The Regulatory Reform Bill will "slash red tape", according to its sponsor, Rodney Hide. And indeed the Bill will remove a lot of unnecessary bureaucratic clutter. But, almost by definition, most of the changes – while useful - are small and technical in nature.
In our view more substantial amendment to the Companies Act 1993 is required to fix long-standing technical gaps and to catch up with the modernisation of company law in other countries.
The omnibus Bill had its first reading last week. This Brief Counsel summarises the key amendments of relevance to business.
Changes to the Companies Act and Unit Trusts Act
Electronic documentation, voting and meeting participation
These changes were sought by the Listed Companies Association (LCA) executive in April 2009 and have been more recently endorsed by the NZ Shareholders' Association and Minister of Commerce Simon Power. The changes will reduce compliance costs and bring New Zealand into line with other jurisdictions.
- Schedule 1 to the Companies Act will be amended to explicitly allow electronic voting on the appointment of proxies and on resolutions put (or to be put) to a shareholders' meeting. This clarification is necessary to remove doubts raised by some lawyers - incorrectly in our view - that this is not permissible under current law.
- Provisions in sections 388, 390 and 391 of the Act will also be amended to make it clear that shareholders may opt to receive notices electronically.
The LCA executive (of which Chapman Tripp Partner Roger Wallis is a member) estimates that aggregate cost savings of around NZ$1.5 million a year could be generated among listed companies assuming a 30% uptake of electronic voting facilities and use of these facilities for one voting process per shareholder each year.
The requirement that a listed company must notify each shareholder when buying back its own shares on the stock exchange (Section 65(2A) of the Act) will be repealed. This will remove a totally redundant compliance cost as NZX Listing Rule 7.12 already requires companies to advise the stock exchange of an on-market buy-back by the end of the same trading day.
Other changes will:
- enable the establishment of an interest rate for minority buy-outs without the need to employ an arbitrator where the price of the shares has not been subject to arbitration (this will also remove an unnecessary administrative cost)
- improve the effectiveness of the voluntary administration regime by requiring that the termination of a DOCA (deed of company arrangement) must be notified to the Registrar of Companies (thereby providing an easy mechanism for interested parties to check whether a DOCA is still in place)
- include the receiver's obligation for rent and other payments under pre-receivership leases and hiring agreements among the exceptions to the voidable insolvent transaction regime in the Companies Act (giving landlords and businesses which lease equipment certainty when entering into such transactions with receivers), and
- enable managers of unit trusts to distribute accounts and financial statements electronically.
Changes to the application of the Takeovers Regime
The application of the Takeovers Code is unnecessarily broad and, in the view of the Panel, extends to closely–held companies with few shareholders and/or shareholders who do not hold voting rights. The cost of compliance in these circumstances is relatively substantial and the benefit to shareholders is minimal as they will already be in a position to know the merits of the transaction.
The amendments will:
- clarify that the '50 or more shareholders' definition of 'specified company' and 'Code company' does not include shareholders whose shares do not confer voting rights
- increase the threshold at which a company becomes a 'Code company' to '50 or more shareholders and 50 or more share parcels' The Panel has previously issued a guidance note stating that joint shareholders should each be regarded as separate shareholders when calculating the '50 shareholder' test. Whilst we do not agree that the guidance note correctly states the law, the Bill will put this aspect beyond doubt
- clarify that transactions or events which start under the Code must be completed under the Code, and
- enable divisions of the Panel under the Takeovers Act to make decisions by way of written resolution and to recognise the validity and effect of the takeovers laws of other countries in respect of foreign upstream acquisitions.
For further information, please contact the laywers who are featured as authors.
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.