Corporate Governance 2022 Comparisons

Last Updated July 04, 2022

Contributed By Webb Henderson

Law and Practice


Webb Henderson specialises in corporate and M&A projects (including corporate governance, takeovers, joint ventures, partnerships and investment projects), as well as banking and finance, competition law and regulatory advice. Across its Auckland and Sydney offices, the firm comprises 12 partners and a total of 50 lawyers. The Auckland office is headed by partners Graeme Quigley and Garth Sinclair, who are highly regarded corporate lawyers, each with more than 25 years’ experience specialising in corporate governance work, M&A, strategic projects, and joint ventures. Webb Henderson regularly advises major New Zealand corporates on their corporate governance frameworks and processes.

In New Zealand, the principal forms of business organisations are the following.

  • Bodies corporate – ie, separate legal persons from their owners:
    1. companies, formed under the Companies Act 1993;
    2. limited partnerships, formed under the Limited Partnerships Act 2008; and
    3. incorporated societies, formed under the Incorporated Societies Act 1908 (which may not be formed for the purpose of pecuniary gain). The Incorporated Societies Act 1908 is being replaced by the Incorporated Societies Act 2022, but the transition has not yet taken effect.
  • Unincorporated forms:
    1. partnerships, formed under the Partnership Law Act 2019; and
    2. trusts, formed under common law and equitable principles and the Trusts Act 2019.

Individuals may also carry on business in their own name (without forming a separate entity or structure), in which case they are commonly referred to as sole traders.

The primary legislation that governs companies in New Zealand is the Companies Act 1993 (Companies Act).

In addition, the NZX Listing Rules (Listing Rules), for issuers of listed securities, and industry-specific legislation (eg, for banks and insurers) impose additional corporate governance requirements on top of the requirements of the Companies Act. Absent any such additional requirements, the corporate governance arrangements applicable to a company are reasonably flexible. A company may add to, negate or modify many (but not all) of the governance provisions of the Companies Act by adopting a constitution that sets out the rules by which the company will be governed.

This chapter will, unless otherwise indicated, describe the default position under the Companies Act.

Companies that have financial products listed on the NZX Main Board or Debt Market must comply with the Listing Rules, which impose mandatory requirements relating to corporate governance, including the composition of the board, director remuneration, continuous disclosure, financial reporting, share issues, voting rights and approval of major transactions.

The NZX also issues a Corporate Governance Code that takes effect on a "comply or explain" basis, meaning that the issuer must comply with the recommendations made in the Code or explain:

  • which recommendations were not followed;
  • why, and in what period, they were not followed; and
  • any alternative practice adopted in lieu of the recommendation (in which case the issuer must confirm that this practice has been approved by its board).

The NZX is currently undertaking a review of the Corporate Governance Code to assess the effectiveness of certain settings within the Code, respond to stakeholder feedback, and reflect international developments in the context of New Zealand market conditions. One of the areas of review is whether additional guidance should be included in the Code to assist issuers in meeting their reporting obligations in this regard.

The remaining sections of this chapter describe the key and topical corporate governance rules and requirements in New Zealand.

Over recent years, a range of regulatory inquiries in New Zealand and Australia have emphasised the importance of institutional culture in mitigating the risk of misconduct or undesirable outcomes for consumers, namely:

  • the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry;
  • APRA's Prudential Inquiry into the Commonwealth Bank of Australia; and
  • the New Zealand Financial Markets Authority and Reserve Bank's reviews of conduct and culture in New Zealand banks and the insurance industry.

The reports from these inquiries emphasised that boards of directors are expected to take ownership of organisational culture and set the "tone from the top", as part of their wider responsibility for risk management.

The recently enacted Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 makes specified types of climate-related disclosure mandatory for a range of financial institutions, including large listed companies, insurers, banks, non-bank deposit takers and investment managers. The regime commences once the formal reporting standard has been issued, which is expected to be completed in December 2022, with disclosures being required for financial years commencing from 1 January 2023 onwards. The key thematic areas for which disclosure will be required are governance, strategy, risk management, and metrics/targets, in each case relating to climate change and emissions.

The Listing Rules require listed issuers to report a breakdown of the gender balance of their directors and officers and an evaluation of performance with respect to the company’s diversity policy. 

In addition, as noted in 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares, NZX-listed issuers are required to either comply with the Corporate Governance Code's recommendations, or explain why they have not. The Corporate Governance Code recommends that issuers provide non-financial disclosure at least annually, including considering environmental, economic and social sustainability factors and practices. The Corporate Governance Code does not mandate the form of this reporting, but does support the use of recognised international reporting initiatives where appropriate to the company’s scale.

The principal bodies or functions involved in the governance and management of a company are its shareholders, its board of directors, and the company’s management team, if it has one. (It is common for boards of directors to appoint senior employees to management positions and delegate to those senior employees the necessary authority to manage the day-to-day affairs of the business – see further comments in 3.2 Decisions Made by Particular Bodies.)

Under the Companies Act, shareholder approval is required for certain significant matters such as adopting or altering the constitution, approving an amalgamation of the company with one or more other companies, commencing a voluntary liquidation of the company, and entry into major transactions. Major transactions are, in broad terms, those in which the company proposes to acquire or dispose of assets, rights or interests, or incur obligations or liabilities, the value of which is more than half the value of the company’s assets immediately prior to the transaction.

Other decisions are left to the board. The board may delegate its powers to a director, a committee of directors, an employee or any other person, but the board remains responsible for monitoring the decisions made by its delegate. There are, however, some powers that may not be delegated by the board (set out in Schedule 2 of the Companies Act), including changing the company’s name, issuing new shares, authorising dividends or other distributions, approving an amalgamation, acquiring the company’s own shares and changing its registered office.

A resolution of shareholders may be passed at a meeting of shareholders (see 5.3 Shareholder Meetings) or by written resolution.

When shareholders exercise a power reserved to them by the Companies Act or the company’s constitution, the power is exercised by ordinary resolution (ie, a simple majority of votes cast on the resolution) unless otherwise specified in the relevant provision of the Act or constitution. A specified set of matters requires approval by way of a "special resolution", meaning that (if the resolution is to be passed at a meeting) a majority of at least 75% of votes cast must be obtained to pass the resolution. That threshold may be increased (but not lowered) by the company’s constitution.

For an ordinary or special resolution of shareholders to be passed in the form of a written (circular) resolution, the resolution must be signed by not less than 75% of the shareholders entitled to vote, who must together hold not less than 75% of the votes entitled to be cast on the resolution. A copy of such a written resolution must be sent to all shareholders that did not sign it, within five working days after the resolution is passed.

Decision-Making by Directors

Directors may also make decisions by way of resolutions passed at meetings, or by written resolution. Schedule 3 of the Companies Act sets out the default rules for directors’ meetings, including:

  • requirements for notice (two business days);
  • the required quorum (a majority of directors);
  • means of attendance (in person or by audio or audio-visual communication); and
  • voting (at a meeting, only a majority vote of directors present is required, with each director having one vote – the chair does not have a casting vote).

The board must ensure that minutes of all meetings of directors are kept.

Directors may also pass a written (circular) resolution. Unless the constitution specifies otherwise, for such a written resolution to be passed, it must be signed or assented to by all the directors then entitled to receive notice of a directors’ meeting.

Under the Companies Act, companies have a single board. Boards may appoint committees to take responsibility for particular aspects of the business or the governance of the company, and the Listing Rules require listed companies to have an audit committee. The Corporate Governance Code also requires listed companies to either have a remuneration committee and a nomination committee or explain the reasons why not.

The Companies Act only provides for one class of director, meaning that all directors have the same fundamental role. In practice, committee memberships may mean that directors are more or less involved in certain aspects of the business or its governance than others, and the constitution may (if desired) specify different categories of directors. Usually, the board will elect a chairperson. The default position under the Companies Act is that the chairperson does not have a casting vote.

The Companies Act requires every company incorporated in New Zealand to have at least one director that lives in (i) New Zealand or (ii) an “enforcement country” and who is a director of a body corporate that is incorporated in that enforcement country under a law equivalent to the Companies Act. At present, Australia is the only approved “enforcement country”.

The constitution of a company may increase the minimum number of directors required.

The Listing Rules require listed companies to have at least three directors, two of whom must ordinarily reside in New Zealand and two of whom must be independent directors (and the Corporate Governance Code further recommends that a majority of the board be independent directors). “Independent” for this purpose broadly means directors who are free of any interest, position, association or relationship that could reasonably be perceived to materially influence their capacity to bring an independent view, act in the company’s best interests and represent the interests of its financial product holders generally.

Industry-specific legislation or other corporate governance codes may impose stricter obligations on the board composition of a company in that industry. For example, the Reserve Bank of New Zealand’s Banking Supervision Handbook for the banking sector and Governance Guidelines for the insurance sector require at least half of the company’s directors to be independent directors.

Section 153 of the Companies Act provides that, unless varied by the constitution, directors are appointed by ordinary resolution (a simple majority of votes) of the shareholders. In addition, the court has the power to appoint directors on the application of a shareholder or creditor if there are no directors, or fewer directors than the quorum for a board meeting, and it is not possible or practicable to appoint directors in accordance with the company’s constitution. A director may be removed by an ordinary resolution of shareholders at a meeting called for purposes that include the removal of the director (in which case the notice of meeting must state that a purpose of the meeting is to remove the director).

These provisions may be modified by the constitution. For example, it is common in the context of an incorporated joint venture for each joint venture party to be entitled to appoint and remove a specified number of directors, regardless of whether that shareholder is entitled to exercise more than 50% of the votes at a shareholder meeting.

Directors are constrained from acting in situations where their personal interests may conflict with the interests of the company. Section 131 of the Companies Act requires a director, when exercising powers or performing duties, to act in good faith and in what the director believes to be the best interests of the company – see 4.6 Legal Duties of Directors/Officers.

Section 139 further defines a director as “interested” in a transaction of the company if, and only if, the director:

  • is a party to, or will or may derive a material financial benefit from, the transaction;
  • has a material financial interest in another party to the transaction;
  • is a director, officer or trustee of a party to, or person who will or may derive a material financial benefit from, the transaction, except another member of the same wholly owned group of companies;
  • is the parent, child, spouse, civil union partner, or de facto partner of another party to, or person who will or may derive a material financial benefit from, the transaction; or
  • is otherwise directly or indirectly materially interested in the transaction.

A director who is interested in a transaction with the company (other than a transaction between the director and the company in the ordinary course of its business and on its usual terms) must disclose that interest to the board immediately after becoming aware that they are interested in the transaction. Such disclosure must be entered in the interests register, including the nature of the interest and the monetary value or (if the interest is not quantifiable) the extent of the interest. A director may disclose an ongoing interest in a named person or company, with the effect that the director will be treated as having disclosed an interest in any future transaction with that person or company.

Failure to disclose an interest does not invalidate the transaction, but it does allow the company to avoid the transaction within three months of disclosing the transaction to all shareholders if the company did not receive fair value (assessed at the time of the transaction on the basis of the knowledge of the company and the interested director). Where the transaction transfers property to a person and that property is transferred on to a third party, the company’s right to avoid the transaction does not affect the title or interest of that third party provided he or she is a purchaser for valuable consideration without knowledge of the circumstances under which the first person acquired the property.

The default position under the Companies Act is that an interested director may vote on matters relating to the transaction, be counted in the quorum and otherwise do anything as though the director is not interested in that transaction. It is, however, common for boards to adopt charters or codes of conduct that record the collective expectations of the board as to how conflicts of interest (which may be more broadly described than the formal definition of “interested” in the Companies Act) will be managed. Those expectations commonly provide that directors with an actual or potential conflict of interest will abstain from participating in meetings and voting on matters in respect of which the conflict exists, and this approach is also required for directors of listed companies under the Listing Rules. 

A director is also subject to restrictions on the disclosure and use of company information where that information is obtained in their capacity as director or employee of the company and that information would not otherwise be available to them. A director may, unless prohibited by the board, disclose such information to a person whose interests the director represents or a person in accordance with whose direction the director is required or accustomed to act (see 5.2 Role of Shareholders in Company Management). These exceptions contemplate the concept of a nominee director, ie, where a shareholder is entitled to nominate a director to represent its interests on the board of the company. In the latter case, the name of the person to whom the information is disclosed must be entered in the interests register.

Alternatively, a director may disclose or make use of such information if: (i) the board approves the disclosure or use; (ii) the disclosure or use will not, or will not be likely to, prejudice the company; and (iii) particulars of the disclosure or use are entered in the interests register.

When a director of a company acquires or disposes of a “relevant interest” in shares issued by that company, the director must disclose to the board the number and class of shares acquired or disposed of, the nature of the director’s relevant interest, the consideration exchanged and the date of effect. That information must be entered in the interests register. A director has a relevant interest in a share if the director is the beneficial owner of the share or may exercise or control the exercise of the power to vote, or to acquire or dispose of the share. In the case of a listed company, its directors and senior managers are also required to publicly disclose any acquisition or disposal by them of a “relevant interest” in the company’s (and its related bodies corporate’s) quoted financial products.

For unlisted companies, a director must not trade in the company’s shares or other financial products if the director is in possession of information material to an assessment of the value of the shares or financial products that they would not otherwise be in possession of but for their position as director, unless the consideration paid by the director is not less than, or received by the director is not more than, the fair value of the financial products. If a director breaches this provision, they are liable to account to the counterparty for the difference between fair value and the consideration.

In the case of a listed company, the insider trading provisions of the Financial Markets Conduct Act 2013 (FMCA) apply instead. In broad terms, these prohibit persons (including directors) from trading quoted financial products while in possession of “inside information”, encouraging or advising other persons to trade or hold those financial products (or to advise or encourage a third person to do so), or disclosing the inside information. “Inside information” means (broadly) information that is not generally available to the market, which a reasonable person would expect to have a material effect on the price of the relevant financial products if it were generally available to the market and that relates to particular financial products or issuers (rather than to financial products or issuers generally).

The principal legal duties of directors under the Companies Act are described in the following sections. Directors are also under a number of other obligations of a more administrative nature, including the obligations relating to disclosure of their interests and share dealings referred to above, an obligation to supervise the keeping of the company’s share register, and obligations to ensure relevant filings are made with the Companies Office.

Section 131 – Good Faith and Best Interests of the Company

A director is required, when exercising their powers or duties, to act in good faith and in what the director believes to be the best interests of the company. This test is subjective, ie, as to the director’s belief, rather than what is objectively in the company’s best interests (Madsen-Ries and Levin as Liquidators of Debut Homes Limited (in liquidation) v Cooper [2020] NZSC 100 at [113]). However, “directors will probably have a hard task persuading the court that they honestly believed that an act or omission that resulted in substantial and foreseeable detriment to the company was in the company’s best interests. Under a subjective test, the fact that an allegedly unreasonable belief was held may, however, provide evidence that the belief was not honestly held.” (at [109]).

If provided for in the constitution and (in some cases) agreed to by the other shareholders, a director may act in the best interests of a parent company or their appointing shareholder (in the case of a joint venture), even though such actions may not be in the best interests of the company.

Section 133 – Proper Purpose

Directors must exercise their powers for a proper purpose. That is, when exercising a power conferred upon a director, the director must exercise that power in line with the purpose for which it was conferred upon them. This duty is distinct from the duty as to best interests, as it is possible to exercise a power for an improper purpose even though the director genuinely believed the course of action was in the best interests of the company.

Section 134 – Compliance With Companies Act and Constitution

A director may not act, or agree to the company acting, in a way that contravenes the Companies Act or the company’s constitution. A contravention of another statute would not necessarily breach this duty, but may breach Sections 131 (good faith and best interests of the company) and 133 (proper purpose).

Section 135 – Reckless Trading

A director must not agree to, cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors. Whether a director believes the conduct of the business is reasonable is irrelevant. Directors are required to make a "sober assessment" of whether their future trading forecasts justify continuing to trade and whether the assumptions that underpin those forecasts are reasonable (Mason v Lewis [2006] 3 NZLR 225 at [51]), but the benefit of hindsight should not be applied to directors’ decisions. If there is not a reasonable prospect of the company regaining solvency, formal insolvency mechanisms should be invoked (see Debut Homes) – it is not sufficient that the director’s decisions would reduce the overall deficit. Directors may not continue to trade in a way that favours one class of creditors over another.

In the long-running Mainzeal litigation, the Court of Appeal found four of the former directors of Mainzeal (a construction company) to have breached Section 135 (Mainzeal Property and Construction Ltd (in liq) v Yan). In that case, money was extracted from Mainzeal to an overseas parent company through intermediary companies that were insolvent. A director of both Mainzeal and its parent company made representations to his fellow directors that the parent company would financially support Mainzeal, when it first became insolvent in a balance sheet sense. The representation was not legally binding on the parent company and the parent company did not provide the support when it was needed. The directors were found to have exposed creditors to substantial risk of serious loss by continuing to trade in reliance on the non-binding assurances of financial support. However, the Court did not award compensation in respect of the breach of Section 135, because the Court held that the directors’ conduct over the relevant period did not increase the aggregate loss suffered by Mainzeal’s creditors (but see comments on Section 136 below).

Section 136 – Obligations

A director must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so. Factors that suggest such a belief is reasonable may include the fact that the company is able to continue trading for a reasonable time following the incurring of the obligation, that bank finance is still available to the company, and that any downturn in the company’s performance was unexpected or sudden. Factors that count against the belief being reasonable include incurring long-term liabilities before the business of the company has been successfully established, or incurring obligations following the loss of an important revenue stream. In the Mainzeal case, Mainzeal also used funds owing to subcontractors as working capital in order to continue to trade, and entered into large construction contracts without the directors having a reasonable basis to believe it would be able to perform them through to completion. The Court held that the directors breached Section 136 in agreeing to the company doing so. The Supreme Court recently heard an appeal lodged by the Mainzeal directors, in which they argued that Sections 135 and 136 allow directors a wide discretion to manage the company as they think best, and only give rise to liability where directors act irrationally. The liquidators cross-appealed, arguing that (i) the directors would have had to reasonably believe they could return the company to solvency, not just improve its financial position; and (ii) the measure of damages under both Sections 135 and 136 should be the amount of any new debt incurred. The Supreme Court’s judgment is expected within the first half of 2022.

Section 137 – Duty of Care

A director of a company, when exercising powers or performing duties as a director, must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances, taking into account (without limitation) the nature of the company, the nature of the decision, and the position of the director and the nature of the responsibilities undertaken by them.

This Section does not automatically impose a higher standard of skill on directors who hold professional qualifications in a particular area. The position may however be different if a director is brought onto the board to add a particular skillset.

Section 138 – Use of Information and Advice

The Companies Act expressly permits directors, when exercising powers or performing duties, to rely on reports, statements, financial data, professional and expert advice, and other information provided by others (including employees, professional advisers and experts) whom the director reasonably believes to be competent in the relevant area, and by fellow directors or committees on which the director did not serve in relation to matters within those directors’ or committees’ designated authority. In each case, the director must act in good faith, have no knowledge that such reliance is unwarranted and make proper inquiry where the need for inquiry is indicated by the circumstances.

Case law indicates that this Section does not excuse directors who rely solely on others and pay no mind to the reports or advice that are delivered to them. In the context of financial accounts, directors must have an understanding of basic accounting concepts and an intelligent oversight of the business’ affairs such that they can review the financial accounts placed before them and identify obvious discrepancies.

All of the directors’ duties described in 4.6 Legal Duties of Directors/Officers are owed to the company, rather than to shareholders. A limited set of duties is owed directly to the shareholders, including the duties to supervise the share register and for directors to disclose their interests and dealings in the company’s shares.

While directors’ duties are not owed directly to creditors, Sections 135 and 136 respectively require directors to consider whether the company’s business is being carried on in a way that is likely to create a substantial risk of serious loss to creditors and whether the company will be able to perform the obligations that it proposes to incur.

If the company became insolvent and was placed into liquidation, the liquidator could (on behalf of the company) then bring an action against a director that had breached their duties to the company. Amounts received from directors as a result would be applied for the benefit of the company’s creditors in the liquidation.

Shareholder Enforcement

A present or former shareholder may bring an action against a director for a breach of duty owed to them as a shareholder (Section 169), but may not directly bring an action against a director for breaches of duties owed to the company.

However, Section 165 allows a shareholder or director to apply to the court for leave to bring proceedings in the name and on behalf of the company. This creates an avenue for shareholders to hold directors to account for breaches of their duties to the company (and may also be used for bringing proceedings against third parties). The Section may also be used to intervene in existing proceedings for the purpose of continuing, defending or discontinuing proceedings to which the company is a party.

In determining whether to grant leave to the shareholder (or director), the court must have regard to the likelihood of success, cost, likely level of relief, and any action already taken to obtain relief and the interests of the company in the proposed proceedings, and may also have regard to whether the applicant seeking leave may have ulterior motives other than the best interests of the company (Johnson v Johnson [2020] NZHC 1563). In Vijayakumar v Vasanthan [2021] NZHC 1827, the Court noted that it was helpful for this purpose to consider whether an experienced liquidator would bring the claim, because they regularly assess whether to issue proceedings against directors. Additionally, the court may decline an application under Section 165 if a more effective alternative remedy exists under Section 174.The court may only grant leave if it is satisfied that the company does not intend to bring, diligently continue or defend, or discontinue, the proceedings itself, or that it is in the interests of the company that the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

Sections 170 and 172 allow a shareholder to bring an action requiring a director or the company to take any action required to be taken by the directors or the company (respectively) under the Companies Act for the company’s constitution.

In any of the above proceedings, the court may appoint a shareholder to represent all other shareholders where the shareholders have the same or substantially the same interest (Section 173). The purpose of this provision is to avoid numerous proceedings in which the dispute in each case is essentially the same.

A present or former shareholder or any other person on whom the constitution confers the rights of a shareholder is also entitled to take action against the company in situations where the shareholder or person considers that the “affairs of the company” have been, or are being, or are likely to be conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to them in that capacity or in any other capacity (Section 174). The statutory reference to conduct of the “affairs” of a company has been interpreted broadly, extending to any conduct that generally concerns the company. However, this does not include actions of directors or shareholders in a purely personal capacity (Van der Fluit v O'Neill [2021] NZHC 1651). Non-compliance by the company or directors with specified provisions of the Companies Act is deemed to be conduct of that kind, as is the provision of a certificate by a director without reasonable grounds existing for an opinion set out in that certificate. (Directors are required to certify prescribed matters in relation to decisions to (for example) issue shares or pay dividends or other distributions, or for the company to acquire its own shares.) The court may grant a wide range of remedies in respect of a successful application under this provision.

What constitutes oppressive, unfairly discriminatory and unfairly prejudicial conduct was considered by the Court of Appeal in Thomas v HW Thomas Limited [1984] 1 NZLR 686 at 694. In that case it was said that the three terms were not to be read as distinct, but instead as overlapping terms that help to explain one another. The Court of Appeal in Latimer Holdings Limited v Sea Holdings NZ Limited [2005] 2 NZLR 328 at [138] further elaborated that “unfairness requires a visible departure from the standard of fair dealing, assessed in light of the history and structure of the company and the expectations of its members”.

In Wilding v Te Mania Livestock [2017] NZHC 717, the High Court held that:

  • conduct need not be unlawful to be oppressive;
  • the inquiry is as to the effect of the conduct, not the intention of the parties;
  • the “just and equitable” aspect means plaintiffs should not have acted wrongly; and
  • remedies afforded under the section should be designed to best advantage shareholders as a whole.

In Birchfield v Birchfield Holdings Ltd [2021] NZCA 428, the Court of Appeal held that a fairly calculated buy-out offer made by the other parties involved may be treated as curing unfair or prejudicial conduct (noting, however, that each case will be fact dependent).

Company Enforcement

The company may bring an action against one or more of its directors or former directors for breach of a duty owed by that director to the company. As the business and affairs of the company are required to be managed by, or under the direction or supervision of, its board, it falls to the board to decide whether such an action should be brought. If the directors do not resolve to do so (eg, if a majority of the board were complicit in the breach), a shareholder or director can apply to the court for leave to bring an action on behalf of the company, in the manner described above.


Breaches of the directors’ duties outlined above generally attract civil liability (although a number of the administrative provisions of the Companies Act attract criminal liability).

There are two key exceptions as set out below.

  • Section 138A creates an offence for serious breaches of the duty of good faith. Such a breach will occur when a director, in exercising their powers, acts in bad faith towards the company, believes that the conduct is not in the best interest of the company and knows that the conduct will cause serious loss to the company. “In short, the offending requires dishonesty” (see Spence v R [2021] NZCA 499 at [36]).
  • Section 380 creates an offence for dishonestly failing to prevent a company from incurring a debt if the director knows that the company is already insolvent or will become insolvent as a result of incurring the debt.

The court may also disqualify an individual from being a director in certain circumstances (eg, upon conviction of certain offences or crimes involving dishonesty, for persistent failure to comply with relevant laws, or for acting in a reckless or incompetent manner in the performance of the director’s duties).

There are also limited powers for liquidators, creditors and shareholders, in the course of a liquidation of the company, to apply to the court to order a director (or a promoter, manager, administrator, liquidator or receiver) to repay or restore money or property where that person has misapplied, or retained, or become accountable for that money or property, or been guilty of negligence, default or breach of duty or trust in relation to the company (Section 301).

The above commentary describes the key enforcement avenues of general application in respect of corporate governance requirements in New Zealand. There are, however, other potentially relevant enforcement avenues, including that:

  • the Financial Markets Authority (a regulator) may apply to the court for management banning orders that prohibit individuals from engaging in certain activities in respect of the governance and management of companies; and
  • the Reserve Bank of New Zealand may remove directors of licensed insurers from their positions if it is not satisfied that they are fit and proper persons to hold those positions, and may remove directors of banks if specified criteria are satisfied.

Limitations on Liability of Directors

Section 162 of the Companies Act permits a company to effect insurance on behalf of, and to indemnify, its directors subject to specific limits and exclusions.

The board may authorise the payment of remuneration and provision of other benefits to directors (including compensation for loss of office and the making of loans to, and giving of guarantees for the benefit of, directors). However, before doing so, the board must be satisfied that any such action is fair to the company. Any director that votes in favour must sign a certificate to that effect that also sets out the grounds for that opinion. Such grounds must be reasonable – if they are not, the director receiving the payment or other benefit is liable to the company for all such amounts paid or benefits conferred, unless they prove that the payment or benefit was fair to the company.

For listed companies, the Listing Rules require directors’ remuneration, and any increase in such remuneration, to be approved by ordinary resolution. The Corporate Governance Code also recommends that listed companies have a remuneration committee, the functions of which include recommending to shareholders (for their approval) the appropriate remuneration for directors.

Directors’ remuneration (or any other benefit covered by Section 161) must be entered in the interests register of the company, which must be made available for inspection by shareholders in the company.

For listed companies, the Corporate Governance Code also recommends that director remuneration should be clearly disclosed to shareholders in the issuer’s annual report, including a breakdown of remuneration for committee roles and for fees and benefits received for any other services provided to the issuer.

A company has separate legal personality from its shareholders. Unless the constitution provides otherwise, shareholders are not liable for the company’s obligations by reason only of being a shareholder, and their liability to the company is limited to amounts unpaid on their shares, liability for breaches of duty if they act as "deemed directors" of the company, recovery of unauthorised distributions, and liability provided for in the constitution (eg, for capital calls on shares).

The constitution of the company is binding as between the company and the shareholders, and as between the shareholders (Section 31). It is also common for shareholders in more closely held companies to enter into shareholders’ agreements that govern the conduct of shareholders, as distinct from the constitution. The key advantage of such an agreement is that it is not required to be disclosed, whereas the constitution is required to be filed with the Companies Office in its electronic registry (which is freely searchable by the public).

Although the business and affairs of the company are required to be managed by, or under the direction or supervision of, the board of the company, some particularly important decisions are reserved to the shareholders of the company. These include:

  • a decision to approve a "major transaction" (described in 3.2 Decisions Made by Particular Bodies), by special resolution;
  • the appointment and removal of directors, by ordinary resolution; and
  • a decision to amalgamate the company with another company (not being a member of the same wholly owned group) or to commence a voluntary solvent liquidation, each by special resolution.

The chairperson at a shareholders’ meeting must allow a reasonable opportunity for shareholders to question, discuss or comment on the management of the company. The shareholders are entitled to pass a resolution relating to the management of the company but, unless the constitution provides otherwise, such a resolution is not binding on the board.

In addition, the constitution may confer powers upon shareholders that would otherwise fall to be exercised by the board (Section 126(2)). However, a shareholder that exercises, or takes part in deciding whether to exercise, that power is deemed to be a director in relation to that action and is subject to the directors’ duties contained in Sections 131 to 138 in relation thereto. Similar provisions apply where the constitution of a company requires a director or the board to exercise or refrain from exercising a power in accordance with a decision or direction of shareholders, or where a director or the board is accustomed or required to act in accordance with another person’s directions or instructions.

The board of a company is required to call an annual meeting of shareholders, unless there is nothing required to be done at that meeting (eg, reappointing an auditor), the constitution does not require such a meeting, and the board has resolved not to call or hold the annual meeting.

The board, or any other person authorised by the constitution, may call a shareholder meeting at any time. Such a meeting must be called on the written request of shareholders holding shares carrying together not less than 5% of the voting rights.

Schedule 1 of the Companies Act sets out the default rules for proceedings at shareholders’ meetings. Some of these may be modified by the company’s constitution.

Written notice of meeting must be given to each shareholder, director and auditor at least ten working days prior to the meeting. The notice must specify the time, the place and the nature of the business to be transacted at the meeting, in sufficient detail to enable a shareholder to form a reasoned judgement in relation to it. Where any special resolution is to be submitted to the meeting, the text of that resolution must be included in the notice.

Shareholders may attend in person or via audio or audio-visual communication, ie, an electronic meeting. Electronic meetings have become increasingly common following the emergence of COVID-19, and are specifically provided for in the Companies Act (Schedule 1) and the Listing Rules (Rule 2.14.3). Shareholders may also appoint a proxy to attend the meeting on their behalf, or may (if permitted by the constitution) cast a "postal vote", including by electronic means. The quorum requirement will be met if those attending, together with those voting by proxy or by postal vote, are entitled to exercise a majority of the votes entitled to be cast.

If the directors have elected a chairperson of the board, that chairperson must chair the meeting if they are present. If the chairperson is not present within 15 minutes, the shareholders present may choose one of their number to chair the meeting.

Where all attendees are present in person, the default method for voting is by a show of hands or by voice. Where attendees are present via audio or audio-visual communication, the chairperson may decide how a vote is to be conducted. In each case, the number of shareholders that have voted for or against each resolution by postal vote is also counted. Any five shareholders, shareholders together holding 10% of the votes or the chairperson may require that a poll is conducted, in which case votes must be counted according to the number of votes attached to the shares held by the relevant shareholders.

Postal votes must be received by the person authorised to receive and count them (or if there is no such person, any director) at least 48 hours prior to the meeting.

The board must ensure minutes are kept of all proceedings at shareholders’ meetings and minutes that are signed as correct by the chairperson are prima facie evidence of the proceedings.

Shareholders are entitled to raise matters for discussion or resolution at the next meeting of shareholders. The Companies Act specifies the timeframes that must be met by a shareholder that proposes to do so and how the cost of giving notice of those matters to all shareholders will be met (ie, whether by the proposing shareholder or the company).

See 4.8 Consequences and Enforcement of Breach of Directors’ Duties.

In addition, dissenting shareholders have what is commonly known as a "minority buyout right" (although it is not restricted to minority shareholdings) if certain proposals are approved by shareholders and the dissenting shareholder votes against the proposal. The relevant categories of proposal are:

  • an alteration of rights attached to shares in the company;
  • adopting, revoking or changing the constitution in a way that imposes or removes a restriction on the activities of the company;
  • amalgamating the company with another company; or
  • entering into a major transaction.

In such a case, the dissenting shareholder may require the company to purchase their shares at fair value (as determined by binding arbitration, if the value is not agreed).

Under the FMCA, a person is a “substantial product holder” of a listed issuer if the person has a “relevant interest” in 5% or more of the quoted voting products (eg, ordinary shares of a listed company) of the listed issuer. The definition of “relevant interest” for this purpose is broadly aligned with that set out in 4.5 Rules/Requirements Concerning Independence of Directors, in relation to directors’ interests in shares, although the two definitions diverge in some respects.

Persons are required to notify the listed issuer and the stock exchange when they become a substantial product holder, when the extent of their relevant interest changes (either up or down) by 1% or more of the total or when they cease to be a substantial product holder.

In addition, a director or senior manager of a listed issuer who holds a relevant interest in quoted financial products of that listed issuer must disclose this to the listed issuer and the stock exchange.

Companies (whether listed or unlisted) that have 50 or more shareholders, 50 or more share parcels, and consolidated assets of NZD30 million or consolidated revenue of NZD15 million (Code companies) are also subject to the Takeovers Code. The core requirement of the Takeovers Code is that no person may come to hold or control greater than 20% of the voting rights in a Code company, or increase an existing holding or control above that proportion, except in specified ways, eg by making a partial or full takeover offer to all shareholders, or (for a holder of 50% to 90% of the voting rights) by increasing the holding by less than 5% per year.

Companies that carry on business in New Zealand are subject to different financial reporting requirements depending on their place of incorporation, ownership, size and listed or unlisted status, as follows.

  • "Large" companies are required to file signed audited financial statements with the Companies Office within five months of each balance date. "Large" companies are:
    1. companies incorporated in New Zealand that are not subsidiaries of overseas companies, which have assets greater than NZD66 million or revenue greater than NZD33 million in each of the preceding two financial years; and
    2. overseas companies and subsidiaries of overseas companies, which have assets greater than NZD22 million or revenue greater than NZD11 million in each of the preceding two financial years.
  • Companies with ten or more shareholders are subject to the same reporting requirement as "large" companies, unless they opt out by a 95% shareholder resolution.
  • The Listing Rules also require listed companies to release annual reports (within three months of each balance date), including audited financial statements and results announcements in relation to their full-year and half-year results.
  • Every issuer of a financial product that is regulated under the FMCA (ie, offerors of financial products for which "product disclosure statement" disclosure is required, akin to a prospectus) – whether or not the issuer is listed on the NZX – is also required to file signed audited financial statements with the Companies Office within four months of each balance date.
  • Companies that do not fall into any of the above categories are not required to file or release their financial statements publicly, unless shareholders together holding not less than 5% of the company’s voting shares have given notice requiring the company to opt into the financial reporting requirements.

If a company’s shareholders resolve to adopt, alter or revoke its constitution, the board is required to file a prescribed form of notice with the Companies Office, within ten working days (including a copy of the constitution or amendments, which are then made publicly available). Other governing documents (eg, shareholders’ agreements) are not required to be disclosed.

See also 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares, in relation to corporate governance disclosures by listed companies. The Corporate Governance Code recommends that a listed issuer’s code of ethics, board and committee charters and the policies recommended by that Code (eg, relating to continuous disclosure, remuneration, diversity and financial product dealings), together with any other key governance documents, be made available on its website.

The following key filings are currently required to be made with the Companies Office and are publicly searchable on the Companies Office website:

  • the company’s constitution, and its registered office address, address for service of legal documents and postal address;
  • the name and addresses of its directors and ten largest shareholders of each class, and details of any change of directors;
  • details of any issues of shares by the company; and
  • details of the company’s ultimate holding company (if any).

In March 2022, the New Zealand government announced its intention to introduce legislation to increase the transparency of information on the “beneficial ownership” of companies established in New Zealand. In particular, it is proposed that details of each beneficial owner (including their full name and basis on which they are a beneficial owner, and their own upstream beneficial ownership) will be made publicly available on the Companies Office website. Equivalent changes are also proposed for limited partnerships.

For companies that have made one or more "regulated offers" under the FMCA (ie, offers for which "product disclosure statement" disclosure is required – akin to a prospectus), the product disclosure statement and all other material information in relation to the offer must be filed on the Disclose Register, a publicly searchable electronic register operated by the Companies Office.

See 6.1 Financial Reporting in relation to when a company’s financial statements are required to be audited. If they are required to be audited, this must be done by a qualified auditor or audit firm, in accordance with applicable auditing and assurance standards. For that purpose, the company must appoint an auditor at its annual meeting to hold office until the close of the next annual meeting. The auditor will automatically be reappointed at each subsequent annual meeting unless the auditor resigns or ceases to be qualified, or the company passes a resolution to replace the auditor.

Among other exclusions, a director or employee of the company, or a partner or employee of any such person, may not be appointed or act as an auditor of the company.

The directors must ensure that the auditor has access at all times to the accounting records of the company. The auditor may require a director or employee of the company to provide such information and explanations as the auditor thinks necessary for the performance of the auditor’s duties. The directors must also ensure that the auditor is permitted to attend any shareholder meeting, receives all notices and other communications to shareholders regarding the meeting, and is permitted to speak at the meeting on any part of the business of the meeting that concerns the auditor as auditor.

As noted in 4.8 Consequences and Enforcement of Breach of Directors’ Duties, the business and affairs of the company are required to be managed by, or under the direction or supervision of, the board of the company. Directors must exercise the care, diligence and skill that a reasonable director would exercise – see 4.6 Legal Duties of Directors/Officers. This requires directors to keep themselves apprised of the business risks the company faces.

The Corporate Governance Code recommends that listed companies have a risk management framework, that the issuer’s board receives and reviews regular reports, and that the material risks facing the business (and how these are being managed), in particular health and safety risks, be reported by the issuer.

The Health and Safety at Work Act 2015 (HSW Act) requires a “person conducting a business or undertaking” (eg, a company) to ensure, so far as is reasonably practicable, the health and safety of all its workers while they are at work, and that the health and safety of other persons is not put at risk from that work. The company and its directors can be found liable for breaches of the HSW Act, including where risks are not appropriately managed and systems are not set up to minimise risks.

For listed companies, the Listing Rules require disclosure of “material information” to the market (unless an exception applies), immediately after a director or senior manager knew, or reasonably ought to have known, the information. Complying with this obligation requires boards to have in place appropriate arrangements for information flows to ensure that any such information does in fact become known to a director or senior manager and can be released to the stock exchange in the required manner.

Webb Henderson

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Webb Henderson specialises in corporate and M&A projects (including corporate governance, takeovers, joint ventures, partnerships and investment projects), as well as banking and finance, competition law and regulatory advice. Across its Auckland and Sydney offices, the firm comprises 12 partners and a total of 50 lawyers. The Auckland office is headed by partners Graeme Quigley and Garth Sinclair, who are highly regarded corporate lawyers, each with more than 25 years’ experience specialising in corporate governance work, M&A, strategic projects, and joint ventures. Webb Henderson regularly advises major New Zealand corporates on their corporate governance frameworks and processes.