For Better or For Worse Changes to the Companies Act are on their way

The Companies and Limited Partnership Amendment Bill ("the Bill") looks to make some important amendments to the Companies Act 1993. If the Bill comes into force it will have a significant impact on a number of companies and company directors. The proposed changes are introduced to strengthen the rules applying to the governance, registration and the underlying ownership of companies.

Governance

The Bill looks to introduce a criminal offence for directors who breach:

  • the duty to act in the best interests of the company (e.g. where there is a clear conflict of interest); or
  • the duty not to trade recklessly (e.g. where an act or omission could result in serious losses to the company's creditors).

While the Select Committee stated that the Bill is not meant to have "a chilling effect on legitimate business risk-taking", there is a concern that the Bill will have such an effect.

Registration & Underlying Ownership

A new company record is proposed by the Bill called "the company's ultimate holding company information". An 'ultimate holding company' means a body corporate that owns all the shares in the new company and is itself not a subsidiary of any body corporate.

At the time of registration subsidiary companies that have an ultimate holding company will need to make available for public inspection the following information:

  • The name of their ultimate holding company;
  • The ultimate holding company's country of registration and registration number;
  • The ultimate holding company's address for service;

Also new to the process of registering a company will be the need for every director to state their date and place of birth. This will apply to both new companies and existing companies.

The Registrar of Companies must treat a director's date and place of birth as confidential and not make it available to a member of the public. In addition, the Official Information Act 1982 will not apply to such information.

A further change proposed by the Bill is that every company must have at least one director living in New Zealand or a country with which New Zealand has a reciprocal arrangement for the enforcement of low-level criminal fines

Next Steps

Having been through the Select Committee, the Bill will now be considered by Parliament when it comes up for its second reading. We will be following developments and will keep you informed as to the Bill's progress.