Companies and Limited Partnerships Amendment Bill

  • not the latest version

Explanatory note

General policy statement

This Bill requires a New Zealand-resident administrative agent for companies and limited partnerships. It also enhances the Registrar's powers to regulate companies and limited partnerships. The Bill also creates new rules about the reconstruction of code companies under the Companies Act 1993. Finally, the breaches of certain directors' duties in that Act are criminalised. These policies aim to increase confidence in New Zealand's financial markets and in New Zealand's regulation of corporate forms, and to ensure New Zealand remains a trusted place to do business.

Resident agents

The resident agent changes seek to ensure that for each company and limited partnership, there is at least 1 person who lives in New Zealand who is legally responsible for the entity's administrative affairs. That person is not a de facto manager. However, he or she will have responsibility (along with the other relevant people) if the entity fails to comply with its reporting and record-keeping obligations.

The resident agent amendments to the Limited Partnerships Act 2008 (made in subpart 1 of Part 2) are of a similar nature to the amendments to the Companies Act 1993 (made in subpart 2 of Part 1). In other words, the resident agent concept is being applied to both limited partnerships and companies in exactly the same way.

Enhanced powers of Registrar

The changes to enhance the Registrar's powers will allow the Registrar to take effective action where there are concerns that a company or limited partnership is not being used for legitimate business reasons. This is achieved by giving the Registrar enhanced investigative and removal powers, along with the power to warn the public about suspect entities by a note in the register.

Again, the amendments to the Limited Partnerships Act 2008 (made in subpart 2 of Part 2) are of a similar nature to the amendments to the Companies Act 1993 (made in subpart 4 of Part 1).

It is intended that this Bill be divided into 2 separate Bills at the committee of the whole House stage, namely a Companies Amendment Bill and a Limited Partnerships Amendment Bill.

Arrangements, amalgamations, and compromises of code companies

These changes aim to ensure that shareholders of companies that fall under the takeovers code (code companies) will not be disadvantaged if a change to the company is effected under the Companies Act 1993 rather than under the takeovers code. This aim is achieved by prohibiting code companies from using long-form amalgamations under Part 13 of the Companies Act 1993, as well as by providing more rigorous voting thresholds and additional judicial oversight for court-approved schemes of arrangement, amalgamation, or compromise under Part 15 of that Act. The changes also provide a mechanism for the scheme promoter to seek a preliminary no objection statement from the Takeovers Panel, which may assist the court to decide whether to approve the scheme.

Criminalisation of breaches of certain directors' duties

There is an additional change to the Companies Act 1993 that is not relevant to the Limited Partnerships Act 2008. This is to criminalise the breach of certain directors' duties.

Regulatory impact statement

The Ministry of Economic Development produced regulatory impact statements to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

Copies of these regulatory impact statements can be found at—

Clause by clause analysis

Part 1
Amendments to Companies Act 1993

Subpart 1Criminalisation of breaches of certain directors' duties

Part 1 of the Bill amends the Companies Act 1993 (called the principal Act in this Part). Subpart 1 of Part 1 amends the principal Act to criminalise serious breaches of 2 duties of directors.

Clause 4 inserts new section 138A into the principal Act. New section 138A provides for offences in relation to serious breaches of—

  • the duty provided for in section 131 of the principal Act (the duty of directors to act in good faith and in the best interests of the company); and

  • the duty provided for in section 135 of the principal Act (the duty of directors not to agree to, or cause or allow, company business to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors).

This means that a director who breaches the duty in section 131 of the principal Act commits an offence if he or she knows that the breach is seriously detrimental to the interests of the company. And a director who breaches the duty in section 135 of the principal Act commits an offence if he or she knows that the breach will result in serious loss to the company's creditors. The penalty for both offences is provided for in the consequential amendment to section 373(4) of the principal Act (as set out in Schedule 2). The penalty is imprisonment for a term not exceeding 5 years or a fine not exceeding $200,000.

Subpart 2Resident agents

Subpart 2 provides that New Zealand registered companies must have a resident agent if they do not have a director who lives in New Zealand or in an enforcement country. (An enforcement country is one that can enforce New Zealand judgments imposing regulatory regime criminal fines, which include those arising under the principal Act. Such countries will be named in regulations when relevant agreements with the Registrar are in place.)

Clause 5 amends the interpretation section of the principal Act, inserting definitions of officer, resident agent, and enforcement country.

Clause 6 amends section 10 of the principal Act, which is about the essential requirements of a company. The amendment requires a company to have a director who lives in New Zealand or in an enforcement country—if the company does not, it must have a resident agent.

Clause 7 amends the meaning of director in section 126 of the principal Act. The amendment means that a person who acts only as a resident agent is not a deemed director. This is because the resident agent's role is administrative, rather than that of a manager. The role includes monitoring the compliance of the company and directors with their statutory obligations.

Clause 8 inserts provisions relating to resident agents into Part 10 of the principal Act. That Part relates to administration, which is appropriate given the nature of the resident agent's role.

New section 193B sets out the meaning of resident agent.

New section 193C provides that a company may not have more than 1 resident agent.

New section 193D provides for the qualifications of resident agents. Of particular note are the requirements that the resident agent must live in New Zealand, cannot be an auditor of the company, and must be a natural person. The qualifications otherwise reflect the qualifications for a director (set out in section 151 of the principal Act), which specify a person who has not been banned (in New Zealand or overseas) from being a director, general partner, resident agent, or promoter of a company or limited partnership and is not bankrupt.

New section 193E requires that a person must consent to being appointed a resident agent, and must also certify on appointment that he or she is not disqualified from being appointed or holding office as a resident agent.

New section 193F sets out the requirements for an application for registration of a company that needs to have a resident agent.

New section 193G clarifies the term of a resident agency.

New section 193H describes when the office of resident agent is vacated, and requires that the Registrar must be notified if so. The board of a company must notify the Registrar if the resident agent's office is vacated because a resident agent has died, and every director commits an offence if the board does not do so. The ex-resident agent must notify the Registrar if he or she is no longer required or has resigned, been removed from office, or become disqualified. It is an offence not to do so.

New section 193I sets out the requirements for appointing a resident agent after a company is registered. If the company fails to comply, not only is that an offence for the company and every director, but also the Registrar may remove the company from the register under new section 193K.

New section 193J provides that a board must notify the Registrar of any appointment of a resident agent after a company is registered. In addition, the board must notify changes in the resident agent's name, residential address, or business address. Every director commits an offence if the board fails to comply with these notification requirements.

New section 193K provides that if a company is required to appoint a resident agent but has not done so, the Registrar may insert a note of warning against the company's entry in the register and then may remove the company from the register.

New sections 193L, 193M, and 193N provide that a resident agent commits an offence if a director, the board, or the company fails to comply with certain requirements in the principal Act. The liability imposed on a resident agent does not limit or affect the liability of others. Defences are given so that if the resident agent proves that all reasonable and proper steps were taken to ensure a requirement would be complied with, the resident agent will not be liable. In addition, the resident agent is not liable for the correctness of the content of any document relevant to the requirements. This is in keeping with the resident agent's role as an administrative, not management, agent.

New section 193O provides that a resident agent has 2 of the same duties as a director has. The duties are those in section 145 (the duty not to disclose company information except for company purposes or as required by law) and in section 149 of the principal Act (the duty not to acquire or dispose of shares at other than fair value if there is inside information).

New section 193P provides that resident agents have a duty to notify the Registrar if, as described in section 154(1) of the principal Act, there are no directors or fewer than a quorum and it is not possible or practicable to appoint directors in accordance with the company's constitution. It is an offence not to so notify.

New section 193Q(1) requires directors and employees to provide the information to the resident agent that the resident agent thinks necessary for the performance of his or her functions. Not doing so is an offence: new section 193Q(2).

New section 193R provides that the resident agent is covered by the same rules about insurance and indemnity as is a company employee.

New section 193S sets out the extent of a resident agent's liability. Of note is the fact that a resident agent is not liable in respect of acts, omissions, and decisions of other people that occur within 3 months before the resident agent resigns. This is to provide an incentive for a resident agent to resign if he or she becomes aware of the non-compliance of others.

New section 193T is a transitional provision applying the new rules about resident agents to companies that are already registered. Such companies must appoint a resident agent within 6 months after the commencement of the new rules. If a company fails to comply, the Registrar may take the same steps as in new section 193I, namely, to remove the company from the register under new section 193K. A company that does not appoint a resident agent in accordance with this transitional provision commits an offence, as does every director.

Clauses 9 to 14 add resident agents into certain provisions of the principal Act. Section 261 is amended so that a liquidator can require a resident agent to deliver up company books, records, or documents in the resident agent's possession or control (clause 9). Section 274 is amended so that present or former resident agents are under a duty to identify and deliver company property to a liquidator (clause 10). Section 301 is amended to apply to past or present resident agents so that the court may order them to repay or restore company property or to compensate for it (clause 11). Section 377(2) is applied to resident agents, making them criminally liable if they make false or misleading statements or reports (clause 12). Section 378 is amended so that a resident agent is criminally liable if he or she fraudulently takes or applies company property or fraudulently conceals or destroys it (clause 13). Section 379 is amended to make a resident agent criminally liable who, with intent to defraud or deceive, falsifies company records (clause 14).

Clauses 15 and 16 amend sections 382 and 383 of the principal Act. Those sections are concerned with prohibiting people from managing companies and with disqualifying people from being directors. Both sections are amended so that resident agents who have been convicted of certain offences are also caught by the sections.

Clauses 17 to 21 add resident agents into the principal Act's provisions about serving documents on companies in legal proceedings and otherwise. The clauses also amend the principal Act to provide for the service of documents on directors and resident agents in legal proceedings and otherwise.

Clause 22 amends the regulation-making power in section 395 of the principal Act. The amendments enable regulations to be made prescribing enforcement countries, and also to recognise banning orders from foreign countries so that such orders disqualify a person from being a resident agent under new section 193D(2)(i) and (j).

Subpart 3Arrangements, amalgamations, and compromises of code companies

Clause 23 adds into the principal Act the definition of a code company set out in the Takeovers Act 1993. Code companies are companies that are listed on a stock exchange or that have 50 or more shareholders.

Clause 24 provides that a code company may not amalgamate under sections 220 and 221 of the principal Act. This amendment has the effect that code companies may not undertake under Part 13 of the principal Act what are known as long-form amalgamations. Short-form amalgamations are still permitted. Short-form amalgamations are amalgamations between subsidiary and parent under section 222 of the principal Act. Long-form amalgamations are amalgamations between unrelated companies.

Clause 25 inserts new sections 236A and 236B into the principal Act. New section 236A restricts the ability of a code company to apply to the High Court for approval of a scheme of arrangement, amalgamation, or compromise (scheme) under section 236(1). If a proposed scheme affects the voting rights of a code company, new section 236A(1) requires an applicant to notify the Takeovers Panel of the application. Under new section 236A(2), the court may not make an order under section 236(1) that affects the voting rights of the code company unless the code company's shareholders have approved it and either of the following applies:

  • the court is satisfied that the shareholders of the code company will not be adversely affected by the use of section 236(1) rather than the takeovers code to effect the change; or

  • the applicant has filed a statement of no objection from the Takeovers Panel.

New section 236A(3) provides that the court need not approve a proposed scheme merely because the Takeovers Panel has no objection to it.

New section 236A(4) sets out the manner in which the shareholders must provide approval and new section 236A(5) provides for relevant definitions.

New section 236B provides that the takeovers code does not apply where the court has made an order under section 236(1) that affects the voting rights of a code company.

Clause 26 consequentially amends the Takeovers Act 1993 to provide for the Takeover Panel's new function of considering whether to provide statements of no objection under new section 236A. The Takeovers (Fees) Regulations 2001 will be amended to enable the Takeovers Panel to charge a fee for this. Clause 26 also consequentially amends the Takeovers Act 1993 to the same effect as new section 236B.

Clause 27 is a transitional provision relating to the insertion of new section 236A into the principal Act.

Clause 28 adds new Schedule 10 to the principal Act. This sets out the principles that may be used to determine interest classes for the purpose of shareholder voting on a proposed scheme.

Subpart 4Enhanced powers of Registrar

Subpart 4 provides for enhancements to the Registrar's powers under the principal Act. The grounds on which the Registrar may remove a company from the register are expanded (in clauses 29 to 34).

Under new section 318(1)(b), the Registrar must remove the company from the register where the Registrar has reasonable grounds to believe that the company is not carrying on business and there is no proper reason for the company to continue in existence.

Under new section 318(1)(ba), the Registrar must remove the company from the register if the company has failed to respond to a requirement made under new section 365(1)(caa) (which enables the Registrar to require the confirmation or correction of information).

The Registrar is given 2 new grounds on which he or she has a discretion as to whether or not to remove the company from the register. The 2 new grounds are different from the other grounds in that the Registrar does not have to remove the company from the register if they apply. The 2 new grounds are if—

  • the Registrar has reasonable grounds to believe that the company, or 1 or more of its directors, officers, or shareholders, has intentionally provided the Registrar with inaccurate information (new section 318(1)(bb)); or

  • the Registrar has reasonable grounds to believe that the company, or 1 or more of its directors, officers, or shareholders, has failed to comply with duties relating to the company under the principal Act or the Financial Reporting Act 1993 in a persistent or serious way (new section 318(1)(bc)).

The Registrar is given a greater ability to rectify or correct registers by clause 35.

Clause 36 makes an amendment to section 362 of the principal Act that is consequential to the changes in new section 365(1)(caa).

Clause 37 amends section 365 of the principal Act to expand the Registrar's powers of inspection. As mentioned above, new section 365(1)(caa) gives the Registrar the ability to seek the correction or confirmation of information.

Clause 38 inserts new sections 366A to 366C into the principal Act. The new sections enable the Registrar to insert notes of warning in the register if certain grounds for removing the company from the register apply, or if information or documents relating to the company are subject to a request by the Registrar under section 365 for information or documents.

Clause 39 inserts a new section 385AA into the principal Act. This gives the Registrar or Financial Markets Authority an additional power to ban persons from being involved in the administration or management of companies. A person can be banned where he or she has been involved in the administration or management of a company that has been removed from the registrar on 1 of the new grounds provided for in new section 318(1)(ba), (bb), or (bc). The new power is otherwise similar to the existing power in section 385 of the principal Act.

Clauses 40 to 42 consequentially change sections 385A and 386 of the principal Act and Schedule 1 of the Summary Proceedings Act 1957 to take account of new section 385AA.

Clause 43 provides that the principal Act is consequentially amended in the manner indicated in Schedule 2.

Part 2
Amendments to Limited Partnerships Act 2008

Subpart 1Resident agents

Part 2 amends the Limited Partnerships Acts 2008 (the principal Act in this Part).

Subpart 1 of Part 2 makes amendments of the same nature as subpart 2 of Part 1 by providing that limited partnerships must have resident agents in the same circumstances as those in which companies must have resident agents. The only differences relate to the differences between a limited partnership and a company (and between general partners and directors). An example of catering for such differences is clause 46, which amends the essential requirements for a limited partnership found in section 8 of the principal Act. A general partner of a limited partnership may be seen as performing the same function as a director of a company. However, unlike a director, who must be a natural person, a general partner may be a partnership or a company or a natural person. The amendments in clause 46 to section 8 of the principal Act are therefore a little more complicated than the equivalent amendments to the Companies Act 1993. The amendments require a limited partnership to have a resident agent if the limited partnership does not have—

  • a general partner who is a natural person living in New Zealand or in an enforcement country; or

  • a general partner that is a partnership governed by the Partnership Act 1908 that has at least 1 partner who is a natural person living in New Zealand or in an enforcement country; or

  • a general partner that is a company registered on the New Zealand register under the Companies Act 1993. (Such a company will be required by the changes to the Companies Act 1993 made in subpart 2 of Part 1 either to have a director who is resident in New Zealand or an enforcement country or to have a resident agent.)

Clause 48 inserts qualification requirements into the principal Act that equate to the qualification requirements in the Companies Act 1993. Resident agents of limited partnerships should have the same qualifications as company resident agents. And it would be anomalous if such qualifications were more demanding than those for general partners. As there are currently no legislated qualifications for general partners, these are inserted by new sections 19A and 19B. General partners who are natural persons are covered by new section 19A(2). General partners that are partnerships governed by the Partnership Act 1908 are covered by new section 19B, which requires at least 1 partner of such a partnership to meet the qualifications set out in new section 19A(2).

Clause 49 amends section 48 of the principal Act to reflect the role of a resident agent, by making notice to a resident agent operate as notice to the limited partnership, except in the case of fraud by or with the consent of the resident agent.

Clause 50 inserts provisions relating to resident agents into the principal Act. These provisions are of a similar nature to the provisions inserted by clause 8 into the Companies Act 1993. The effect is as described above in relation to clause 8.

Clause 51 amends the provision in the principal Act about service of documents, section 73, to enable service on a resident agent.

Clause 52 amends the regulation-making power in section 116 of the principal Act. The main changes are—

  • to enable regulations to be made prescribing enforcement countries (new section 116(1)(ga)):

  • prescribing countries, States, or territories outside New Zealand for the purposes of the new qualifications for general partners in new section 19A(2)(g) and (h), so that people who are banned (in New Zealand or overseas) from being a director, general partner, promoter, or manager of a company in that overseas place are also banned from being a partner in New Zealand (new section 116(1)(gb) and (gc)):

  • prescribing countries, States, or territories outside New Zealand to the same effect in relation to the resident agent qualifications in new section 77C(2)(i) and (j) (new section 116(1)(gd) and (ge)).

Subpart 2Enhanced powers of Registrar

Subpart 2 of Part 2 makes amendments of a similar nature to those in subpart 4 of Part 1 by providing for enhanced powers for the Registrar of limited partnerships. Again, the only differences relate to the differences between the principal Act and the Companies Act 1993. For example, the principal Act does not have equivalent provisions to sections 382 to 385 of the Companies Act 1993. And so equivalent provisions are inserted into the principal Act by clause 58. (Sections 382 and 383 of the Companies Act 1993 were amended in subpart 4 of Part 1 to include resident agents, and therefore resident agents are also included in the equivalent provisions inserted into the principal Act.) An equivalent to new section 385AA of the Companies Act 1993 (inserted by clause 39) is also inserted into the principal Act.

The other changes made in subpart 2 of Part 2 enable the Registrar to rectify or correct the register and insert notes of warning in the same way as provided for in subpart 4 of Part 1 (see clauses 53 to 55). Clause 56 gives the Registrar enhanced powers of inspection along the same lines as in the amendments to the Companies Act 1993 made in subpart 4 of Part 1. Clause 57 inserts a new section 98A into the principal Act so that deregistration by the Registrar can follow along the same lines as provided for in the Companies Act 1993 (in subpart 4 of Part 1).

Clause 59 consequentially changes Schedule 1 of the Summary Proceedings Act 1957 to take account of new sections 103A, 103B, 103D, and 103E.

Clause 60 provides that the principal Act is consequentially amended in the manner indicated in Schedule 3.