Companies Act overhaul in decades on the agenda

The Government recently announced the first major reform of the Companies Act 1993 in more than 30 years. The reforms will be rolled out in two stages:

Phase One: This stage will focus on simplifying and modernising the Companies Act and stamping out harmful business practices. The Government expects to introduce Phase One legislation in early 2025.
Phase Two: Beginning in 2025, the Law Commission will review directors’ duties and related issues, including director liability, sanctions, and enforcement. This review is intended to address concerns about director liability raised by the Mainzeal case, among other matters.

Key Phase One Reforms

Key reforms include:

Modernising and Simplifying the Act: Certain provisions have become outdated since the Companies Act was passed. The proposed changes (Proposal) aim to modernise the Act and reduce compliance burdens. Key changes include:

- Share Capital Reduction: Currently, a company requires costly and time-consuming court approval to reduce its share capital outside of a standard share buy-back. The Proposal will allow a company to reduce share capital provided it has board and shareholder approval, similar to the process in Australia.
- Major Transactions: Clarifying that:
  - Capital structure-related transactions, such as share issuances, dividends, and buy-backs are not "major transactions".
  - Companies cannot avoid the major transactions regime by splitting major transactions into a series of smaller related deals or by executing the transaction through a subsidiary.
- Extending Unanimous Consent: Section 107 allows the company to take certain actions with the unanimous consent of shareholders. The Proposal will expand the scope of this power to include issuing options or convertible securities, crediting unpaid share capital, and acquiring shares to hold as treasury stock.
- Addressing Unclaimed Dividends: Currently, there is nothing in the Act to address unclaimed dividends when the company cannot contact a shareholder. The Proposal would allow companies to mingle unclaimed dividends with company funds after two years, though the shareholder would still have the right to claim the dividend.

2. Unique Identifiers and ‘Phoenixing’: Despite provisions in the Act to address it, phoenixing (creating a new company to defeat creditors’ interests in the old company) is still an ongoing issue. The Government plans to assign unique identifier numbers to directors and shareholders, which should eliminate confusion between those with similar names and prevent name changes to disguise identity.

3. Director Address Requirements: In welcome news for directors and shareholders, the introduction of unique identifiers will give them the option of listing an address for service on the Companies Register, instead of their residential address. This move is in response to repeatedly raised privacy and safety concerns about the public availability of residential addresses.

4. Insolvency Law Improvements: The Insolvency Working Group, set up in 2015, made recommendations to improve the fairness, predictability, and efficiency of New Zealand’s insolvency framework. Only some of the recommendations were implemented and the Government plans to implement all the remaining recommendations, including extending the related party clawback period to four years.

5. Enhancing NZBN Uptake: The New Zealand Business Number (NZBN) was introduced to streamline business interactions by enabling prepopulation of core business information on the NZBN register. A recent New Zealand Institute of Economic Research study estimated that full adoption of the NZBN could produce $500 million in productivity gains each year. The Government is proposing to amend the New Zealand Business Number Act 2016 to improve uptake of the NZBN. Changes include enabling government agencies to require an NZBN as a condition of service and adding bank account names to the NZBN Register to support business verification and reduce scams.

No beneficial ownership register

The Government has elected not to progress the beneficial ownership register as part of these reforms on the basis that it would increase the compliance burden on companies, which is inconsistent with the purpose of these reforms. In addition, the complexity of introducing the register would require delaying introduction of the reforms. The Government is planning further consideration of this issue.

Repeal of ESG considerations

The Government is also proposing to repeal section 131(5) of the Act, which states that, for the avoidance of doubt, when considering the company’s best interests, a director can consider matters other than maximising profit, for example, environmental matters or stakeholder interests. The provision only came into force last year and is being repealed on the basis that it is redundant, because the law already allowed directors to consider matters other than maximising profit.

We expect widespread interest in submitting on the Bill once it is introduced in 2025. If you have any questions about any of the proposed reforms, please contact your usual advisor or one of the experts listed below.

*Anastasiya Gamble, Don Holborow and Simpson Grierson provided feedback to the Commerce and Consumer Affairs Minister in relation to the proposed changes.