In the latter half of 2024, the Minister of Commerce and Consumer Affairs, Andrew Bayly, announced several significant corporate law reforms, and the Associate Minister of Finance, David Seymour, announced an overhaul of New Zealand’s overseas investment laws.

The corporate law reforms seek to address New Zealand’s long-term productivity challenge and enhance economic growth by strengthening New Zealand’s capital markets through the modernisation, simplification and digitisation of corporate law, amongst other changes. 

The overhaul of the overseas investment laws seek to change their core premise – that it is a privilege to invest in New Zealand – and instead apply a risk based regime. 

Beyond this, a review by the Law Commission of New Zealand directors’ duties and liabilities laws has also been announced and is set to begin in 2025. This will be a significant body of work which will include looking at where to strike the balance between legitimate business risk taking by directors and protection of creditors. 

In our view, the changes proposed are largely to be welcomed. They seek to reduce regulatory costs, promote certainty and resolve uncontroversial problems with our corporate law so as to make it easier to do business and access capital markets. 

We think that the review of overseas investment laws is particularly important. Given New Zealand’s desire to attract foreign investment, it is imperative that the regime gives overseas investors certainty and stability of regulatory settings so that rules on entry and exit are clear and workable.

Corporate law changes

The proposed reforms are lengthy. Set out below is a summary of the more significant changes:

Capital markets reforms

Forecasts no longer required for IPOs: Undertaking an IPO requires the preparation of a product disclosure statement which sets out, amongst other things, information about an entity’s business plans, drivers of returns, risks and key financial information. The latter generally includes a requirement to prepare prospective financial information for up to 2 years (PFI). This is typically the most expensive part of the listing process, generally carries the highest degree of risk and is anomalous globally. The Government is seeking to remove mandatory PFIs by May 2025.

PDS disclosure requirements review: The Government has signalled that in 2025 it will be reviewing certain financial product disclosure requirements relating to equity and debt offers to ensure that the requirements balance benefits for retail investors against the costs on issuers. Essentially, this will be a review to assess what information is used and is needed by investors to better align documentation with those needs. 

Climate related disclosure thresholds: Listed entities need to comply with the climate related disclosure regime if they have a market capitalisation of NZD60m (or an equity value of the same amount), for two consecutive reporting periods. Climate related disclosures involve the preparation of statements that outline an entity’s governance, climate impacts on its business, climate risks and opportunities, transition plans, climate risk management, and certain emissions information. Directors face potential liability for non-compliant statements in the same manner as they do for financial statements. A survey of NZX50 companies found the cost of preparation to be between NZD250,000 and NZD300,000. The Government is consulting on increasing the threshold so as to ease the burden, but also to align more closely to the Australian regime to reduce competitive disadvantage. It is considering increasing the thresholds to either:

• NZD550m which would reduce the number of reporting listed companies from 107 to 54; or
• NZD550m for 2 years and then dropping it to NZD250m, which would reduce the number of reporting listed companies to 81. 

Deemed director liability for climate statements is also being considered (including potentially liability for aiding and abetting an unsubstantiated representation), and could be removed altogether. Alternatively, a similar approach to Australia could be adopted – phasing liability settings in over time. The latter approach would be used to allow time for disclosure practice to settle.

General corporate reforms

Directors duties and liabilities review: In the first half of 2025, there will be a Law Commission review of directors’ duties, liability, offences, penalties and enforcement. This will include consideration of the issues raised in the Mainzeal case in respect of directors’ insolvency duties (see our summary of the Supreme Court’s decision here). The focus on insolvency duties reflects that our laws are more creditor friendly by comparison to the UK and Australia, the latter of which includes a safe harbour for restructurings undertaken to obtain an outcome better than liquidation. Beyond this, the Law Commission will consider overall directors’ liability, not just under the Companies Act but across a range of other legislation. The Law Commission’s work will be significant as it will involve assessing the balance between legitimate business risk taking by directors and creditor protection. 

Director privacy: The Government has decided to introduce director identification numbers, which is a change that the director community (and in particular, the Institute of Directors) has sought for some time. Once the number is obtained, directors could opt to show an address for service instead of their home address on the Companies Office Register. This will address long held privacy and safety concerns. The change also has the advantage of being able to track directors’ histories and association with companies, including failed ones. This is helpful for both enforcement (combatting phoenix companies) and for due diligence.

Tidy ups: These changes seek to update the Companies Act to address many outdated processes (such as those requiring paper filings, public notice in newspapers etc), improve consistency with other legislation, and fix errors in the legislation. The changes also update the insolvency provisions of the Act with certain changes proposed by the Insolvency Working Group in 2015 (such as extending the period during which transactions with related parties can be voided to four years when a business is insolvent). We summarise the changes in more detail here.

Overseas investment reforms

It is proposed that the overseas investment regime will be changed to become a risk based regime. We think this will make it easier to invest in businesses and land in New Zealand.  

The new starting point will be that an investment can proceed unless there is an identified risk to New Zealand’s interests. In Hon. Minister Seymour’s words, New Zealand should move to a position where “you can invest in New Zealand if you’ve got a willing buyer, a willing seller, and there are no dangers to New Zealand’s interests”. The Minister expects the changes to be made before the end of 2025, with consultation occurring during the year.

While the existing investment categories will be retained (sensitive land, significant business assets and fishing quota), the Act’s core tests (the ‘investor test’ (ie that various criminal and civil penalties have not been committed), the ‘benefit test’ (ie that there are proportionate benefits created for investments in sensitive land), and the ‘national interest’ test) will be consolidated so as to fast track the consent process with the starting assumption being that investment can proceed unless there are risk factors identified.

This change in approach should be most felt for sensitive land investments. Currently a benefit (e.g. economic, environmental etc) to New Zealand proportionate to the “sensitivity” of the land being acquired must be shown. If this is changed to be focused only on the absence of risks, then obtaining consent would be considerably easier. It remains to be seen whether there will be exceptions for certain categories of land (e.g. farmland).

In any event, we expect the changes to result in a significant improvement for renewable infrastructure investments, particularly on exit. A significant challenge with the current regime is that where the benefits of an infrastructure project have been realised, it is difficult for a buyer to show a new benefit. This potentially jeopardises an investor’s exit and therefore may make them question investing in New Zealand in the first place.

The Government has also referenced, in its announcement of the review, the recently announced reforms of the Overseas Investment Office’s Australian equivalent, the Foreign Investment Review Board. Our colleagues at MinterEllison Australia have summarised the changes to the Australian regime here. This reference suggests that the new regime would make it easier to invest for repeat investors with a track record of compliance, using clear ownership structures, that are investing in non-sensitive sectors. As to the latter, the Government may introduce a sector-specific approach to investment – the more critical or sensitive the asset, the higher the scrutiny. Data and technology and critical energy infrastructure will likely attract closer scrutiny in terms of national security and interest; housing and manufacturing sectors ought to face less rigour.

However the exact changes come through, the chance to holistically review the overseas investment regime is important given the significant and staggered changes to the regime in recent years. It will also be important that any changes made stand the test of time and show regulatory stability to foreign investors. Foreign investors, particularly those New Zealand is trying to attract for infrastructure investments, are investing for the long term. It will be crucial that they have comfort that the regulatory settings, once set, will remain consistent.