Red tape is not always a bad thing

POSTED BY Andrew Wallace
12 August 2012

posted in Legislation | Company Law

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The rules for registering companies and limited partnerships in New Zealand are finally about to get tougher. The Companies and Limited Partnerships Amendment Bill, which proposes to strengthen the rules that apply to the registration of companies and limited partnerships, has just passed its first reading in Parliament.

If ultimately enacted in its current form, the Bill will require companies that don't have a director who is resident in New Zealand, or in an approved country, to have an agent who is resident in New Zealand and who will be held responsible if the company fails to comply with its reporting and record-keeping obligations. Similar requirements will be applied to limited partnerships. In order to ensure that the Registrar of Companies can take action where necessary, the Bill also provides the Registrar with enhanced powers. These include wider investigative and removal powers, together with the power to flag companies on the register that are under investigation.The Registrar will also have the power to ban people from being involved in the administration or management of entities in certain circumstances.

The Bill was borne out of evidence that certain groups, particularly offshore interests, were misusing the New Zealand company registration process and, in doing so, threatening New Zealand's international reputation. In his speech at the Bill's first reading the Minister of Commerce noted that the Companies Office's corporate risk profiling team has removed nearly 2,600 companies from the New Zealand register since 2010. Two examples of companies that have been removed are:

  • A New Zealand-incorporated company controlled by people overseas which was involved in chartering a plane that was used to traffic weapons in contravention of United Nations sanctions, and
  • A New Zealand-incorporated company which was accused of running a US$25 million Ponzi scheme in the United States in connection with which its CEO is facing jail term after pleading guilty to wire fraud and money laundering charges.

The stated aims of the Bill are to increase confidence in New Zealand's financial markets and in New Zealand's regulation of corporate forms, and also to ensure that New Zealand remains a trusted place to do business. The achievement of these aims will be to the benefit of all New Zealand businesses.

As well as the proposals discussed above, the Bill seeks to:

  • Better align the Companies Act with the Takeovers Code by addressing a loophole that enables companies subject to the Takeovers Code (being, broadly, companies listed on the NZX and widely held private companies) to take over another company using the provisions in the Companies Act dealing with reconstructions rather than using the Takeovers Code; and
  • Introduce criminal offences for directors who commit serious breaches of the duties in the Companies Act to act in good faith and in the best interest of the company, and to not carry on business in a way that risks serious loss to the company's creditors.

So far the Government has received widespread political support for the Bill; there has been, however, widespread criticism of the time it has taken to get the Bill to its current stage. The Bill is currently with the Commerce Committee for further review and it is expected to become law by the end of the year.

This article was first published in the Your Law column in the Sunday Star Times on 12 August 2012

POSTED BY Andrew Wallace
12 August 2012

posted in LegislationCompany Law

VIEWED 3228 TIMES

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