It has made only minor changes to provisions which have
provoked strong opposition from governance and legal experts. But
it has held the door open to further amendments via Supplementary
Criminalisation of directors' duties
The proposals in the Bill to criminalise reckless trading
offences and breaches of the duty to act in good faith were opposed
by Professor Peter Watts of the Faculty of Law at Auckland
University, Professor Stephen Bainbridge of UCLA, the New Zealand
Institute of Directors and all of the leading corporate law firms
in New Zealand.
And all for the same reason: because it is wrong in principle to
use criminal sanctions to address fiduciary duties and to penalise
after the event business decisions which necessarily involve an
element of risk.
The Bill confines the criminalisation to conduct that the
director knows is "seriously detrimental to the interests of
the company" or knows will result in "serious loss to the
company's creditors". But that does not address the issue
that imprisonment for commercial negligence is contrary to basic
principles of criminal justice - especially as our criminal law
framework can already hold directors to account for egregious
The committee has not conceded this point. It has, however, said
"would support further consideration of the drafting of
these new offences to ensure that the provisions are expressed in a
way that provides clear guidance to directors and does not have a
chilling effect on legitimate business risk-taking".
Chapman Tripp comments
Chapman Tripp's understanding is that the committee's
mind is indeed open on this issue. We welcome that and look forward
to working with officials in the New Year to develop a solution
which achieves the Government's policy ambitions without
discouraging the entrepreneurial impulse which is so vital to a
free market economy.
You can read Chapman Tripp's submission on this section of
here and our earlier commentary
The Bill has been given more teeth by removing the option of
having an agent resident in New Zealand instead of a director and
by requiring that the date and place of birth of resident directors
be collected at registration and kept up to date along with details
of any ultimate holding company.
However, per our
submission, we still consider the requirement to appoint New
Zealand directors will be an unnecessary inconvenience to a number
of bona fide subsidiaries of offshore holding companies that prefer
their offshore resident directors to be directors of all
Amalgamations and arrangements of code companies
Helpfully for companies seeking to pursue schemes of
arrangement, the committee has recommended changes to the Bill that
would result in a party that agrees in advance to support a scheme
of arrangement not necessarily constituting a separate class for
voting approval purposes.
This was a change that we argued for in our
submission, and which we consider should eliminate a
potentially major hurdle to scheme approvals which was posed by the
original drafting of the Bill.
Strangely, the Committee has rejected submissions that the Bill
clarify that pro rata share cancellations, that do not affect
control, should not need approval by more than 50% of total voting
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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