Director residency requirement a matter of months away now

Last week the Financial Action Task Force removed New Zealand from its regular follow-up assessment list, citing the recent strengthening in our anti-money laundering and terrorist financing laws. An important part of the package of reforms in this area is undergoing its final legislative steps. A key requirement of those reforms has been significantly revised recently and, with a transition period of a mere six months, those involved with affected companies and limited partnerships ought to take note.

Under the Companies and Limited Partnerships Amendment Bill, every company incorporated in New Zealand must have:

  • A director who lives in New Zealand, or
  • A director who is also a director of a company incorporated in, and who also lives in, a country with which New Zealand has reciprocal enforcement arrangements for low-level fines. The list of approved countries has yet to be finalised, but it’s expected to include only Australia - at least initially.

Equivalent requirements will be imposed for limited partnerships.

The purpose of this requirement is to ensure that there’s an identifiable individual with a substantive connection with the business who can be questioned about its activities and who can, in certain circumstances, be held to account. As far as what it means to be "living” in New Zealand, it’s intended that there will be a "broad, practical, non-technical” test for the Companies Office to apply.

Earlier drafts of the Bill provided that as an alternative, companies and limited partnerships could have had a New Zealand-resident agent. This would have meant lower compliance costs for overseas-based New Zealand businesses. It was ultimately acknowledged, however, that this would have been of very limited help to enforcement agencies and would not have provided much deterrence from the misuse of New Zealand registered businesses. So, it was dropped.

Existing businesses will have six months within which to comply with the new requirements once they come into law, which could be very shortly. Non-compliance at the end of the six month transition period will be grounds for the de-registration of the company or limited partnership.

If, in response to these changes, you’re asked to join the board of a company, there’s a lot of homework you should do before taking up the role. The starting point is figuring out exactly what the business does (and where), then understanding the extent of your responsibilities and potential liabilities, and how they can be complied with and managed. Director indemnification and insurance arrangements should be a given, but they can only do so much.

Other changes under the Bill worth noting are:

  • A requirement for further information about the ownership and control of New Zealand companies and limited partnerships to be provided at the time of registration and kept up to date
  • Enhanced powers being given to the Companies Office to deal with breaches of law and to require that information about the ownership and control of New Zealand companies and limited partnerships be provided, and
  • The criminalisation of certain conduct by directors (albeit with higher thresholds for liability than in the original drafting of the Bill).

This article was first published in the Your Law column in the Sunday Star Times on 3 November 2013.

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