Is New Zealand’s Companies Act ready for the future?

The Companies Act 1993 has shaped New Zealand's corporate landscape for more than three decades, but is it fit for the future? This question and others sparked debate at 'Corporate Law at a Crossroads: Reforming the Companies Act' an event hosted by the New Zealand Centre for Law and Business this month.

Organised by senior lecturers Dr Lynn Buckley and Dr Peter Underwood, the conference brought together legal experts, policymakers, practitioners and other stakeholders to discuss proposed reforms to the Companies Act.

Reckless trading and directors' duties

The day began with a focus on insolvency and directors' duties, drawing insights from recent cases like Mainzeal, in which the directors of the contruction company were found to have allowed Mainzeal to trade in a manner that was likely to create a serious risk of substantial loss to creditors.

Professor Lynne Taylor of the University of Canterbury discussed two sections of the Companies Act, which address reckless trading and obligations incurred by directors. Describing the law as "unclear and difficult to apply," Taylor suggested repealing these provisions and instead holding directors accountable under the duties of good faith and care, diligence and skill.

Accountability was a key theme in John Land's presentation. Land, a Bankside Chambers barrister and PhD candidate at Auckland Law School, discussed how the recent amendment to directors' duties, which allows consideration of factors beyond profit maximisation, challenges the traditional shareholder-focused interpretation of these duties.

He also highlighted the risk of an accountability problem where consideration of matters other than profit maximisation may mask self-interested behaviour on the part of directors.

Dr Jonathan Barrett of Victoria University of Wellington illustrated how different conflicts can arise between progressive acts of directors and the property rights of shareholders depending on the type of company. He argued that freedom of choice should be key, with corporate law offering different structures that allow individuals to choose the kind of company they wish to invest in.

ESG under the spotlight

A panel discussion on directors' duties and environmental, social and governance (ESG) considerations brought spirited debate. Chaired by Business School Dean Professor Susan Watson, the session began with a discussion of the inherent difficulties in conceptualising and defining ESG and its current politicised nature.

The conversation then turned to the importance of ESG, despite its difficulties in corporate governance and how it fits within the legal duties of directors.

Member of Parliament for Christchurch Central, Dr Duncan Webb, who originally sponsored the Companies (Directors Duties) Amendment Bill, defended the introduction of section 131(5), which would allow directors to consider matters other than the maximisation of profit (for example, environmental, social and governance matters).

He acknowledged its imperfections but called it a vital step in bringing corporate law into the 21st century.

Jessica Palairet, Executive Director of Lawyers for Climate Action, warned against repealing the provision, arguing that it risks signalling a retreat from ESG principles. Such a move, she said, could harm New Zealand's international standing and businesses' long-term success.

Tom Logan, Partner at PWC Legal, echoed the importance of ESG considerations for business but suggested section 131(5) may have made matters less clear. He explained how the provision could be confusing for directors, many who already make sustainable decisions, as the amendment's language refers to matters ‘other than the maximisation of profit'.

The bigger picture

The afternoon sessions explored the historical foundations and future directions of corporate law.

Professor Susan Watson traced the corporation's origins, highlighting its hybrid nature as a legal entity and social force. Understanding this duality, she said, is critical to reconciling shareholder interests with broader societal goals.

Meanwhile, Guy Beatson and Susan Cuthbert of the Institute of Directors shifted the focus forward, calling for clearer, simplified obligations for directors to help them comply with the law's spirit, not just its letter.

Is a holistic review needed?

The conference ended with a panel on insolvency and transparency based on the corporate law reform proposals. Chaired by Professor Shelley Griffiths, Dean of the University of Otago Law School, the session raised questions about the scope of the current review.

Panellists, including Igor Drinkovic of MinterEllisonRuddWatts, Damian Chesterman of the Law Society and FortyEight Shortland Barristers (who spoke in a personal capacity) and Oliver Mander of the New Zealand Shareholders' Association, called for a broader, holistic approach to modernising corporate law.