Companies and Limited Partnerships Amendment Bill

The Companies and Limited Partnerships Amendment Bill was introduced to Parliament on 13 October 2011.  The stated aim of the Bill is to increase confidence in New Zealand's financial markets and New Zealand's regulation of corporate forms, and to ensure New Zealand remains a trusted place to do business. 

The Bill does this by tightening the rules in four distinct areas:

• A requirement that all New Zealand incorporated companies and limited partnerships have a director or general partner resident in New Zealand or an "enforcement country", or a New Zealand "resident agent" responsible for their administrative affairs.

• Extension of the Registrar's investigatory powers and the circumstances in which companies and limited partnerships may be removed from the register.

• Restrictions on the ability of companies to circumvent the New Zealand takeovers code by using amalgamations, arrangements and compromises affected under the Companies Act 1993.

• The criminalisation of breaches of certain directors' duties. 

New Zealand Resident Agent

Previously the Government indicated that it was considering a requirement that every New Zealand registered company have a New Zealand resident director. This was in response to comment that overseas interests were exploiting New Zealand's straight forward company registration processes and using New Zealand companies for questionable activities overseas.

This has been softened to a requirement that every company incorporated in New Zealand have either:

• a director living in New Zealand;
• a director living in an "enforcement country";  or
• a New Zealand resident agent.

Similarly a New Zealand limited partnership must have a general partner who is:

• a natural person living in New Zealand;
• a natural person living in an "enforcement country"; 
• a New Zealand company; or
• a New Zealand resident agent. 

An "enforcement country" is a country where New Zealand's regulatory criminal fines will be enforced such as Australia.  A list of these countries will be included in the Regulations.  A resident agent must be a natural person who lives in New Zealand but may not be the company's auditor or a person prohibited from being a director or general partner. 

A resident agent's duties will not be the same as a director but they will share the responsibility for the company's record keeping and reporting obligations.  A resident agent will also be able to accept service of documents on behalf of the company.

The directors and employees of the entity will be required to provide the New Zealand resident agent with all the information the New Zealand resident agent needs to carry out their role.  If they do not they will be committing an offence.

Resident agents will be liable where the company or limited partnership fails to report or keep records as required.  Defences are available where the resident agent has taken all reasonable and proper steps to ensure compliance. In addition, the resident agent will not be liable for the content of any document required to be filed unless the resident agent has actual knowledge that the content was incorrect. 

Resident agents will be required for all new companies and limited partnerships incorporated 12 months after the enactment of the Bill.  Companies or limited partnerships incorporated before this date will have a further six months in which to comply.  Failure to comply may result in removal from the register. 

Enhanced Registrar Powers

The Bill will enhance a Registrar's investigative and de-registration powers.  In particular the Bill will allow the Registrar to take action where there are concerns that a company or limited partnership is not being used for legitimate business purposes. 

The Registrar will be required to remove a company or limited partnership where:

• it has reasonable grounds to believe that the company is not carrying on business and there is no proper reason for it to continue in existence;  or
• the company has failed to respond to a request from the Registrar to confirm the correctness of information provided to the Registrar. 

The Bill will also give the Registrar the power to remove a company or limited partnership where the Registrar has reasonable grounds to believe that the company (or its directors, officers or shareholders) or a limited partnership (or its officers or general partners) has:

• intentionally provided the Registrar with inaccurate information;  or
• failed to comply in a persistent or serious way, with their duties under the Companies Act or the Financial Reporting Act 1993 (companies) or the Limited Partnerships Act (limited partnerships). 

The Registrar will also have the power to flag the register to indicate companies or limited partnerships under investigation. 

Arrangements, Amalgamations and Compromises of Code Companies

Currently companies subject to the New Zealand takeovers code can use the Companies Act 1993 provisions relating to schemes of arrangements, amalgamations and compromises to effect merges, acquisitions and acquisitions with other companies avoiding the takeovers code. 

The Bill proposes that a code company may no longer amalgamate with unrelated companies without Court approval.  In addition there will be more vigorous voting thresholds and additional oversight for Court-approved schemes of arrangements, amalgamations or compromises and a procedure for the Court to seek a "no objection statement" from the takeovers panel. 

Criminalisation for Breaches of Certain Directors' Duties

Recent corporate collapses have highlighted the lack of penalties for serious breaches of directors duties.  The Bill proposes that a serious breach of:

• the duty to act in good faith and in the best interests of the company; and
• the duty not to agree to, or cause or allow, the company business to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors,

will be an offence. The penalty will be imprisonment for a term not exceeding five years or a fine not exceeding $200,000.

For further information – refer to: John Ferner, Brendan Meech or Bruce Costain.

PDF version

Our Commercial Services

Last updated:  November 2011

The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.