News Modernisation of the Companies Act 1993 and updates to insolvency law

The Government has recently announced proposals to substantively change the Companies Act 1993. A number of law firms with RITANZ members have already written articles about the proposed amendments, you can view some of these here: 

a. Bell Gully
b. Buddle Findlay
c. Chapman Tripp 
d. Chapman Tripp | Insolvency Law Updates
e. Dentons  
f. DLA Piper
g. Duncan Cotterill
h. MinterEllisonRuddWatts

The proposed changes are welcomed, particularly since the Act is over 30 years old and some recent cases (i.e. Debut Homes and Mainzeal), have highlighted difficulties with the formulation of director duties in the Act. 

The changes will come about in two stages:

The first phase will involve the following changes to the Companies Act:

• modernisation, simplification and digitisation of the Act;
• increased NZBN uptake and use;
• the creation of director ID numbers; and
• changes to insolvency law.

Modernising the Act will reduce issues caused by unclear and outdated provisions in the Act. It will also make compliance easier and cheaper, simplify processes and enable companies to make use of modern technology. The proposed changes include amending the regime for major transactions; introducing a ‘notice of access’ system; introducing a regime for dealing with unclaimed dividends; making the form of documents flexible; and simplifying processes where there is unanimous shareholder consent.

An increased use of the NZBN will assist with identifying and reducing scams and will make transactions faster, less costly and easier. The changes will make it easier for the Government to require an NZBN.

The creation of director ID numbers will increase transparency and integrity and enable corporate histories to be tracked. It will also help with identifying and combatting illegal and bad business practices such as ‘phoenix’ companies. The proposal includes an option for directors to have their residential addresses removed from the Companies Register and replaced with an address for service. This proposal aims to accommodate privacy and safety concerns

The first phase of change also involves some “technical improvements” to insolvency law, following the recommendations of the Insolvency Working group, which was set up in 2015 to examine corporate insolvency law. The Minister has proposed that the insolvency reforms that have not yet been brought in, be progressed as part of this package of reforms.  The proposals identified in the cabinet paper and on MBIE’s website include:

• improving the outcome for creditors, to help make sure that when a company fails creditors get their fair share;
• standardising the clawback period to four years for related party transactions;
• requiring that 50% of gift vouchers be honoured in certain circumstances; and
• expanding employee preferences to include long service leave.

It is not yet clear which of the other recommendations made by the Insolvency Working Group will be included. These as yet unimplemented recommendations include:

Voidable transactions	·       reducing the deadline from six to three years for liquidators to file claims under sections 292 to 299 of the Act and providing the High Court with the discretion to extend the filing period; ·       adding a defence for a creditor with a valid security interest who can demonstrate that there was no preference at the time they received payment; and ·       simplifying the continuing business relationship test in section 292(4B) of the Act.
Ponzi schemes	·       aiding the recovery of funds under the Property Law Act 2007 by (among other things) adding a Ponzi presumption that investors are creditors.
Preferential claims	·       placing a six month limit on preferential claims for unpaid taxes and customs and excise duties.
Other corporate law insolvency issues	·       providing that fines and penalties are admissible claims in liquidation, but are subordinate to claims by unsecured creditors.

Further, the Government has proposed a power to levy companies to pay for the Official Assignee’s work. Currently the Insolvency and Trustee Service can recover its costs from the assets of companies in liquidation. However, as the amounts received are often short of the costs involved, the Crown funds the difference. The levy seeks to reduce this cost to the Crown.   

The second phase of reforms will involve a review by the Law Commission in 2025 of:

• directors’ duties;
• director liability;
• sanctions; and
• effective enforcement.

The required Bill is expected to come before Parliament next year and there will be an opportunity for stakeholders to make submissions on it.  RITANZ will be submitting on the Bill and would welcome the views of members on the proposed changes – we will reach out to members for their views once the Bill is released.

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