In August 2024, the government announced that it would progress a package of reforms to the Companies Act 1993 and related legislation.
The reforms are designed to address several issues that are regularly encountered in practice, to make New Zealand an easier and safer place to do business and to increase uptake of the New Zealand Business Number (NZBN).
The reforms will be carried out in two phases:
- Phase 1 will focus on modernising the Act, simplifying compliance, deterring poor and illegal business practices and making improvements to insolvency law to make outcomes fairer for creditors. The bill introducing these reforms is expected in early 2025, and
- Phase 2 will take place after a Law Commission review of directors’ duties and liability issues, which is also due to begin in early 2025.
Phase 1
The first phase includes reforms that will address several practical issues. The key changes that have been suggested for Phase 1 include:
- Introducing a simpler process for a company to reduce its share capital, modelled on Australian legislation
- Amending the definition of ‘major transaction’ by excluding transactions relating solely to the capital structure of a company (for example: issuing shares, share buy-backs, dividends and redemptions) and by clarifying that a series of related transactions does constitute one ‘major transaction’
- Extending the shareholder unanimous consent process in section 107 of the Act to cover issuing options or convertible securities, crediting unpaid share capital and acquiring shares to be held as treasury stock
- Providing a process for dealing with unclaimed dividends
- Providing for certain actions such as share buybacks and a company holding its own shares to be available by default (currently these actions are only allowed if expressly permitted by the company’s constitution)
- Simplifying processes to reserve company names, restore companies to the register and correct mistakes on the register
- Allowing companies to put certain shareholder and creditor information on a webpage rather than having to physically send out copies to each person
- Introducing unique identifier numbers for directors and changing address requirements so directors’ residential addresses don’t have to be disclosed on the public register
- Improving insolvency laws by extending the claw back period for related party transactions, and
- Introducing various measures to improve the uptake of the NZBN.
The bill containing the reforms will be introduced in early 2025, and the public will be able to make submissions on the legislation as it progresses through the select committee stage.
Phase 2
The second phase is expected to begin in parallel with Phase 1, starting with a Law Commission review of directors’ duties and liabilities. This is expected to address several concerns, including that the law related to reckless trading and incurring obligations is unclear and difficult to apply.
