The Commerce Select Committee has ducked for cover on the criminalisation of directors’ duties in its report back yesterday on the Companies and Limited Partnerships Amendment Bill.

It has made only minor changes to provisions which have provoked strong opposition from governance and legal experts.  But it has held the door open to further amendments via Supplementary Order Paper.

Criminalisation of directors’ duties

The proposals in the Bill to criminalise reckless trading offences and breaches of the duty to act in good faith were opposed by Professor Peter Watts of the Faculty of Law at Auckland University, Professor Stephen Bainbridge of UCLA, the New Zealand Institute of Directors and all of the leading corporate law firms in New Zealand. 

And all for the same reason: because it is wrong in principle to use criminal sanctions to address fiduciary duties and to penalise after the event business decisions which necessarily involve an element of risk.

The Bill confines the criminalisation to conduct that the director knows is “seriously detrimental to the interests of the company” or knows will result in “serious loss to the company’s creditors”.  But that does not address the issue that imprisonment for commercial negligence is contrary to basic principles of criminal justice - especially as our criminal law framework can already hold directors to account for egregious misconduct.

The committee has not conceded this point.  It has, however, said that it:

would support further consideration of the drafting of these new offences to ensure that the provisions are expressed in a way that provides clear guidance to directors and does not have a chilling effect on legitimate business risk-taking”.   

Chapman Tripp comments

Chapman Tripp’s understanding is that the committee’s mind is indeed open on this issue.  We welcome that and look forward to working with officials in the New Year to develop a solution which achieves the Government’s policy ambitions without discouraging the entrepreneurial impulse which is so vital to a free market economy.   

You can read Chapman Tripp’s submission on this section of the Bill here and our earlier commentary here.   


The Bill has been given more teeth by removing the option of having an agent resident in New Zealand instead of a director and by requiring that the date and place of birth of resident directors be collected at registration and kept up to date along with details of any ultimate holding company.

However, per our submission, we still consider the requirement to appoint New Zealand directors will be an unnecessary inconvenience to a number of bona fide subsidiaries of offshore holding companies that prefer their offshore resident directors to be directors of all subsidiaries.

Amalgamations and arrangements of code companies

Helpfully for companies seeking to pursue schemes of arrangement, the committee has recommended changes to the Bill that would result in a party that agrees in advance to support a scheme of arrangement not necessarily constituting a separate class for voting approval purposes. 

This was a change that we argued for in our submission, and which we consider should eliminate a potentially major hurdle to scheme approvals which was posed by the original drafting of the Bill. 

Strangely, the Committee has rejected submissions that the Bill clarify that pro rata share cancellations, that do not affect control, should not need approval by more than 50% of total voting rights.