New Zealand’s Long Overdue Corporate Law Reform

Recently announced reforms intended to modernize New Zealand’s corporate law will be a welcome (yet long overdue) development for those United States corporates with existing investments in New Zealand companies or considering an acquisition involving a New Zealand business. New Zealand’s current corpo­rate laws were first introduced over thirty years ago and have been subject to limited review and reform since then. A second phase of reform is expected to address concerns relating to personal liability of direc­tors following recent New Zealand court decisions. In this briefing, we summarize a few of the key aspects of the proposed changes.

Processes for capital structure changes to be modernized

Changes to the capital structure of a company can sometimes be considered a “major transaction”, with such transactions requiring approval by the sharehold­ers of the company. In general terms, “major transac­tions” are those involving assets or obligations which are greater in value than half of a company’s existing assets. The broad scope of this requirement has left some uncertainty in the existing law. To address this, it is proposed that:

capital structure events such as share issues, dividends and share buy-backs would be excluded from being a “major transaction”; and

smaller transactions, that would not each necessar­ily be a major transaction on their own, would be a “major transaction” if they form part of a related series of transactions.

In addition, simplified corporate procedures which al­low for unanimous shareholder approval of certain ac­tions are set to be reformed by extending the scope to capture actions such as issues of options and convert­ible securities, crediting unpaid share capital, and ac­quisition of shares to be held as treasury stock. These are welcome changes that can be expected to stream­line the process for changing the capital structure of a New Zealand company, particularly where the com­pany is a wholly-owned subsidiary of United States corporates.

Addressing privacy concerns relating to personal information of directors and shareholders

Directors and shareholders have long raised privacy and safety concerns harbored by the requirement un­der the current legislation to display their residential address on the publicly available New Zealand Com­panies Register. In response to this concern, unique identifier numbers will be introduced for directors and shareholders. Each unique identifier number will be linked to an address for service for each director and shareholder (as applicable) and will allow for the resi­dential address for directors to no longer be visible on the register.

For shareholder notices (which in some cases are cur­rently required to be physically posted to sharehold­ers), a ‘notice of access’ regime is proposed, that would allow companies to notify shareholders and creditors on a website where important information can be ob­tained, rather than sending this information to each in­dividual shareholder and creditor as and when appli­cable. The notice of access regime is intended to align with similar regimes already used in Australia and the United Kingdom.

Further reform to focus on personal liability of directors

A second phase of reform is expected to commence in early 2025 and will involve a review by the Law Com­mission of directors’ duties and related issues of direc­tor liability, sanctions and enforcement. This review will be a welcome development for New Zealand directors (including United States persons that are directors of New Zealand subsidiaries) who have voiced concerns following recent court decisions that have imposed significant personal liability on directors. Two particular recent court judgments have attracted significant at­tention and commentary. In the first of those, the New Zealand Supreme Court awarded significant damages against directors personally in relation to a company that continued trading while balance sheet insolvent.

The second judgment, while in the context of a health and safety prosecution of the former CEO of Ports of Auckland, is relevant as it was held that compliance with the due diligence duty by directors is not achieved through simply relying upon personnel with specific health and safety duties. The outcome in that prosecu­tion is significant as it is the first time that an officer of a large New Zealand company has been charged and found personally guilty of health and safety offences. At the time of writing, it is not known whether that de­cision will be appealed.

Next steps for reform and other related reforms

A Bill introducing the first phase of corporate law re­forms is expected to be introduced in the New Zealand Parliament in early 2025. Since announcing the corpo­rate law reforms, the Commerce and Consumer Affairs Minister has also announced an ambitious and wide-ranging review of New Zealand’s anti-trust law regime, and indicated that he also intends to announce a re­view of New Zealand’s consumer law. These reforms, if implemented, would collectively represent the most significant changes to New Zealand’s business law in decades.