October, 2024 - Parry Field Lawyers

We often get asked by charitable trusts to help vary their trusts and we are always happy to assist. In fact in the past year we have helped dozens through the process and assisted in preparing the documents needed.

A question often comes up though – whether the changes could unwittingly lead to what is known as a ‘resettlement’ of the Trust. We are going to answer what that is and why this may be relevant to your charitable trust in this article.

Why might a Trust vary its Trust Deed?

The desire to vary the Trust Deed itself could be for a variety of reasons. Some reasons we often hear from a group are:

the document itself is very out of date – perhaps even written on a typewriter;
the actual processes described in the Trust Deed are not even followed;
the way Trustees are appointed or removed could use a refresh;
the situation itself has changed – something fundamental is no longer the same; or
other reasons, such as having a rotation of Trustees with term limits would be beneficial.

These are all very good and common reasons to update a Trust Deed. Perhaps some may even apply to your charitable trust.

A requirement to consider if rules are “fit for purpose”?

In fact, due to the recent changes to the Charities Act 2005, Trustees need to confirm that the rules they have are “fit for purpose” every three years (see section 42G which is at the end of this article). This includes not just a review of the Trust Deed but policies and procedures as well.

While we recommend a review of your charitable trust’s Trust Deed, it is also worth noting that if you decide to amend the purposes – which might seem like a good idea, then it could affect the Trust so much that it amounts to a ‘resettlement’, which might have consequences that are not intended.

The reason is that the Trust was set up for one purpose, or purposes, and if those purposes change enough, then it might result in the new purpose(s) being so different that the Trust itself has been resettled – in other words, a new Trust takes over from the original one.

Let’s consider how this might play out with a practical example.

Penguins or Children?

Jane has always loved penguins and wanted to help preserve them since she was a little girl. She sold her tech company and decided to set up a charitable Trust by endowing it with $25 million dollars. While she was the donor and set up the Trust itself, she asks 4 trustees to provide the governance of the new trust.

The Trust starts a rescue centre and works for 10 years for this purpose seeing thousands of people visit and get educated as well as saving many penguins every year. The Trust purchases a large property to run a recovery centre for the Penguins.

However on the 10^th anniversary the Trustees consider their Trust Deed as a result of attending some training by Parry Field Lawyers on how they need to make sure it is “fit for purpose”.

They have a strategy day away and among many parts of the Trust Deed they consider the purposes as well. The Penguins are important but they realise that actually they are about education of the public about the environment – the Penguins are just one way that happens.

The Trustees decide to vary the purposes to emphasise the education of young children about the natural environment, and change the name of the recovery centre for Penguins to the “Environmental Education Centre for Children”.

The renewed focus is received well by everyone – except they forgot to include Jane, the donor. Jane disagrees with the new focus and sends a strongly worded message to the Trustees, as well as filing a Court application challenging the decision and describing it as a resettlement. The Attorney General takes an interest in this as well and the accountant – who they had not involved – mentions that there may be some major tax consequences as well…

Hopefully the point of this is clear. Resettlement happens if the property of a trust is put into a different trust – this can happen if the purposes themselves change.

There could be two major consequences:

a donor or former trustee or someone else interested might bring a claim that the variation was not valid, and challenge it in Court; or
there could be tax consequences because if there has been a resettlement then that might trigger a transfer of the property the Trust holds (with tax resulting, potentially).

(Note that we are not tax specialists so you need to talk to an accountant – there are even more implications that they can outline for you but we just want to alert you to the issue.)

So what should you do?

For Trustees considering modifying their purpose they need to check that the purposes are essentially the same as they were before.

This will be a question of degree – but going too far introduces dangers. It is worth spending time thinking about this issue though rather than changing the purposes without being aware.

But what about practical risk?

In our experience there is a “who cares” question – in other words, if you did vary the Trust Deed then is anyone going to actually object? Is there an equivalent of the Jane in the story – or have they long since gone?

Our job is to point out the risks but it may be that the Trustees take on board the issue, consider it and then decide that they want to proceed anyway.

Either way, we hope this information has provided more clarity on why this can be an issue and how to consider it.

If you’d like to talk about your situation then feel free to get in touch with us.

The new section which introduces a requirement to consider if your rules are fit for purpose:

42G Duty to review governance procedures

(1) A charitable entity must review its governance procedures (whether those are set out in its rules or elsewhere) at least every 3 years.

(2) When conducting a review under subsection (1), the charitable entity must consider whether its governance procedures:

(a) are fit for purpose; and
(b) assist the charitable entity to achieve its charitable purpose; and
(c) assist the charitable entity to comply with the requirements of this Act.

We often get asked what it means to be a “reasonable” director under section 137 of the Companies Act 1993 (the “Act”). That section imposes a duty of care on all directors, requiring them to exercise “the care, diligence, and skill that a reasonable director would in the same circumstances”.

Section 137 of the Act sets a clear expectation for directors to act with care, diligence, and skill. By following the standard of a “reasonable director” and carefully considering the context of each decision, directors can help protect their companies, creditors, and themselves from potential liability.

Duty of Care under Section 137

The duty of care holds directors to an objective standard. This means that the courts will assess their conduct against that of a competent and diligent director, regardless of their personal experience or knowledge. This is a contrast to section 131 which has a subjective standard (based on what that director believed). A director must make decisions using the same level of care and attention that a reasonably competent director would in the same context. This standard ensures that all directors—whether newly appointed or experienced—are held accountable to the same expectations of responsibility.

However, this duty isn’t applied uniformly across all cases. The courts will also consider several factors specific to the director’s role and the company’s situation. These factors influence the level of care that is deemed reasonable, making the standard context-dependent. The factors include:

Nature of the Company: A large, publicly listed company will have different governance expectations compared to a small, family-owned business.
Nature of the Decision: Critical financial or strategic decisions will require more diligence than routine administrative matters. For example, entering a high-risk financial arrangement demands more scrutiny than minor operational decisions.
Director’s Position: Executive directors, involved in daily management, will be held to a higher standard compared to non-executive directors who may have more of an oversight role. Executive directors are expected to have a more detailed understanding of the company’s operations and finances.

The courts apply the “reasonable director” test by evaluating whether the director acted in a manner that a reasonably competent director would have in the same position and under similar circumstances. For example, an executive director should be more aware of day-to-day business risks and financial health, especially when making decisions about continuing to trade in the face of potential insolvency.

Breaches of the Reasonable Director Standard

Directors who fail to meet the standard set out in section 137 risk being found in breach of their duties. Common scenarios where directors fall short of this standard include:

Trading While Insolvent: One of the most frequent breaches involves continuing to trade when the company is unable to meet its debts as they fall due. Directors are expected to halt trading when insolvency is evident or imminent. Failing to do so can result in significant financial harm to creditors.
- Case Example: In the Mainzeal case, directors were found liable for allowing the company to continue trading while insolvent, even though they relied on assurances of financial support from external sources. The court held that the directors failed to protect the interests of creditors, and their reliance on vague promises of support was unreasonable.[1]
Improper Transactions: Directors can be held responsible for engaging in or allowing improper transactions that harm the company or its stakeholders. This includes entering contracts or financial arrangements without proper due diligence, exposing the company to undue risk.
Failure to Manage Financial Risks: Directors must monitor the company’s financial health and take action to address risks such as insolvency or declining revenues. Ignoring warnings can result in breaches of the duty of care.

Directors who breach section 137 may face personal liability for any losses incurred by the company or its creditors. Depending on the severity of the breach, directors could also be disqualified from serving on boards in the future. In extreme cases, where fraud or reckless conduct is involved, criminal charges may be brought against the director.

Guidance for Directors

To ensure compliance with section 137 and avoid personal liability, directors should consider the following guidelines:

Understand Your Role: Be clear on your specific duties within the company. Are you responsible for daily operations (executive director), or do you have an oversight role (non-executive director)?
Exercise Due Diligence: Make sure you have all the relevant information before making decisions. This includes understanding the company’s financial health and assessing the risks associated with major decisions.
Consider the Context: The actions required of a director may vary depending on the size of the company and the nature of the decisions being made. Larger companies with complex operations may require greater scrutiny and involvement from directors.
Seek Expert Advice: If you are unsure about a decision—especially one involving high financial risk—seek professional advice from lawyers, accountants, or other specialists. A reasonable director knows when to consult experts.
Document Decisions: Keeping records of your decision-making process, including the information you relied on, can be helpful if your actions are later questioned in court.

We have also written a guide on Mainzeal and its implications here.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

[1] Richard Ciliang Yan v Mainzeal Property and Construction Limited (in liq) [2023] 1 NZLR 296; [2023] NZSC 113.

Kia ora All,

This update has free resource links and updates on events coming up including one this Friday for Incorporated Societies!

Facilitated this discussion and the audio is up now as episode 409 of Seeds Podcast – this was on the State of the Community Sector report (which is here) with a panel of Sector leaders:

Murray Edridge – City Missioner, Wellington City Mission
Michelle Kitney – CEO, Volunteering New Zealand
Jewelz Petley – Tangata Whenua Co-Chair, HuiE!

The State of the Sector Report is highly anticipated by several Government Ministries and organisations. We are all keenly aware of the value of research, anecdotes, and especially statistics in advocating for a better Aotearoa/New Zealand. Community Networks Aotearoa is the  umbrella organisation for local, regional and national Community Networks in Aotearoa | New Zealand.

https://theseeds.nz/podcast/panel-on-community-sector-report-discussion-facilitated-by-steven-moe-with-murray-edridge-michelle-kitney-and-jewelz-petley/

Coming up on Friday is a session for Incorporated Societies

Will be contributing to this free online event coming up next week on 18 October. Sign ups are here.

We will get to hear from several experts about Incorporated Societies and what changes mean from a variety of perspectives, including legal (me) but also:

– Katie Bruce of Hui E! Community Aotearoa
– Michelle Kitney of Volunteering New Zealand | Tūao Aotearoa,
– Alex Stainer and Michelle Lombaard from the External Reporting Board
– Jay Casey from Inland Revenue NZ

It was a real joy to korero and listen to the 5 guests for the Institute of Directors in New Zealand season 3 Board Matters Podcast and all episodes are now out. You can find it in all podcast apps and also over here. If you are in governance or want to be, or are curious about leadership in a board setting why not have a listen – they count for CPD points as well…

Our theme was “creating safe spaces in the boardroom” and I learned so much from these guests, thank you and a summary of their wisdom is:

– Bella Takiari-Brame 🌄 – Finding trust in yourself: When an approach isn’t working at the board table, everyone should feel entitled to speak up, done with respect.
– Eugene Berryman-Kamp 🌳 – Operating as a high performing board: What does it take to lay a foundation where people can ‘call out behaviour’ that doesn’t meet the needs of an organisation?
– Gavin Fernandez ⛰️ – Trust your gut instincts: If you find yourself second-guessing at a board meeting, chances are you won’t be alone. Gavin explains why being comfortable enough to share your concerns with other board members will enrich discussion and, importantly, help to navigate risk.
– Maria King 🌻 – Stepping towards your purpose: Knowing yourself is to also understand others. But operating as a group and having your views heard might be challenging when there are strong personalities at play in the boardroom.
– Antony Vriens 🌊 – In a culture of inclusion, people will feel safe to respectfully challenge the views of others, share their own views and enter into constructive debate

Have you heard some of the 410 podcast episodes on Seeds as well? You can find out a lot on that project at www.theseeds.nz For example, episode 408 was a chat with journalist Vincent Heeringa – and 407 was his interview of me for his “This Climate Business” podcast!

His description of our chat said this: “You might know Steven Moe as a lawyer for Christchurch based Parry Field, specialising in charities and the impact sector; or as the chair of Community Finance – an investor in community housing; or as the host of Seeds, a longstanding weekly podcast; or as the author of The Apple Tree, or as a mentor for Christchurch incubator Ministry of Awesome or a quietly spoken father and friend. However you know him, Steven’s seems to crop up everywhere there are sustainable causes or purpose-led businesses. Vincent chats to a quiet revolutionary at work.”

Ngā mihi

Steven

Planning a New Zealand Getaway for Christmas and New Year Holidays or Chinese and Lunar New Year? Here is your Visa Guide!

计划在圣诞和新年假期或中国春节期间前往新西兰度假吗？这是您的签证指南！

New Zealand (NZ) is renowned for its stunning landscapes, diverse wildlife, and vibrant culture, making it a popular destination for tourists and those visiting family. If you are looking to escape the winter chill in the Northern Hemisphere during the Christmas/New Year holidays or planning a trip to visit loved ones during the Chinese New Year, NZ offers the perfect warm-weather getaway.

新西兰以其壮丽的自然风光、多样的野生动植物和丰富的文化闻名，是游客和探亲者的热门目的地。如果您打算在圣诞节/新年假期期间逃离北半球的冬季寒冷，或计划在春节期间探亲访友，新西兰是一个温暖的度假胜地。

For those from non-visa waiver countries, a General Visitor Visa or Parent/Grandparent Visitor Visa may be required. With recent updates to visa requirements, we are here to guide you through the process and offer tips to make your application smoother.

对于来自非免签国的游客，您可能需要申请普通访问签证或父母/祖父母访问签证。由于最近对签证要求的更新，我们将为您提供申请过程的指导和一些实用的申请建议。

General Visitor Visa 普通访问签证

The General Visitor Visa is for individuals wishing to visit NZ for a short period for tourism or family visits. This visa allows you to stay in the country for up to 6 or 9 months within an 18-month period (depending on whether the visa is single or multiple entry).

普通访问签证适用于希望短期访问新西兰的个人，用于旅游或探亲。该签证允许您在18个月内在新西兰停留最多6至9个月（取决于签证是单次入境还是多次入境）。

Basic Requirements 基本要求：

Valid Passport: Your passport must be valid for at least three months beyond your intended departure date from NZ. 有效护照：您的护照必须在计划离开新西兰之日起至少三个月内有效。

Genuine Intentions: You must demonstrate that your visit is temporary and provide clear plans for returning to your home country. 真实访问意图：您需要证明您的访问是临时的，并提供明确的回国计划。
Sufficient Funds: You need to show evidence that you have enough money to cover your stay in NZ, which can be demonstrated through bank statements or other financial documents. 充足的资金：您需要提供足够资金支持在新西兰的停留，这可以通过银行对账单或其他财务文件来证明。
Proof of Onward Travel Arrangements: You must provide evidence of your travel plans, such as a return ticket or onward travel arrangements. 有证据的后续旅行安排：您必须提供您的旅行计划，如返程机票或后续旅行的安排。
Health and Character: In some cases, applicants may need to undergo medical exams to prove an acceptable standard of health and provide police certificates to prove good character. 健康和品行：在某些情况下，申请人可能需要进行健康检查以证明其健康状况，并提供无犯罪记录证明。
English Translations: If any of your documents are not in English, certified English translations must be provided. 英文翻译：如果您的文件不是英文的，必须提供经过认证的英文翻译件。

Parent/Grandparent Visitor Visa父母/祖父母访问签证

NZ offers a special visitor visa for parents and grandparents of NZ citizens or residents. This visa allows visits of up to six months at a time, with a total stay of 18 months over a three-year period (or four-year period in the case of nationals of the United States of America or five-year period in the case of nationals of the People’s Republic of China).

新西兰为新西兰公民或居民的父母和祖父母提供特殊访问签证。此类签证允许每次访问最长6个月，总计18个月的停留时间（美国国民可以停留四年，中国国民可以停留五年）。

Basic Requirements: 基本要求：

Valid Passport: Your passport must be valid for at least 3 months beyond your intended departure date from NZ. 有效护照：您的护照必须在计划离开新西兰之日起至少三个月内有效。
Sponsors: Your sponsor must be a NZ citizen or resident. 担保人：您的担保人必须是新西兰公民或居民。
Relationship to Sponsor: The sponsor must be your child, grandchild, or the parent of your child/grandchild. 与担保人的关系：担保人必须是您的子女、孙子或您子女/孙子的父母。
Multiple Visits: The visa allows for multiple entries, providing flexibility to visit NZ several times over three years. 多次访问：此签证允许多次入境，提供了在三年内多次访问新西兰的灵活性。
Health and Character: A chest X-ray and medical examination are required. In some cases, police certificates may be needed to prove good character. You or your sponsor must agree to cover your healthcare costs. 健康和品行：需要进行胸透和体检。在某些情况下，可能需要提供无犯罪记录证明。您或您的担保人必须同意支付您的医疗费用。
English Translations: Certified English translations are required if any documents are not in English. 英文翻译：如果文件不是英文的，必须提供经过认证的英文翻译件。

Application fee and processing timeframe申请费用和处理时间

Please note that application fees are non-refundable, so ensure all documents are submitted correctly to avoid delays or rejections.

请注意，申请费用不予退还，因此请确保正确提交所有文件以避免延误或拒签。

Application Fee: The online application fee for Immigration New Zealand (INZ) is NZD $441, which includes a NZD $100 International Visitor Conservation and Tourism Levy (IVL). Additional fees may apply for paper applications or if using third-party visa service providers. 申请费用：新西兰移民局的在线申请费用为441纽币，其中包括100纽币的国际游客保护和旅游税（IVL）。纸质申请或使用第三方签证服务提供商可能会产生额外费用。
Processing Timeframe: Processing times vary depending on INZ’s workload. Currently, General Visitor Visas are typically processed within four weeks, while Parent/Grandparent Visitor Visas take up to three months. 处理时间：处理时间取决于新西兰移民局的工作量。目前，普通访问签证通常在四周内处理，而父母/祖父母访问签证则需要长达三个月的时间。

Maximum duration of a General Visitor Visa

Please double-check your visa conditions once your application is approved. A multiple-entry general visitor visa may allow the holder to enter NZ and stay for a maximum of six months within a 12-month period before the end of the current stay. This is referred to as the “6 in 12 months rule”.

Also, if the visa holder wishes to extend their stay, they must not have been in NZ for more than nine months in the preceding 18-month period at the time of submitting the application. This is known as the “9 in 18 months rule”.

If you are unsure which rule applies to your situation, feel free to contact us for clarification.

Common pitfalls and tips常见陷阱和建议

The INZ process can be detailed, so give yourself enough time before your travel date. Here are some common pitfalls and tips to help you through your visa application. If you need specific advice, feel free to contact our team—we’re always happy to help.

新西兰移民局的申请过程可能比较复杂，因此请在旅行日期之前留出足够的时间。以下是一些常见的陷阱和建议，以帮助您顺利完成签证申请。如果您需要具体的建议，请随时联系我们的团队——我们随时乐意为您提供帮助。

Ensure Your Passport is Valid: Make sure your passport is valid for at least three months beyond your departure date from NZ. This applies to any family members or children traveling with you. Provide a clear, scanned copy of the photo page of your passport with all the necessary information. 确保护照有效：请确保您的护照在离开新西兰之日起至少三个月内有效。这也适用于与您同行的家人或孩子。提供护照照片页的清晰扫描件，并附上所有必要的信息。
Submit an Acceptable Visa Photo: Your visa application must include a recent photo (taken within the last six months) that meets INZ’s specifications. An unacceptable photo may cause delays, so ensure it follows the guidelines. 提交合格的签证照片：您的签证申请必须包含符合新西兰移民局规格的近期照片（在过去六个月内拍摄）。不合格的照片可能会导致延误，因此请确保照片符合要求。
Double-Check Your Information: Ensure all personal details in your application (name, passport number, date of birth) are accurate and match your passport exactly. Small errors can lead to delays, especially when boarding your flight. 仔细检查信息：确保申请中的所有个人信息（姓名、护照号码、出生日期）与护照完全一致。小错误可能会导致延误，特别是在登机时。
Demonstrate Genuine Intentions: You can strengthen your application by including documents like proof of employment, property ownership, return flight tickets, or a letter explaining your intentions. If you apply offshore and do not provide sufficient evidence to satisfy INZ you are a genuine visitor, INZ do not have to give you an opportunity to respond to their concerns and can decline your visa application. 证明真实访问意图：您可以通过提供就业证明、房产所有权、返程机票或解释信来加强申请。如果您在境外申请，未能提供足够证据证明您是访客，新西兰移民局可能不会给您回应其疑虑的机会，并可能拒绝您的签证申请。
Provide Certified English Translations: From 17 June 2024, all supporting documents must be accompanied by certified English translations. 提供认证的英文翻译件：从2024年6月17日起，所有支持文件都必须附有经过认证的英文翻译件。
Show Sufficient Funds or Sponsorship: You must provide evidence that you either have sufficient funds to support your stay in NZ or have an acceptable sponsor. 显示足够的资金或担保：您必须提供证明，显示您有足够的资金支持您在新西兰的停留，或有合格的担保人。

Message for applicants给申请人的信息

Applying for a General Visitor Visa or a Parent/Grandparent Visitor Visa can be straightforward if you follow the correct steps and submit all required documents accurately.

如果您遵循正确的步骤并准确提交所有所需文件，申请普通访问签证或父母/祖父母访问签证是相对简单的。

If you need tailored advice, do not hesitate to contact our team before booking your flights. We are here to help you streamline your visa process, allowing you to enjoy your trip to NZ without unnecessary delays.

如果您需要量身定制的建议，请在预订机票前随时联系我们的团队。我们会帮助您简化签证流程，避免不必要的延误，让您尽情享受新西兰之行。

Using a licensed immigration advisor or lawyer can increase the chances of your application being approved. Beware of unlicensed people – we have heard many horror stories from applicants who have used unlicensed people, such as forging supporting documentation, providing misleading information to INZ and applying for the wrong visitor visa type. This can affect future visa applications and result in visa applications being declined and denied boarding to travel to New Zealand. It is important to get it right from the start!

咨询执牌顾问或律师可以提高申请批准的几率。请提防无执照的人员——我们听过很多申请人使用无执照人员的恐怖经历，例如伪造支持文件、向新西兰移民局提供误导信息以及申请错误的签证类型。这会影响未来的签证申请，并导致签证申请被拒绝以及被拒绝登机前往新西兰。因此，务必要从一开始就做对！

Safe travels, and enjoy your time in New Zealand! 祝您旅途愉快，尽情享受在新西兰的时光！

Please note that this article not a substitute for legal advice and you should contact your lawyer about your specific situation. Please contact us by email immigration@parryfield.com or by phone 03 348 8480, if you have any questions.

请注意，本文不构成法律建议，您应就您的具体情况联系您的律师。如有任何疑问，请通过邮箱 immigration@parryfield.com 或电话 03 348 8480 联系我们。

We often get asked about what income (including business income) is exempt from taxation by our many charity clients.

In New Zealand, registered charities benefit from various tax exemptions. Inland Revenue released an interpretation statement (IS24/08) clarifying the rules around tax exemptions under section CW 42 of the Income Tax Act 2007. This exemption allows certain income that a charity derives from business activities to be non-taxable, provided specific requirements are met. Here’s what charities need to know about this important exemption:

What is Business Income for Charities?

A charity’s income is categorised as either business or non-business income. Business income includes any income a charity earns through commercial activities, such as running a store or providing services for a fee. For example, if a charity operates an op shop or a café to fund its charitable purposes, the income generated from these activities can qualify as business income. This income may be exempt if certain conditions are met under section CW 42. On the other hand, non-business income, such as donations and gifts, are generally tax exempt under a different provision (section CW 41).

The Business Income Exemption

Under section CW 42, a charity’s business income can be exempt from tax if all of the following conditions are met:

The entity carrying on the business is a registered charity – The exemption applies only if the business is conducted by a charity that is registered under the Charities Act 2005.
Charitable purposes must be carried out in New Zealand – To qualify for the exemption, the charity must apply its income towards charitable purposes within New Zealand. If any of the charity’s purposes are outside New Zealand, the income must be apportioned, and only the part used for New Zealand charitable purposes is exempt.
The entity is a “tax charity” – This includes registered charities.
Control restrictions – There must be no individuals or entities with control over the charity’s business who could divert the charity’s income for private benefit. Any breach of this control restriction would make the charity’s business income fully taxable.

Territorial and Control Restrictions

An important aspect of the exemption is the territorial restriction. If a charity’s purposes are not limited to New Zealand, the charity must apportion its income between New Zealand-based activities and those outside the country. Only the portion supporting New Zealand activities will be tax-exempt.

Additionally, the control restriction ensures that the charity’s business income is used solely for charitable purposes. If any person or entity can direct or divert income for personal gain, the entire business income will become taxable.

Key Takeaway for Charities

Charities involved in business activities should carefully assess their operations to ensure they meet the conditions for the business income tax exemption. This includes maintaining registration as a charity, focusing charitable efforts within New Zealand, and ensuring compliance with the control restriction. Failure to meet these conditions could result in the loss of the tax-exempt status for business income.

We can help charities that operate both in and outside New Zealand to document and implement business income-splitting practices to ensure compliance with the IRD’s guidance.

—

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

In August, 2024, the New Zealand Government announced plans to modernise and simplify the Companies Act 1993, which governs how New Zealand’s 730,000 companies are established, operated, and dissolved. While the Act has been in place for over 30 years and remains largely effective, targeted improvements are set to make it more suitable for today’s business environment. The Government has decided to progress a package of reforms that will take place in two phases.

Phase 1: Corporate Governance Reforms

Phase one of the reform will include the following key aspects:

Modernising and Digitising the Companies Act: the Act and other related legislation will be updated to remove outdated, ambiguous and overly complex provisions. This will aim to reduce compliance costs and better utilise modern technology for both businesses and regulations.

Director and Partner Identification Numbers: Unique identifiers will be introduced for company directors and general partners. This will help track their involvement across multiple businesses and combat illegal practices, such as phoenixing (where a business re-emerges under a different name after insolvency).
Enhanced Privacy for Directors and Shareholders: Directors and shareholders will be allowed to list an address for service on the Companies Register instead of their residential addresses, addressing privacy and safety concerns.
Insolvency Law Reforms: To improve outcomes for creditors, the period during which transactions with related parties can be voided when a business is insolvent will be extended to four years, following recommendations from the Insolvency Working Group.
Improved Use of the New Zealand Business Number (NZBN): The reforms will encourage greater uptake of the NZBN, simplifying transactions between businesses and government agencies, and allowing for automatic updates to company records using NZBN data.

Phase 2: Governance and Accountability

The second phase, led by the Law Commission in 2025, will focus on enhancing corporate governance by reviewing directors’ duties, liability, offences, penalties, and improving enforcement mechanisms.

These reforms are expected to streamline corporate processes, reduce costs, and enhance transparency, benefiting both businesses and the broader New Zealand economy.

—