New Bill Proposes Major Changes for Companies and Limited Partnerships

Companies and Limited Partnerships Amendment Bill amends the Companies Act 1993 and the Limited Partnerships Act 2008 so as to increase confidence in New Zealand’s financial markets and regulation of corporate forms.

The Bill has not yet been set down for its reading in Parliament.

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,  to criminalise the breach of certain directors’ duties.

December 5th, 2011