Last year Commerce Minister Hon Simon Power announced that the Government would be introducing a bill to Parliament to tighten requirements around company registration and company directors to assist protect New Zealand's company registration process against criminal activity from overseas jurisdictions. Further information on what is likely to be included in this bill has been made available with the release last month of a Cabinet Paper which outlines the Minister's recommendations for amending the Companies Act 1993.
Over the past five years, New Zealand agencies have been advised of cases of serious offending in overseas jurisdictions involving around 150 New Zealand registered companies. Further, the Reserve Bank of New Zealand has identified around 1000 New Zealand registered companies and limited partnerships potentially involved in financial frauds in overseas jurisdictions. The paper indicates that there are four broad groups of proposals that could be implemented relatively quickly to address this misuse of the current incorporation process in New Zealand. These are:
- New Zealand resident director or resident local agent
requiring all New Zealand companies to have either one New Zealand resident director or a resident local agent (which would make it easier to confirm the bona fides of those behind a company);
- Director date and place of birth information
requiring directors to supply date and place of birth information (to improve the ability of the Registrar of Companies to ensure that he is dealing with the correct individual);
- Mandatory IRD numbers
requiring all companies to apply for an IRD number as part of their registration application process (to provide a disincentive to those seeking to take advantage of New Zealand's international standing, but which do not intend to carry out lawful business in New Zealand); and
- Enhanced powers for the Registrar of Companies
providing the Registrar of Companies expanded powers to enable him to undertake effective investigation and consequent administrative action, including allowing the Registrar to:
- require companies, directors, shareholders and/or local agents to confirm or correct existing information on the Companies Register;
- 'flag' companies which are under investigation;
- remove a company from the Companies Register in certain circumstances;
- remove a director from a company if that person is disqualified under the Companies Act;
- extend the criteria for the imposition of management banning orders to include persistent non-compliance with the filing and reporting obligations of the Companies Act and the Financial Reporting Act or where they have provided inaccurate information to the Registrar; and
- to the extent necessary, extend the Registrar's investigation powers to matters where a company or its directors have not complied with the disclosure requirements of the Companies Act.
Exemptions for New Zealand resident director
The proposal to require all New Zealand companies to have at least one resident director is consistent with the approach taken in Australia and other comparable jurisdictions. The paper indicates if this proposal was introduced there would be certain exemptions, particularly for Australian-owned New Zealand companies and potentially for jurisdictions where there are reciprocal information sharing arrangements.
However, there is a small risk that the proposal to require a New Zealand-resident director and to exempt "approved jurisdictions" from that requirement will be challenged as being inconsistent with New Zealand's obligations under international trade agreements.
Issues with resident local agent requirement
The paper suggests that there may be some difficulties introducing the local agent proposal as it is a new concept to New Zealand law. In particular, the Minister notes that the rights and obligations on a local agent (who would be a natural person) would need to be carefully considered to ensure that they are confined to being administrative in nature and not so onerous as to constitute de facto directors' duties. It is envisaged that the local agent would be required to accept service of legal proceedings and ensure that the company meets its disclosure and maintenance of records obligations under the Companies Act. They would be liable for any penalties imposed on the company for any breach by the company of the Companies Office filing requirements under the Act.
The Minister is also recommending that similar provisions be introduced for limited partnerships under the Limited Partnerships Act 2008, although the paper notes that more work needs to be done to identify the necessary adjustments to the proposed Companies Act amendments.
Timeline for changes
There has been no official announcement on when these proposed changes will be introduced, but we understand that Cabinet has agreed to a number of the Minister's proposals and that an amendment bill is currently in the drafting stage.