Commerce Minister wants to update the Companies Act: What needs changing?

Wednesday, 14 February 2024

ANALYSIS: The Companies Act is the foundation on which the economy is built, but it’s now 30 years old and could be improved, says Commerce and Consumer Affairs Minister Andrew Bayly.

“It provides the operating framework for all New Zealand companies, including those in the financial services sector. It has been an important part of the corporate landscape of New Zealand for decades,” Bayly said.

“But it’s now 30 years old. I think aspects of it are out of date and could be improved.”

Bayly is being coy about just what he’s thinking, saying it will be an “important longer-term project“, promising to reveal more at a later date, but directors, academics and the Supreme Court have some ideas for him.

Director privacy

The Institute of Directors has been pushing for directors to be allowed to keep their home addresses off the Companies Office Register.

That topped the list of personal concerns for directors in the institute’s recent survey ‒ supported by 44% of directors, and 61% of directors on high-profile NZX-listed companies.

Guy Beatson, general manager of the Institute of Directors’ Governance Leadership Centre, frequently hears of problems faced by directors about their home safety in an age where activism is becoming more assertive, and intrusive.

“We get some indication of some problem every week,” Beatson says.

The institute believes the issue could be preventing some people from putting themselves forward to being directors on companies and even charitable trusts.

Director identification numbers

Australia has introduced director identification numbers. New Zealand has not.

They have a number of benefits, including making it easier for people to understand just what directors are up to, and reducing fraud and dodgy dealings.

The Australian Government identified in September 2017 that ID numbers were a way of preventing businesspeople, both local and foreign, from using tactics such as multiple aliases, or different spellings of their names, to obscure the full extent of their business dealings.

In 2016, the Ministry of Business, Innovation and Employment (MBIE) concluded director IDs were a good idea for similar reasons, but we still don’t have them.

The Mainzeal question

Directors of Mainzeal, including former prime minister Dame Jenny Shipley, were sued by liquidators for reckless trading, and lost.

While the case, which was fought all the way to the Supeme Court Te Kōti Mana Nui o Aotearoa, helped set the understanding of directors’ duties, it also raised some controversy.

Some people now think the government should have a look at directors’ liabilities to creditors of companies. The Supreme Court judges on the case noted that in 1993 the Law Commission expressed a strong policy preference against providing for duties to be owed directly by directors to the creditors of a company.

Beatson said: “Some of the legal firms have been talking about there being potential for directors to be gone after by creditors on a singular basis.”

The purpose of a company

It is the duty of directors to act in good faith and in best interests of the company, however, a “woke capitalism” tweak to the law said that need not mean always focusing on the maximisation of profit.

That was supposed to mean that company directors should not fear being sued by taking into account other things like their impact on the climate, or society.

The Companies Act had worked quite well for the creation of economic and social value, said Susan Watson, professor of corporate law in the Faculty of Law and Faculty of Business and Economics at the University of Auckland Waipapa Taumata Rau.

It was a clear, principles-based act that worked for one-person companies up to Fletcher Building, she said.

But some were asking here, and overseas, whether it was time to reassess what the purpose of incorporation in 2024 really should be, said Watson.

“Society is now starting to think that a forestry company can’t go into Tairāwhiti, harvest trees and leave behind the slash. There should be some responsibility for the impact the company had on the world,” Watson said.

It’s traditionally dealt with through regulation, but there’s a problem that regulation often comes after the damage has already been done.

“Why should they have this free pass to cause this harm? Are companies to be incorporated just for making money for shareholders, or do we put other duties on them?” asked Watson.

Beatson said: “The maintenance of legislation over a 30-year period is really important. After 30 years, if you have got a regulatory stewardship approach, you would expect these core pieces of legislation to get a pretty thorough going over.”

Too easy to open a company

Bayly has spoken about easing the administrative burden on business owners, but there may also be a question worth asking about whether it is too easy to open a company.

New Zealand has a reputation for being an easy place to do business, and ranks second in the World Bank’s global ranking, however, at a conference in Germany recently, the organiser was bemused that it was so easy to open a company in New Zealand.

“The organiser asked me, are you ashamed to come from NZ because we just give away the privilege of incorporation for $10?”

In a world in which when companies fail you see unsecured trade creditors losing out, perhaps there was a conversation to be had about limiting the use of limited liability companies.