New rules will improve governance

New legislation could see 69 Northland companies struck off if they don't comply, warns Commerce and Consumer Affairs Minister Paul Goldsmith. Photo / File

A total of 69 companies registered in Northland are at risk of being struck off the Companies Register if they don't comply with new legislation requiring them to have a director living in New Zealand or Australia.

From last Thursday, the Amendment Act 2014 requires all New Zealand companies to have at least one director who lives in New Zealand, or one who lives in Australia and is a director of a company incorporated in that country.

If not compliant, they face a loss of limited liability protection, a loss of company assets to the Crown and possible taxation consequences.

As of February, there was a total of 20,118 businesses in Northland, according to figures released by Statistics New Zealand on Thursday. They showed an increase of 111 companies in the region since the same time in 2014 and an extra 390 registered businesses since 2013.

The act came into force on May 1 this year; however, the Companies Office was now working to get 5900 companies across the compliance line, including 69 non-compliant companies in Northland.

Commerce and Consumer Affairs Minister Paul Goldsmith warned that those that had not complied with the requirement risked being removed from the Companies Register.

"These changes have been introduced to improve the integrity of the information held on the register and have been phased in to give companies time to prepare," he said.

"The measures are designed to maintain New Zealand's reputation as an easy and transparent place to do business while also making it more difficult for criminals to operate undetected."

Goldsmith said the Companies Office was working with those that had not yet complied to ensure they understood their obligations.

Gordon Irving of the Ministry of Business, Innovation & Employment told the Advocate those who were removed would lose the limited liability protection the registration of a company provides.

"We can identify 69 companies with a registered office in the Northland area that are currently not compliant with the Companies Amendment Act regarding directors living in New Zealand," Irving said.

"The consequence of ultimately being removed from the Companies Register is the directors and shareholders will lose the limited liability protection that the registration of a company provides," he said.

"A further consequence is that any assets that remain in a removed company's name automatically vest in the Crown by operation of law. Furthermore, there may be taxation consequences that occur because of the removal of a company from the register."

Section 324 of the Companies Act 1993 states that property belonging to a company vests in the Crown on removal of the company from the Companies Register.

AssetsAny assets that remained in a removed company's name would also automatically be transferred to the Crown by operation of law.

"Before a company is removed from the register, it should deal with its assets and liabilities (ie, any assets may be distributed among the shareholders or any other entitled party and the liabilities or debts paid off)," Irving said.

"If this winding up process does not occur, and there is property that remains in the company's name (eg, funds in a bank account or land) immediately prior to the removal occurring, this property will automatically vest in the Crown."

When the Crown becomes aware of the transfer, the Secretary to the Treasury must give public notice detailing the name of the company and the property that has been vested in the Crown. A person entitled to receive the property can apply to the High Court to have the property transferred in them.

Additionally, Section 325 of the act allows the Crown to disclaim onerous property, meaning the property would not vest or transfer to the Crown because the property may be unsaleable.

Northland Chamber of Commerce chief executive Tony Collins said the non-compliance reflected that, despite good service and delivery, some businesses had a low level of business capability, especially around governance.

"While New Zealand is one of the easiest countries in the world to set up a business, there are still many business owners, who may be extremely good and delivering whatever product or service they offer to the market, but still have a relatively low level of business capability, particularly in matters that relate to governance."

He said engaging with the Chamber of Commerce and Northland Inc through the Regional Business Partnership was a simple way to improve a company's level of capability and to provide the necessary support to ensure compliance.

The Institute of Directors could also provide a valuable resource in this process, he said.

"If we want our regional businesses to succeed and grow, it is important that they understand the role working towards business excellence plays in this process and that continued professional development of the business owner and their workforce is an essential element in any business," Collins said.

David Wilson, chief executive of Northland Inc, said the legislation was positive.

"We support the policy. New Zealand is one of the easiest places to set up and do business in the world - this should not affect that at all, and if anything improve our rating on transparency - which is currently good, but with this measure, will improve."