Minister of Commerce Simon Power has recently announced proposed changes to the Companies Act 1993 that will require all New Zealand incorporated companies to have either a New Zealand resident director or a local agent. At present, although all New Zealand companies are required to have a New Zealand registered office and address for service, there is no requirement that any of the directors be resident in New Zealand.
What is the reason for the changes?
In the press release announcing the proposed changes Mr Power stated that the measures are designed to shore up New Zealand's company registration process against criminal activity from overseas. According to Mr Power 'our company registration processes are highly-respected but there have been increasing threats to our international reputation posed by overseas interests which use New Zealand-registered companies to undertake criminal activity. These changes will help ensure New Zealand retains its position as one of the best places in the world to do business'.
New Zealand has one of the most liberal regimes in the world for incorporating companies and is ranked number one in the world according to the World Bank Ease of Starting a Business Index with an average time to start a business of just one day. This compares to an average period of 13 days for the United Kingdom and six days for the United States. This liberal regime is of benefit to New Zealand companies, and overseas companies wishing to do business in New Zealand, but it also makes New Zealand potentially attractive to international criminal groups. This is particularly the case as there is currently no requirement for any of the information provided in relation to the details of directors or shareholders of a company to be verified. This year a New Zealand registered company, SP Trading Limited, was used to charter a Georgian plane to fly 35 tonnes of North Korean explosives and anti-aircraft missiles to Iran. The arms were seized in Bangkok airport. As Mr Power has identified, New Zealand does not want to become a haven for international crime and terrorism.
This latest move by the Government, along with the recent passing of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, can be seen as attempting to bring New Zealand into line with overseas standards relating to the regulation of organised crime and terrorism. It will also bring New Zealand into line with Australia, which has similar requirements.
What will be the consequences of the changes
The proposed changes will affect a number of overseas companies that operate businesses in New Zealand. All companies that currently have solely overseas boards will need to appoint a New Zealand director or local agent. Importantly, the New Zealand resident directors or agents will be responsible for ensuring companies provide accurate information to the Registrar of Companies and will be liable if companies breach their filing requirements under the Companies Act. It is stated in the press release that the changes will also apply to New Zealand limited partnerships. However, it is not clear whether the changes will also apply to branches of overseas companies registered in New Zealand. Further information will be available once the bill is introduced to Parliament.
What other changes are proposed?
In addition to the requirements for a New Zealand resident director or local agent Mr Power also announced enhanced powers for the Registrar of Companies to deal with companies where there is a concern that the information about the company on the register is false or misleading. The Registrar will be entitled to take action to remove a company from the register in these circumstances.
When will these changes be introduced?
The press release states that a bill will be introduced to Parliament next year. The resulting Act will come into force some time after that. It is not clear if there will be a transition period allowing existing companies some time to comply with the new regime. We will issue a further update once a draft bill is available.
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