17 October, 2011

As a postscript to our 21 September bulletin, a bill that provides the legislative machinery to tighten the rules around company directors and company registration was introduced to Parliament last week as part of a series of releases by retiring Commerce Minister Simon Power.

As foreshadowed in our September bulletin, the bill will:

• Resident agent: Require New Zealand-registered companies to have a resident agent if there is no director living in New Zealand or in an approved jurisdiction. Resident agents will be responsible for ensuring companies provide accurate information to the Registrar of Companies, and will be liable if companies breach their record-keeping and filing requirements under the Companies Act 1993.

• Enhanced powers: Give new powers to the Registrar of Companies to investigate and deal with non-compliance with the Companies Act. This includes the power to ‘flag’ companies on the register that are under investigation.

• Scope for removal: Allow the removal of companies from the register if they provide inaccurate information or persistently fail to comply with the Companies Act. The Registrar will also be able to ban directors of such companies from taking part in the management of any company for up to 5 years.

• Limited Partnerships: Make similar changes to the Limited Partnerships Act 2008 – to align the requirements for use of New Zealand limited partnerships with those applicable to a company.

The obligations of a resident agent are detailed but also include some protection measures such as being covered by the same rules relating to insurance and indemnity as a company employee, having a limited form of ‘due diligence defence’ and an exclusion from liability for acts, omissions, and decisions of other people that occur within 3 months before the resident agent resigns. This exclusion is described as providing an incentive for a resident agent to resign if he or she becomes aware of the non-compliance of others.

Other changes heralded by the bill include:

Criminalise directors’ duties: The introduction of criminal offences for directors who commit a serious breach of their principal duty under the Companies Act (to act in good faith and in the best interests of the company) as well as the duty applicable to reckless trading (i.e. not to carry on business in a way that risks serious loss to the company’s creditors). If these offences are proven, directors are liable for imprisonment of up 5 years or fines of up to $200,000.

Code companies: What is described as a ‘better alignment’ of the Companies Act with the Takeovers Code. The aim of these changes is to ensure that shareholders of ‘code companies’ will not be disadvantaged if a change of control is effected under the Companies Act rather than under the Code. This is proposed to be achieved by:

•  prohibiting code companies from using long-form amalgamations under Part 13 of the Companies Act (which is used for amalgamations between unrelated companies); and
  
  
•  providing more rigorous voting thresholds and additional judicial oversight for court-approved schemes of arrangement, amalgamation, or compromise under Part 15 of the Companies Act (effectively preventing the use of Part 15 unless approved by shareholders and satisfying the Court that no shareholders are adversely affected – with the latter requirement being achieved if the scheme promoter obtains a preliminary “no objection” statement from the Takeovers Panel).
  

As Parliament is due to rise shortly prior to the November 26 general election, the timeline for implementing the bill is a matter for the next Government.

Further Information

For further information about the bill please contact any member of Hesketh Henry’s Corporate & Commercial team.