11 Mar 2013

Claim new law could be detrimental to economy

7:10 am on 11 March 2013

A securities law expert wants changes to controversial new rules which could criminalise directors' actions, saying it could be detrimental to the economy and deter capable people from standing for boards.

The Companies and Limited Partnerships Amendment Bill was reported back to the House just before Christmas. A Supplementary Order Paper was issued to redraft sections of the legislation.

The paper tightens up registration requirements for the Companies Office, to try to stop people setting up firms in New Zealand that are used to conduct illegal activities overseas.

The other part of the paper looks at prison sentences for directors if mistakes are made in carrying out their duties.

A partner at Chapman Tripp, Roger Wallis, said the measure seeks to criminalise fiduciary duties or basic decision-making of directors.

He gives the example of a board or directors getting a decision wrong about whether a company is able to pay its creditors.

"Under the bill as it's currently drafted, they would face the risk of going to jail for their decision-making processes".

Mr Wallis said some legal professionals are concerned that will result in directors being too cautious in deciding the right thing for creditors, employees and other stakeholders in a business, particularly during times of financial distress, to the overall detriment of the New Zealand economy.

"It's not appropriate to extend serious criminal sanctions for simply making a mistake and getting it wrong, which is what this part of the bill runs the risk of doing."

Mr Wallis said it's understood that part of the legislation is being reconsidered.

Mr Wallis said the Serious Fraud Office has been very successful in using the existing criminal law to pursue those directors who have taken company property or misused company information.

The bill is due to be reported back to the House by April.