Parliament, on the 24th June 2014, passed into law long awaited changes to the Company Law and the law governing Limited Partnerships. The Companies Amendment Act (No 4) 2014 and Limited Partnerships Amendment Act (No 2) 2014 strengthen the rules applying to the governance, registration and reconstruction of companies and the registration of limited partnerships. These two pieces of legislation are aimed at ensuring New Zealand has a robust regime and lifts international confidence around conducting Business within our shores.

Just to jog your memories, the reason for the new laws was due to the revelation back in 2010 that a New Zealand registered company, SP Trading, had leased a plane and was attempting to smuggle guns and explosives from North Korea through to Iran but was intercepted in Bangkok. Understandably New Zealand’s reputation took a hammering from this story’s widespread media attention and that subsequently it was found that there was a widespread use of New Zealand shell companies for illegal activities. The bulk of these shell companies had foreign based directors in jurisdictions where New Zealand did not have reciprocal arrangements for the enforcement of criminal activities. The Legislation to stop this practice was introduced way back in October 2011!

These Acts will have an impact on every New Zealand registered Company and Limited Partnership, so what does this all mean for you?

We have listed some of the key changes introduced by the new acts below:
Governance
The Companies amendment act (No 4) 2014 has created two new criminal offences for serious misconduct of a Director.
It will be an offence for a director:
• To act in bad faith and not in the best interests of the company and knows that this will cause serious loss to the company. This is a new standalone offence under section 138A of the Companies Act.
• To dishonestly incur debt for the company when the company is insolvent, or the director knew the company would become insolvent. This offence is incorporated in an existing provision of carrying on business fraudulently under section 380 of the Companies Act.

A director who is convicted of one of these offences is liable to a fine not exceeding $200,000 or imprisonment not exceeding 5 years.

These offences will come into force one day after the Act receives Royal Assent.

Registration
• Changes to Residency requirements for enforcement purposes.

    Companies

Every New Zealand incorporated company is to have either:
• A director who lives in New Zealand, or
• A director who lives in and is a director of a company in a prescribed enforcement country.

    Limited Partnerships

All limited partnerships is to have at least one or more of the following:
• A general partner who lives in New Zealand, or
• A general partner who lives in and is a director of a company that is registered in a prescribed enforcement country, or
• A general partner that is a limited partnership which at least one general partner who is a natural persona living in New Zealand or who lives in a prescribed enforcement country and is a director of a company that is registered in that country, or
• A general partner that is a partnership governed by the partnership act 1908 that has at least one partner who is a natural person living in New Zealand or who lives in a prescribed enforcement country and is a director of a company that is registered in that country, or
• A general partner that is a registered New Zealand company, or
• A general partner that is an overseas company registered under the Companies Act 1993 and that has at least one director living in New Zealand or who lives in a prescribed enforcement country and is a director of a company that is registered in that country.

An enforcement country is one that can enforce New Zealand judgements imposing regulatory regime criminal fines, which include those arising under the principal Act. Although at present there has been no indication on which countries will be prescribed as an ‘enforcement country’ Australia has been used as an example due to the reciprocal arrangements in place with New Zealand for the enforcement of low-level criminal fines.

Enforcement countries will be named in regulations when relevant agreements with the Registrar are in place.

If a Company or Limited Partnership does rely on the Enforcement Provision they will be required to include yet to be prescribed information in its annual return for the company or companies in the enforcement country of which the director is a director.

The timing of these changes coming in force will be:
o Companies and Limited Partnerships will have 365 days from the date the Bill receives royal assent (unless the requirement is brought into effect earlier by an Order in Council).
o Existing Companies and Limited Partnerships will have a further 180 days to comply with this requirement.

• Registration – Changes to Information requirements

    Companies

All directors will be required to provide to the Registrar of Companies at the time of:
• Company Registration
• Any Change to their directorship
• On the registration of an Amalgamation Proposal

Their
• Full Name
• Date and place of Birth
• Residential Address

    Limited Partnerships

For every general partner that is:
• a natural person, or
• a general partner’s director, partner or general partner who is a natural person

to provide to the Registrar of Companies their:
• Full Name
• Date and place of Birth
• Residential Address

For every general partner that are not natural persons their:
• Name
• Address

This information allows the Registrar to ensure they are dealing with the correct individual. The information around the date and place of birth will not be made public and will not be able to be obtained through the use of the Official Information Act.

The timing of these changes coming in force will be:
o Companies and Limited Partnerships will have 365 days from the date the Bill receives royal assent (unless the requirement is brought into effect earlier by an Order in Council).
o Existing Companies and Limited Partnerships that are listed on the register at the time the act comes into force will need to have this information provided to the Registrar at a time and manner specified by the Registrar.

New Qualification requirements for General Partners

The bill addresses the present lack of legislated qualifications for general partners. Now all natural persons who are general partners, or who are directors, partners, or general partners of a general partner will need to be qualified under the new provisions under a new section 19A of the Limited Partnership Act 2008 similar to those set out in the Companies Act. Essentially this means that these persons are required to not be minors or to have various criminal convictions.

This requirement will come in force on a date appointed by order in council.

Disclosure Requirements of Ultimate Holding Company

There is now a requirement that the name of a company’s ultimate holding company is disclosed to the Registrar of Companies at the time of registration and this information is kept up to date and any changes notified within 20 working days.

The Information to be provided, which will be publically available through the company’s records, is as follows:
o Country of Registration
o Registration number or code
o Registered Office

We do note that the disclosure requirement of a company’s ultimate holding company could be difficult practically as often New Zealand subsidiaries sit at the bottom of long chains of companies and may not be aware of changes further up the structure.

The timing of these changes coming in force will be:
o Companies will have 365 days from the date the Bill receives royal assent (unless the requirement is brought into effect earlier by an Order in Council).
o Existing Companies that are listed on the register at the time the act comes into force will need to have this information provided to the Registrar at a time and manner specified by the Registrar.

Registrar’s Powers to be enhanced

The Acts will provide the Registrar of Companies with new powers to obtain information on the beneficial ownership and control of the company by enquiring about:
• Individuals controlling companies and limited partnerships,
• Individuals controlling directors and general partners,
• Individuals that directors and general partners may have delegated their powers to.

These changes are to assist law enforcement agencies with investigations of a suspected shell companies and to meet the Financial Action Task Force recommendations.

The Registrar has in addition been given further powers to:

    Companies

• Ascertain whether information provided to the Registrar is correct,
• Flag companies which are under investigation by inserting a note of warning in the Companies Register,
• Remove a company from the Companies Register in certain circumstances,
• Prohibit a person from managing companies where that person was involved in the management of a company that was removed from the Companies Register in specified circumstances.
• 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. •

    Limited Partnerships

• Ascertain whether information provided to the Registrar is correct,
• Issue notes of inactivity or warning against a limited partnership in the register,
• Deregister a limited partnership in certain circumstances, and
• Prohibit a person from being a general partner or promoter of a limited partnership in certain circumstances.

The timing of these changes coming in force will be:
o Companies and Limited Partnerships will have 365 days from the date the Bill receives royal assent (unless the requirement is brought into effect earlier by an Order in Council).

Please call and talk with us to discuss how the provisions might affect your business. We would be happy to help ensure that you and your business meet the requirements of the new provisions.