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COMPANY LAW: IMPORTANT CHANGES

On 24 June 2014, legislation came into force amending the Companies Act 1993 (the "Act") and the Limited Partnership Act 2008.

The significant changes are as follows:

Connection to New Zealand

  • One or more directors of a New Zealand company to live (i.e. to be ordinarily a resident):
  • in New Zealand; or
  • in an "enforcement country"* and be a director of a company which is registered in the enforcement country.
     
  • One general partner of a limited partnership will also have to meet the residency criteria.

The requirements are intended to ensure that there is an identifiable person with a connection to the company who can be questioned about the activities of the company and who could be held to account for the company's actions. 

Breach of the requirement to have a New Zealand resident director, or general partner, could result in the company, or partnership, being removed from the register. 

Transitional provisions mean that a New Zealand resident director will need to be appointed by those companies who don't have one by the end of this year. 

Director duties 

The Act has been amended to criminalise breaches of certain directors' duties, a director will have committed an offence if he or she:

  • Exercises power or performs his or her duties in bad faith, knows the conduct is not in the best interests of the company and knows that the conduct will cause serious loss to the company.
  • Knowingly and dishonestly permits the company to incur a debt and the company is, or becomes insolvent, at the time of, or as a result of, incurring the debt.

The penalty for breach of these new provisions is imprisonment for up to 5 years, or a fine of up to $200,000.

Notice of changes to ultimate holding company

A new provision in the Act requires the board of directors to notify the Registrar of Companies (the "Registrar") where there is any change in the information of the company's holding company.

Directors are liable for a fine of up to $10,000 for failing to provide the updated information.

Enhanced powers of the Registrar

The Act is been amended to allow the Registrar to remove a company from the register where the Registrar has reasonable grounds to believe that:

  • the company is not carrying on business;
     
  • there is no proper reason for the company to continue in existence; and
  • the company has failed to respond to a request from the Registrar for certain information (relating to the disclosure of interests, as referred to below);
  • one or more of the directors or shareholders has intentionally provided the Registrar with inaccurate information; or
  • the company, or one or more of the directors, or shareholders has failed, in a persistent or serious way, to comply with the duties relating to the company under the Act or the Financial Reporting Act 1993 ("FRA").

The amendments include provisions to allow objections to be lodged against a notice of removal given by the Registrar and for the Registrar or a Court to restore a company or a limited partnership to the register.

In addition, for the purpose of New Zealand complying with its obligations under international anti-money laundering treaties, the Registrar may require persons to disclose:

  • their interests in shares in a company and their interests in limited partnerships;
  • their control over shares in a company;
  • the nature of any powers of direction they have over the management or administration of a company or a limited partnership.

Information obtained by the Registrar under the new provisions can be made available to a wide range of New Zealand Government agencies.

We recommend that:

Company's identify now whether they fulfil the one New Zealand director (or deemed New Zealand director) requirement, and if not, consider how best to fulfil that requirement, while also considering their wider corporate governance and management requirements.

We note that:

There exists a real risk of companies being removed from the register for failing to provide information as and when requested by the Registrar, or where the company, its directors (which may include only one director) or more interestingly its shareholders, are in serious or persistent breach of the Act or the FRA.

*An "enforcement country" is a country with which New Zealand has a reciprocal arrangement for the enforcement of low-level criminal fines. 

Written by Mark O'Donnell at 09:00

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