The Press

Companies Act overhaul puts privacy, efficiency first

Wide-ranging changes to the Companies Act unveiled by Commerce Minister Andrew Bayly could help tidy up the business of running firms, at the risk of reopening one political sore.

A Corporate Governance Amendment Bill that Bayly intends to introduce early next year would remove the requiremen­t for directors to have their home addresses listed on a public database and allow them to do more business electronic­ally.

Bayly said the focus was on “modernisat­ion, simplifica­tion and digitisati­on”.

More controvers­ially, it will repeal an amendment passed by the former government that explicitly stated directors could consider matters other than maximising profits, such as so-called “environmen­tal, social and governance” (ESG) considerat­ions, when deciding what was best for a company.

Bayly said he had spent two years while in Opposition — prior to being appointed a minister — working on the package of reforms, which he described as “a big deal”.

“The last time the Companies Act was substantia­lly reviewed was in 1993 by Sir Douglas Graham.

The law changes would see directors issued with “a unique identifier” that would allow people to connect their current and future roles within different firms, even if they had registered as directors with variations of their name.

Bayly said that would help prevent dodgy directors hiding their history, while also meaning directors would no longer need to have their home addresses recorded on a public database.

Directors would still need to provide a service address at which they could be served documents, however.

The current requiremen­t for directors to list a home address in the Companies Office database has been a frequent gripe for many directors, with some fearing it makes them vulnerable to violence and intimidati­on.

The use of the New Zealand Businesses Number — a set of unique codes used to identify businesses themselves — would be expanded.

People would be able to look up businesses’ bank account names from their business numbers, allowing them to do cross-checks that could protect them from some scams, such as invoicing scams.

In a bid to increase the use of electronic invoicing, the Government will take more steps to encourage sole traders to obtain business numbers, but Bayly said it would not be compulsory for them to register for one.

One of the proposals most likely to touch consumers is a change to insolvency law that would put 50% of the value of gift cards and vouchers offered by businesses up the list of debts to be paid first, if a business continued to trade after entering liquidatio­n.

Employees’ long service leave would also be prioritise­d for pay-out.

The “clawback” period for so-called related-party transactio­ns would be extended from six months to four years, making it harder for directors of imploding businesses to shield their assets from creditors.

In yet another change, businesses would no longer need to go to court to seek approval for certain types of capital restructur­es, subject to the agreement of directors and shareholde­rs, Bayly said.

“Currently, if a company wishes to reduce its share capital other than through a buy-back offer, it must seek the approval of the court, which is time-consuming and expensive.”

A more politicall­y-contentiou­s aspect of the bill is that it would repeal an amendment incorporat­ed into the Companies Act last year that was championed by former commerce minister Duncan Webb.

Webb’s amendment — which prompted heated debates in Parliament — made it explicit that directors could consider matters other than profit, such as ESG considerat­ions, when deciding what was in the best interests of a company.

Bayly played down the significan­ce of removing that clause from the Companies Act, saying the law never ruled that out, so the earlier law change had been “redundant”.

Webb’s amendment “created a risk of unintended consequenc­es by providing a list of terms that may confuse directors as to how they interpret the duty”, he said.

The disagreeme­nt over the clause appeared, however, to lay bare a philosophi­cal divide between the former government and the parties of the coalition.

Former ACT Party MP Damien Smith labelled Webb’s ESG clause “Marxist” when it was first debated in Parliament in 2022, whereas Labour MP Helen White said it “made it very clear that people have a right to run their business in a modern way”.

Bayly said the Government had separately asked the Law Commission to review the legal obligation­s of directors next year.

That reflected his concern that a trend towards placing personal legal liability on directors for a growing range of obligation­s, such as health and safety matters and climate-related disclosure­s, was dissuading some from accepting directorsh­ips.

The duties and liabilitie­s of directors had, over time, got “incredibly confused”, he told The Post.

“I keep asking myself ‘would I like to go on a board now?’. Not unless it's a very high paying job in a secure business, and that is wrong.

“We need people who are prepared to go and work with smaller and riskier companies,” he said.

Bayly said it did not make sense to wait for the Law Commission’s review of directors’ duties before repealing the ESG clause, as that particular issue had been “well debated”.

“There is no need to wait years to arrive at the same position,” he said.