The New Zealand government has laid out its plan for reforming the Companies Act, focused on modernising governance and reducing compliance burdens.
However, with some parts of the two-phase reform still under scrutiny, critics suggest that gaps in the plan may impede its success in tackling modern business challenges.
Modernising Governance and Simplifying Business Practices
The government’s reforms to the 1993 Companies Act, first announced last year, are designed to enhance both business safety and efficiency. The Companies Act has different stages, and the first is Phase One, which is all about modernisation, with companies encouraged to share information online and simplify electronic invoicing processes.
The New Zealand Institute of Economic Research suggests that full NZBN adoption could boost productivity by NZ$550 million annually. A prominent feature of Phase One is the introduction of unique director identifiers, aimed at preventing phoenixing, while also allowing directors to list business addresses instead of personal ones.
Additionally, the reforms seek to offer clearer protection for creditors in insolvency cases, supporting New Zealand’s SMEs with reduced administrative burdens.
Improving Director Accountability and Governance
The second phase of the Companies Act reforms will focus on the complexities of directors’ duties, liability, and enforcement. The Law Commission will lead a review aimed at clarifying insolvent trading rules, which have been brought into sharper focus after the collapse of Mainzeal.
The 2023 Supreme Court ruling, which held Mainzeal’s directors liable for continuing operations while insolvent, highlighted the need for more robust enforcement mechanisms.
The Law Commission’s work will seek to balance director accountability with fairness in corporate governance.
Criticism of the Reforms and Key Omissions
The government’s reform package has started a controversy for what it leaves out. One of the most debated aspects is the repeal of the ESG amendment, which had allowed directors to consider ESG factors alongside profit maximisation. “Before the amendment came into force last year, directors were already able to consider ESG factors,” a source pointed out.
“But repealing the amendment now might signal that ESG should not be considered at all.” Critics are also voicing concerns over the absence of a beneficial ownership register, which they argue would help tackle financial crimes like money laundering.
“This information would help fight financial crime… meet our international obligations under the Financial Action Task Force,” the source said.
Furthermore, the reforms continue to apply a one-size-fits-all regulatory framework to both large corporations and New Zealand’s small to medium enterprises, raising concerns about whether SMEs’ unique challenges are adequately addressed.
Corporations and Their Social Role
The reform package has reopened the debate on the broader purpose of corporations, urging a closer look at their influence beyond profits, including effects on communities, employees, and consumers. Some critics contend that the reforms may not fully capture this more expansive role.
“The changes currently proposed demonstrate a political appetite for change,” one commentator said.
“Yet it is important that any change breaks the cycle of the political pendulum swinging, to establish a stable foundation of company law that transcends the shifting priorities of successive governments.”