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MAJOR REFORMS: THE COMPANIES ACT OVERHAUL

Phase One: Immediate Reforms (Corporate Governance Amendment Bill – Early 2025)

The first phase focuses on modernisation and enhanced creditor protection:

Director Identification Numbers

Introduction of unique director identifiers to combat “phoenixing” – the practice of directors closing failing companies only to relaunch under slightly different structures. This will create a permanent record of directorial history, making it harder for directors to distance themselves from failed entities.

Extended Claw-Back Periods

Implementation of previously shelved recommendations from the 2015 Insolvency Working Group. Most significantly, the claw-back period for voidable transactions with related parties will extend from two to four years prior to liquidation. This change substantially increases liquidators’ ability to recover value for creditors where directors or related entities have extracted value shortly before insolvency.

Enhanced Creditor Protections

Additional measures include broadened protection for employee entitlements (including long service leave and payments in lieu of notice) and better consumer protection for gift card and voucher holders when retailers enter receivership.

NZBN Integration

Improved uptake and mandatory use of New Zealand Business Numbers to streamline business identification, reduce fraud, and enhance transparency across government and commercial interactions.

Phase Two: Directors’ Duties Review (Commencing 2025)

The Law Commission will undertake a comprehensive review of directors’ duties, including the increasingly complex rules around insolvent trading and director liability. This review will specifically examine issues raised by the Mainzeal case, which continues to generate uncertainty about when directors breach their duties by allowing companies to trade while insolvent.

This review is critically important. The current law places directors in an extremely difficult position – they face potential personal liability for allowing an insolvent company to continue trading, yet companies in temporary financial difficulty often need to trade through their problems to achieve better outcomes for all stakeholders.

What This Means for Practice

For insolvency practitioners: The extended claw-back period for related-party transactions will significantly expand the pool of potentially voidable transactions, particularly in family-owned businesses and closely-held companies. Liquidators should review transactions going back four years where related parties are involved.

For directors and advisors: The introduction of director identification numbers and potential changes to directors’ duties heighten the importance of maintaining clear records, taking professional advice early, and documenting the basis for decisions to continue trading when financial difficulties arise.

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For specific advice, contact Canterbury Legal.