Deadline looms for residency requirements

David Smillie

This article appeared in the Otago Daily Times, October 2015.

October 2015 . . . The final part of the Companies Amendment Act 2014 came into force on 1 May 2015 and all parts of the Act are now in force. The Act introduced various changes intended to make the company incorporation and maintenance process more robust due to concerns about New Zealand registered companies being implicated in criminal activities overseas such as smuggling, money laundering and tax fraud. There was a concern that New Zealand’s overseas reputation was being threatened by people misusing the low cost and straight forward New Zealand company incorporation process and so the Companies Amendment Act was a response to those concerns.

For incorporation of a new company from 1 May 2015 there are now requirements for at least one director to live in New Zealand or Australia. If the director lives in Australia then that person must also be a director of an Australian incorporated company. The directors now also have to provide details of their place and date of birth. The final new requirement is that the details of the company’s ultimate holding company must also be provided so there is greater transparency in terms of the beneficial ownership of the company.

From 1 July 2015 existing companies which are filing their annual returns to the New Zealand Companies Office must also provide the new details of the date and place of birth of all directors and the ultimate holding company.

The final implementation date of the compliance changes is 28 October 2015. By that date all existing companies must have at least one director who lives in New Zealand or Australia to satisfy the residency requirement.

According to the Companies Office it is estimated that only 5,000 of the 550,000 companies registered in New Zealand do not already meet the new residency requirement so it is not anticipated that this change will cause major problems for existing companies. It is however interesting that the Companies Office has noticed advertisements seeking “nominee directors” for New Zealand companies which indicates that overseas based people operating New Zealand companies are now looking for local residents in an effort to achieve compliance with the new requirement. Anyone considering taking up these offers should however consider the legal implications very carefully as any suggestion that it is a “nominee” title only with no liability attached is untrue.

The Companies Act and the Companies Office on-line registry do not make any distinction between “nominee” or “alternate” directors and under the Act the definition of director includes “a person occupying the position of director of the company by whatever name called” which is obviously very broad. Therefore anyone acting as a director of a company under a title of “nominee” or “alternate” is subject to the same duties and responsibilities, and will likely be held equally accountable by the Courts, as any other director. Each situation has to be considered on its own merits however we would certainly urge caution for anyone thinking of accepting appointment as a “nominee” director in response to advertisements from overseas.

Overall the new compliance requirements under the Companies Amendment Act 2014 are to be welcomed as, from a practical perspective, they do not add a significant amount more work than the previous compliance regime and they should hopefully have the desired effect of reducing the number of New Zealand registered companies being used for criminal activity overseas.