The government is launching a review of the Companies Act 1993. While the Act has been a robust and effective framework, I agree that it is time to modernise and clarify key areas.
The Act’s Current Strengths
The Companies Act 1993 has served New Zealand businesses well for decades, proving to be both functional and resilient. It is typically held in high regard offshore also.
However, a review is welcome—provided it involves thorough consultation with practitioners and a clear focus on enhancing its strengths.
We should avoid change for change’s sake and also be careful to ensure the Act remains true to its ‘timeless’ nature by avoiding ‘political’ amendments and leaving scope for the regulation of Companies to evolve with time within a clear framework.
Key Areas for Improvement
Government has announced some high level items for review: major transactions (strange to me), identity updates for directors/shareholders, an overhaul of insolvency provisions, and ‘digitisation’.
Here are my key opportunities for improvement:
- Modernizing Company Law Mechanics The “mechanics” of companies law need updating. For instance, did you know that only directors in New Zealand must receive notice of a meeting? This outdated requirement needs to be scrapped. Updating how “notice” is given can streamline operations, taking cues from modern commercial contracts.
- Clarifying the Law Some concepts in the Act are too high-level, leading to inefficiencies. Take contracting—who needs to sign for a company, and when? Or constitutions—what can they modify in the Act? Australia’s Corporations Act provides clear guidelines here, and it’s time we follow suit. After 30 years of precedent, we can afford to make these areas more transparent.
- Regulating Related Party Transactions My view is that the biggest flaw of our Companies legislation lies in the minimal regulation of related party transactions and the complication of unpicking them. There should be a clear and comprehensive regime regulating the entry into, and lawful execution of, related party transactions. A failure to comply should attract clear and serious consequences for both directors and other key participants. There is an opportunity to provide directors more comfort that arm’s length dealings on commercial terms will not attract liability if they go wrong – but create more cause for caution and hesitation when dealing with related parties.
Conclusion
The Companies Act 1993 is due for a refresh, but any changes must be deliberate and informed. By addressing the areas above, we can ensure that New Zealand’s company law remains both practical and progressive in the years ahead.