We comment on recent legislative developments and probable areas for reform in 2019.
The Companies Act 1993 is substantially unchanged since 2018, but small changes are on the way through the recently introduced Regulatory Systems (Economic Development) Amendment (No 2) Bill – which will introduce additional director disqualifications and allow more flexibility in the cut-off times for receipt of proxy appointments or postal votes.
The decision in the claim against the Mainzeal directors for breach of directors’ duties is significant. It is one of the largest and most complex cases on directors’ obligations in some while. The judgment has a number of controversial aspects, and is now under appeal. The High Court found that directors were liable for a substantial portion of the overall liquidation deficit sustained by creditors. It reached that conclusion based on a finding that the directors had allowed the company to adopt a "vulnerable trading approach", notwithstanding that the position of the company improved slightly during that period.
Commerce and Consumer Affairs Minister Kris Faafoi kicked off 2019 with the launch on 25 January of a discussion paper to review section 36 of the Commerce Act, which he considers has "tilted the playing field in favour of powerful firms".
The Government is proposing to align New Zealand with the new Australian legislation which prohibits companies with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition. This is intended to impose a stronger test than our current law.
The Commerce (Criminalisation of Cartels) Amendment Act 2019, introduced in February last year, was recently enacted and commences on 8 April 2021. Criminal sanctions were dropped from the reform mix by the previous National Government but revived by Faafoi.
Faafoi’s reformist instinct is also at play in the new power given to the Commerce Commission to initiate, or conduct at the Government’s initiation, market studies in the public interest. First cab off the rank is the inquiry into retail fuel.
The Insolvency Practitioners Bill is in the last metres of the home straight and is expected to be passed in the first half of this year.
It was reported back from select committee on 20 December 2018 and is now in its finished form, having absorbed amendments proposed by the Labour-led Government to create a co-regulatory licensing regime, improve the list of automatic practitioner disqualifications and provide the High Court with an effective means to disqualify practitioners.
The Bill was first introduced in April 2010 and has been substantially amended during its passage through the House – first to pick up the recommendations of the Insolvency Working Group and subsequently through a Supplementary Order paper from Minister Kris Faafoi.
Chapman Tripp partner Michael Arthur is a member of the Insolvency Working Group.
Overseas investment law
The Government has now completed phase one of its reforms to the overseas investment regime, legislating to restrict foreign investment in the residential property market and change the rules relating to forestry rights and other regulated profits à prendre.
On the agenda for this year is a deeper and wider review, the Terms of Reference for which were released by the Treasury last year. The Government’s objectives are that any changes will improve predictability and transparency around the application process and decision-making while ensuring that decision-makers have discretion to decline investments that would not be beneficial to New Zealand.
This could be an opportunity to streamline the screening system so that it achieves its purpose without creating unnecessary bureaucracy or unintended consequences. But that will require political courage and legislative clarity, so is far from guaranteed. Consultations are scheduled to begin in the first half of this year.
The recently introduced Regulatory Systems (Economic Development) Amendment (No 2) Bill would give effect to the Takeovers Panel’s recommendation to narrow the application of the Takeovers Code to listed companies, and to unlisted companies which are "at least medium-sized" – defined as having consolidated assets of at least $30m or at least $15m annual revenue.
The ‘top up’ relief and sell-down requirements under the Takeovers Code class exemptions for inadvertent or consequential changes arising in the holding or control of voting rights has been extended by amendment to the Takeovers Code (Class Exemptions) Notice (No 2) 2001 from six months to allow 12 months to enable the pre change holding or control of voting rights to be restored. The changes were strongly supported by Chapman Tripp and should facilitate longer term share buyback programmes and reduce compliance cost.
Financial markets law
The Financial Markets Conduct Act 2013 (FMCA), perhaps reflecting the careful process followed in its development, has been little changed since it was enacted but will, if passed, be amended through the recently introduced Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill to introduce a licensing regime for administrators of financial benchmarks.
Although the legislative flexibility in the FMCA has reduced the need for class exemptions compared to previous law, recent exemptions of note include the Financial Markets Conduct (Product Disclosure Statements in Te Reo Māori and English) Exemption Notice 2018 which facilitates use of Te Reo in product disclosure statements, and the Financial Markets Conduct (Same Class Offers ASX/NZX-Quoted Financial Products) Exemption Notice 2018 which enables ASX listed issuers also listed on NZX as an NZX Foreign Exempt Issuer to use the FMCA "same class" offer regime. Chapman Tripp submitted to the Financial Markets Authority in support of both exemptions.
The Court of Appeal recently overturned a High Court decision which had restricted the Financial Market Authority’s power to disclose information obtained under its compulsory powers to investors in certain circumstances.
These proceedings provide an important clarification of the law, especially as the regulatory agencies have been more actively using their investigation and enforcement toolbox after criticism from the Hayne Australian financial services Royal Commission.
Financial services law
The Financial Services Legislation Amendment Act 2019 was enacted in early April, and will commence by order in council – the intended timeframes are available on the MBIE FAA Review website. Key changes include: requiring a licence to give regulated financial advice to retail clients, and removing the distinctions between types of financial product and between personalised and class advice. The Bill also imposes additional duties and more strenuous conduct, education and disclosure requirements.
Attention has now pivoted to the draft Code of Professional Conduct for Financial Advice Services which will inform how the new Act is applied. Chapman Tripp has submitted on this, suggesting some important modifications to make the Code more workable in practice.
In the meantime, the Financial Markets Authority has granted the first exemptions to facilitate ‘robo-advice’ in the Financial Advisers (Personalised Digital Advice) Exemption Notice 2018.
The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime was expanded at 1 January this year to cover real estate agents. Lawyers, conveyancers and some trust and company services were brought in on 1 July last year, and accountants and bookkeepers on 1 October.
High value goods dealers must comply by 1 August 2019.
23 April 2019