It’s estimated that as many as 4200 businesses will need to change the composition of their boards to comply with the Companies and Limited Partnerships Amendment Bill now going through the House.
This note identifies upcoming changes which may require you to take action.
Under the upcoming changes, every New Zealand incorporated company must have:
- a director who lives in New Zealand (no requirement to be a citizen), or
- a director who is also a director of a company incorporated in, and who also lives in, a country with which New Zealand has reciprocal enforcement arrangements for low-level fines. The list of such countries has yet to be finalised, however indications are that only Australia will qualify, at least initially.
This information will be collected at registration and updated when any subsequent director is appointed.
Companies that are already incorporated will have six months within which to comply with the new requirements. Non-compliance at the end of this six month period will be grounds for the Registrar of Companies to remove the company from the register.
These requirements do not apply to an overseas company that is registered in New Zealand.
Under the upcoming changes:
- In addition to the current requirement to provide his or her residential address, every director must, at the time of appointment, provide his or her date and place of birth. This will be held by the Registrar of Companies, but will not be publicly available. Existing directors will need to provide this information in a manner still to be determined by the Registrar.
- On registration and within 20 working days of any change, every company must disclose the name of any ultimate holding company, the country of registration, the registration number or code (if any) and the address for service. These details will be publicly available. Existing companies will need to provide this information in a manner still to be determined by the Registrar.
- There are penalty provisions for failure to comply with these information requirements.
The Companies Office Registry Integrity Team is already requesting further identity information and proof of place of residency when applications are made to register a company’s off shore shareholders and directors. We expect this trend to intensify.
Another amendment which may have practical effect for some companies is the enhanced powers given to the Registrar of Companies to remove a company from the register. One of these grounds is persistent failure of a company or of one or more of its directors to comply with the Companies Act 1993 or the Financial Reporting Act 1993.
Currently, failure of a director to comply with obligations under section 19 of the Financial Reporting Act 1993 (FRA) to file a company’s audited financial statements with the Companies Office is an offence. Prosecutions under section 39 and infringement notices under section 41B(1) of the FRA have been rare. Generally the Registrar of Companies sends letters to non-compliant companies and their directors. We have seen a trend towards the Companies Office becoming more proactive in this area.
Companies which are required to file financial statements under section 19 FRA, but fail to do so, expose their directors to a fine not exceeding $100,000 on summary conviction. As an alternative to proceeding down this path the Registrar can issue an infringement notice to each director requiring payment of an infringement fee of $7000. This does not of course alleviate the requirement to file the financial statements. There are also penalty regimes for other failures to comply with other provisions of the FRA.
If the proposed changes are made to the Companies Act, the registrar will also be able to strike a company of the register for breaches of the FRA.
This makes a structured compliance programme (e.g. completing annual returns, making necessary filings, such as financial statements, on time) even more important.
The Government has indicated that there may be further amendments to the Bill through a Supplementary Order Paper so some of the changes discussed above may change.
The Bill will come into force when it receives the Royal Assent. However, as noted above, there will be a six month lead time to enable existing companies to comply with the new requirements.
If you have any questions regarding the upcoming changes, or need advice, please contact the lawyers featured.
Our thanks to Barbara Lloyd for preparing this article.
We make every effort to ensure the accuracy of the information provided but it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change.