Upcoming Reforms to the Companies Act: Phase One – Corporate Governance

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Upcoming Reforms to the Companies Act: Phase One – Corporate Governance

Upcoming Reforms to the Companies Act: Phase One – Corporate Governance

September 8, 2024

As we highlighted on the 15th August, significant reforms are coming to the Companies Act 1993 (Companies Act), with the first phase focusing on corporate governance. The first of these reforms are expected to be implemented in 2025 and aim to reduce compliance costs and complexity through more efficient regulation. The Government recognises the crucial role that the Companies Act plays in New Zealand’s economy, affecting all 731,000 companies throughout their lifespan. The proposed changes are designed to streamline how companies operate, clarify provisions and reduce costs for both individuals and society.

Unanimous Shareholder Consent	Extends the use of section 107 which provides that unanimous shareholder consent can simplify the ability to perform certain functions. It is proposed that this is extended to include: issuing options or convertible securities; crediting unpaid shares; and the acquisition of shares to be held as treasury stock.
Major Transactions	One proposal is to strengthen the current provisions to ensure the regime cannot be circumnavigated. This would involve prohibiting the structuring of major transactions as a series of smaller transactions or through subsidiaries, to allow section 129 to operate as intended. A second proposal is to remove share issues, buybacks, dividends and redemptions from the major transaction regime, allowing them to operate under their respective sections of the Companies Act.
Unpaid Dividends	Unpaid dividends are acknowledged in the new proposals. Companies will be allowed to absorb unclaimed dividends into company funds after two years have lapsed and if the company has made reasonable efforts to contact the shareholder. Nonetheless, shareholders will retain their claim to the funds, even after they have been absorbed.
Insolvency	Proposed changes extend the claw back period from two years to four years for related party transactions prior to liquidation. This should provide greater protection to creditors.
Modernising the Identification of Shareholders and Directors on the Companies Register	After a number of concerns about the health and safety risks associated with director’s personal addresses being on the Companies Register, this proposal will be positive news for many. It is proposed that unique identification numbers (IDs) for directors and shareholders is introduced. Companies will be able to use these IDs to identify their directors and shareholders on the register while nominating an address for service. Further criteria for this address will be established in due course. Using unique identification will help combat crime, provide greater protection for creditors, and offer clarity when identifying directors across different companies. Individuals, law enforcement and other businesses will be able to compare director IDs across companies, and reduce confusion. This change sends a strong message that accountability will remain achievable but in a safer and more transparent manner.
Increased usage of the New Zealand Business Number (NZBN)	NZBNs featured in the 2016 Government Directions requiring government agencies to use NZBNs or at least consider using them. Despite this, there has not been any cohesive uptake so far. The advantage of NZBNs compared to company numbers is that they are useable across a wider range of entities including sole traders, partnerships and trusts. To facilitate the 2024 push for increased NZBN uptake the Government is proposing to: remove the requirement for government agencies to consult with the Office of the Privacy Commissioner when requesting an NZBN; introduce bank account numbers and names to the NZBN register for cross-checking; and enable the NZBN to be used across all of MBIEs registers to reduce administrative work.

Summary of Phase One

Phase one of these reforms intends to address specific issues that have been plaguing the Companies Act, but does not drastically change the law. Directors and shareholders will welcome the ability to keep their addresses off the public register but may have to adjust to using NZBN’s rather than company numbers. However, more significant changes are expected in phase two. For now, these reforms are primarily administrative but help to resolve some areas of inconsistency in the Companies Act that will be welcome to business.

Early next year, the Corporate Governance Amendment Bill is due to be introduced to Parliament. If you would like support in writing a submission or a discussion on how the Bill may impact your business specifically, please reach out.

This article was written by Chris Parke, a Partner, Christine James, a Senior Associate, and Chloë Almey, a Solicitor, in our Corporate and Commercial team.