Corporate governance regulatory system

System description and objectives

The corporate governance regulatory system is foundational, providing the legal infrastructure for businesses, not-for-profit entities and civil society organisations. It underpins crucial aspects of the New Zealand business environment and other regulatory systems, such as the financial markets conduct system.

Its purpose is to promote accountable, transparent and high-performing businesses and other types of entities by setting rules and incentives for how these entities are structured, governed and dissolved. In doing so, the system contributes to both business and investor confidence as key components of a prosperous New Zealand business environment.

The corporate governance regulatory system includes the rules, institutions and practices which govern the creation, operation and dissolution of various types of entities. These entities enable individuals to come together in pursuit of a common objective, whether social or commercial. Without the legislation within this regulatory system, these entities would have no legal basis.

The Companies Act 1993 is the core legislation within the system, as companies are the predominant form of entity.

The regulatory system governs the ‘lifecycle’ of entities, including:

• how they are created (for example, through incorporation)
• entity governance and administration, including:
  
  • the powers and duties of directors or officers
  • the rights and obligations of shareholders or members
• business rehabilitation options, including amalgamations, compromises and voluntary administrations, and
• liquidations, including rules for how any assets are to be distributed.

The corporate governance regulatory system includes other statutes that work to support the public confidence goals of the system. This includes legislation that relates to financial reporting, takeovers, personal property securities, fraudulent or reckless management of entities, and insolvency. There are also two occupational regulation statutes within the system.

The system also includes delivery of services to promote high-performing businesses. For example, business.govt.nz(external link) is a service MBIE delivers which focusses on helping small businesses with a range of tools and advice, including in relation to starting up, planning for growth, paying and managing staff, protecting intellectual property and more.

Ministerial portfolio and key statutes

Regulatory agencies and their roles

Agencies responsible for corporate governance system strategy and policy

Financial reporting system regulators

Registration and operational policy and design

Education and information

Delivery of services

Compliance and enforcement

Collaboration and information-sharing between regulatory agencies

Multilateral collaboration

The Companies Office (the trading name for Business Registries, a business unit of MBIE’s Business Integrity Services Branch) periodically hosts a meeting of the core regulators of the Corporate Governance regulatory system. The inaugural meeting was held in April 2019, and the second in September 2019.

The meetings:

• coordinate the roles each regulator plays in the system. A draft system charter has been refined and is due for adoption in late 2019.
• evaluate our changing environment and consider responses needed
• identify opportunities to strengthen the operation of the system to make it more effective
• consider the best methods for ongoing engagement between regulators, both strategically and operationally, and for regulators to engage with other stakeholders.

Regulators invited to the meeting are:

• Financial Markets Authority
• Department of Internal Affairs
• Ministry of Justice
• Inland Revenue Department
• Serious Fraud Office
• Takeovers Panel
• External Reporting Board.

The Companies Office is involved in global collaboration through the Corporate Registers Forum(external link). The aim of the Corporate Registers Forum is to provide members with the opportunity to review the latest developments in corporate business registers internationally and exchange experiences and information on the present and future operation of corporate business registration systems.

MBIE’s business.govt.nz team also collaborates across government and with private sector entities to create content, tools and resources to help small businesses more easily comply with their government requirements and to succeed in their business enterprise.

Bilateral collaboration

The Companies Office and other regulators, domestically and internationally, collaborate on investigation and enforcement action as corporate entities are frequently of interest to multiple agencies. This allows all regulatory matters to be dealt with in a more timely, efficient and effective way through deploying the appropriate powers of the regulators in a coordinated way. Collaboration includes on-the-ground activity such as site visits, sharing information, and regular liaison meetings.

Other formalised collaboration is set out in the following table.

Regulated parties and main stakeholders

The regulated parties are:

• entities:
  • registered under corporate governance regulatory system legislation (600,000 companies and 25,000 other entities)
  • that operate under the Partnership Act
  • directors or officers, and owners or members of those entities
• all other entities with a New Zealand Business Number (NZBN)(external link)
• code companies under the Takeovers Act
• chartered accountants under the New Zealand Institute of Chartered Accountants Act
• licensed auditors under the Auditor Regulation Act
• parties to security interests registered on the Personal Property Securities Register (PPSR)(external link).

Main private sector stakeholders include:

• NZX
• Chartered Accountants Australia and New Zealand (CA ANZ)
• the Recovery, Insolvency and Turnaround Association of New Zealand (RITANZ),
• Institute of Directors and
• Business NZ.

Processes for engagement with regulated parties and stakeholders

As policy is being developed, engagement takes place through standard policy development and legislative processes, including:

• through meetings with the key stakeholders and other issue-specific stakeholders, where relevant
• by releasing issues papers and discussion documents, consulting on these and seeking feedback
• by releasing exposure drafts of bills and regulations and seeking feedback.

Parliamentary processes for consulting on bills also provide for public engagement.

In addition, MBIE’s business.govt.nz team is establishing and building relationships across the private sector as part of their objective to help small businesses more easily comply with their government requirements. This engagement aims is to help connect small businesses with the wider eco-system of support that is available to them.

In terms of system agencies’ delivery of services, most of this is enabled through call centres and online functionality, for example:

• provision of information on websites
• electronic filing of annual returns
• online registration of security interests on the PPSR.

Other engagement takes place as necessary, for example where MBIE staff members are communicating with individuals in relation to registration or enforcement issues.

System’s fitness for purpose

• Learn more about the fitness-for-purpose assessment and ratings

• Date of assessment: completed in 2016

Effectiveness

System performing well against criteria

System objectives are being achieved. New Zealand was ranked the top country in the world for doing business in the World Bank's Ease of Doing Business reports of 2017, 2018 and 2019. Aspects of the system not covered by the World Bank’s report are well-regarded internationally and domestically as evidenced by the regulatory system assessment completed in 2016.

The healthy state of the system reflects the ongoing focus on system maintenance, at both the policy and operational levels. Significant system stewardship work is currently underway on insolvency issues, director identification, beneficial ownership and modernising the governance structures for Incorporated Societies. On the operational side of the system, additional funding has been provided to increase enforcement capacity and cover the increased demand for registry services.

To maintain the overall effectiveness of the system, ongoing consideration will need to be given to whether New Zealand has developed and maintains the right balance right between the ease of doing business and appropriate levels of accountability.

Efficiency

System performing well against criteria

The 2016 regulatory system assessment found a well- functioning system which is effective and achieves overall outcomes for New Zealand. Key regulators were found to be operating efficiently and there is a strong embedded practice of reaching out to customers to understand and meet their needs.

The Companies Office has recently entered into an MOU with Inland Revenue regarding provision of information in relation to serious offending under the Companies Act and work is underway on an information sharing arrangement which will better enable companies with financial reporting obligations to be identified.

Resilience

System performing well against criteria

The embedded focus on maintenance and stewardship has meant the system has responded well to challenges as they have emerged. Looking forward, the main challenges facing the system are developing a commonly-understood set of system objectives amongst key system players, and maintaining ongoing robust regulatory stewardship in the face of inevitable concerns around the prominent issues of the day. These are not easy tasks given the breadth of the system and number of agencies involved. The development of a regulatory charter as part of the system owner’s response to the 2016 system assessment is likely to have significant positive impact.

Fairness and accountability

System performing well against criteria

Enforcement action for serious breaches of system legal frameworks is generally via the High Court which provides an independent and transparent process with significant appeal rights. However, there is room for improvement in the transparency and communication of the compliance and enforcement strategies of some key system regulators such as the Companies Office.

Information about the system is widely disseminated through a variety of our and other agency channels. Web based registries are subject to ongoing improvement processes flowing from the embedded focus on the needs of customers. This customer focus supports the overall fairness of the system.