Foss Craig: Companies and Limited Partnerships Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Foss Craig: Companies and Limited Partnerships Amendment Bill — First Reading 
[Sitting date: 24 July 2012. Volume:682;Page:3852. Text is incorporated into the Bound Volume.] 
Hon CRAIG FOSS (Minister of Commerce) 
: 
 I move  
That the Companies and Limited Partnerships Amendment Bill be now read a first time. 
 I nominate the Commerce Committee to consider the bill. The Companies and Limited Partnerships Amendment Bill will strengthen the rules that apply to the governance registration and reconstruction of companies. New Zealand has an international reputation as one of the best and most trusted places in the world to do business. We have a high rating for the ease of registering a business. However this has the potential to increase our vulnerability to overseas interests using New Zealand - registered shell companies to undertake criminal activity. I note that the corporate risk profiling team in the Companies Office has removed nearly 2600 companies from the register since 2010 including companies that have been identified in the media in recent months. But we cannot remain complacent and that is why this bill was introduced. 
The registration provisions in the bill are designed to reduce the potential for the misuse of New Zealand - registered companies and limited partnerships for overseas criminal activity. The provisions are limited in nature and relate only to the company and limited partnership registration process. The bill aims to strike a balance between deterring the activities that threaten the integrity of New Zealand’s company registration system and maintaining ease of business for New Zealand companies. 
The measures in the bill form part of the Government’s wider approach to strengthening New Zealand’s resistance to organised crime. They are linked to other work aimed at deterring money-laundering and making it easier for New Zealand law enforcement agencies to find the ultimate owners of companies. 
The bill introduces a requirement for every registered company to have either a director or a resident agent who lives in New Zealand or in an approved jurisdiction. It is proposed that Australia be described as an approved jurisdiction as regulatory criminal fines can be enforced in that country through the Agreement between the Government of New Zealand and the Government of Australia on Trans-Tasman Court Proceedings and Regulatory Enforcement. The resident agent must be a natural person and must otherwise meet the qualifications of being a director. The resident agent is liable if the company does not carry out certain administrative responsibilities including the filing of documents with the Registrar of Companies and the maintenance of company records. The role of the resident agent is essentially administrative and not that of a de facto director. The provisions make clear that the resident agent is not responsible for the content of any document where there has been a breach of the Act unless they had knowledge that the content of the document was incorrect. 
In addition the bill gives the Registrar of Companies enhanced powers to investigate respond to or remedy non-compliance with the Companies Act and to take effective administrative action against companies and directors that do not respond to his requests. These provisions apply to all companies and not simply to those that require a resident agent. I would particularly welcome the select committee’s views on these matters. 
The bill aligns the rules applying to limited partnerships with those applying to companies. This is to ensure that persons misusing New Zealand companies cannot avoid the new regime by registering limited partnerships instead. The changes to the Limited Partnerships Act made through this bill are to introduce qualifications for general partners—those responsible for the management of the limited partnership—while also requiring a resident agent where the general partner has no connection to New Zealand to give greater scope for the registrar to deregister limited partnerships that do not comply with the Limited Partnerships Act and to introduce grounds for banning persons from acting as general partners. 
The next major feature of the bill is to better align the Companies Act with the Takeovers Code. This is to ensure that shareholders understand the effect that changes in companies’ control will have on the value of their shares. The Companies Act includes reconstruction provisions which set out procedures to be followed when two or more companies want to amalgamate into one or a company wants to come into an arrangement with shareholders as to a change of control. The proposed changes address a loophole that enables companies to which the Takeovers Code applies to take over another company using the reconstruction provisions of the Companies Act rather than using the Takeovers Code. This means that takeovers can be undertaken with less information provided to shareholders and with a lower level of shareholder participation or support. Where there is an amalgamation involving a company that is subject to the code this can also mean a lower level of regulatory oversight by the court or the Takeovers Panel. The Takeovers Panel expressed concern about this and recommended to the former Minister of Commerce that this loophole needed to be closed. For this reason the use of amalgamations that do not require the approval of the court will be prohibited where one of the amalgamating companies is subject to the code. In circumstances where a reconstruction arrangement must be approved by the court the court must be satisfied that shareholders of the company would not be adversely affected by the transaction being undertaken under the Companies Act rather than the Takeovers Code or the applicant must have filed a statement from the Takeovers Panel indicating that the panel has no objection to the scheme being approved by the court. The amendments ensure that processes under the Companies Act are consistent with the procedures for changing control of companies under the Takeovers Code. 
The final set of reforms in the bill is the introduction of criminal offences for directors who commit serious breaches of two duties under the Companies Act. The relevant duties are 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. These reforms recognise that substantial harm can result when directors breach the duties they owe as was evident from a number of finance company collapses where the investors lost much of their savings. They are in addition to the civil remedies that are already available to the company and its shareholders. 
These provisions give public enforcement agencies the Registrar of Companies and the Financial Markets Authority the role of taking action in the public interest. I am mindful that some submitters on this proposal were concerned that adding this criminal liability would deter people from taking up directorships. The offences will require the prosecution to prove that the director knew that their behaviour would be seriously detrimental to the interests of the company or would result in serious loss to the company’s creditors depending on the particular breach of duty. This is a high threshold aimed at serious misconduct and would not catch an inadvertent act or omission by a director. 
In conclusion it is essential that New Zealand remains a trusted and well-regulated place to do business. The changes in the bill to our registration reconstruction and governance rules aim to increase the confidence in New Zealand’s financial markets and its regulation of corporate forms. I commend this bill to the House.