The Companies and Limited Partnerships Amendment Bill was passed into law on 24 June 2014. The Bill creates two separate Acts, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014.
The new legislation seeks to protect New Zealand's international reputation as a trusted place to do business by making it more difficult for overseas criminal organisations to misuse New Zealand shell companies and limited partnerships. Commerce Minister Craig Foss described the changes as an "important part of the Government's Business Growth Agenda to improve regulation and lift confidence in New Zealand's capital markets".
Key Changes to the Companies Act 1993 and the Limited Partnerships Act 2008
- New criminal offences for directors:
There has long been a statutory duty on company directors to act in good faith and in what that director believes to be the best interests of the company when exercising powers or performing duties. The changes introduce a new criminal offence where a director exercises powers or performs duties in bad faith towards the company and knows that the conduct is not in the best interests of the company and knows that the conduct will cause serious loss to the company.
Similarly, the Companies Act has been amended such that it will now also be a criminal offence for a director to dishonestly fail to prevent the company from incurring a debt when the director knows that the company is insolvent or will become insolvent by incurring the debt.
Both of the new offences are punishable by up to five years' imprisonment or a fine of up to $200,000.
- Resident director or general partner requirement:
Companies will soon need to have at least one director who:
- is resident in New Zealand; or
- who is resident in an "enforcement country" and is a director of a company incorporated in that enforcement country.
An enforcement country is a country with which New Zealand will have reciprocal enforcement arrangements. These countries have not yet been confirmed, but it is likely that they will include Australia and the United Kingdom.
Similarly, limited partnerships will need:
- at least one general partner who lives in New Zealand; or
- at least one general partner who lives in, and is a director of a company in, an enforcement country; or
- a general partner that is a partnership governed by the Partnership Act 1908 and has at least one partner who lives in New Zealand or who lives in, and is a director of a company in, an enforcement country; or
- at least one general partner that is a company registered under the Companies Act 1993 and complies with the director requirements of that Act.
Also, directors will need to provide their date and place of birth at the time of registration of a company or when new directors are appointed to an existing company. These details will not be publicly available. The same information will be required in relation to every general partner who is a natural person and every general partner's director, partner or general partner who is a natural person.
Every company that has an "ultimate holding company" will need to disclose details of that ultimate holding company and will need to notify the Registrar each time the ultimate holding company changes.
- Further powers of Registrar:
The Registrar of Companies will have enhanced powers to investigate non-compliance by companies and limited partnerships, including powers to identify the true owner of a company or a limited partnership by enquiring about the individuals "controlling" them. The Registrar will also have the power to remove a company or a limited partnership from the register in certain circumstances.
- Reconstruction provisions:
The legislative changes align the provisions of the Companies Act 1993 dealing with schemes and amalgamations for "code companies" with the provisions of the Takeovers Code.
When do these changes take effect?
The new criminal offences for directors and the alignment of the reconstruction provisions came into force on 3 July 2014. The remaining changes take effect in July 2015, unless commenced earlier by Orders in Council. There will be a further 180 day period for existing companies to comply with the resident director requirement after those provisions come into force.
For further information on the changes to the Companies Act 1993 and the Limited Partnerships Act 2008, please contact our business team at Cavell Leitch. Our business team members are experts in all aspects of legal business advice and compliance and are more than happy to discuss any questions you may have.
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