This week has brought significant legal and transformational changes to the business registry landscape. Following the United Kingdom's advancements under the Economic Crimes Act and the ongoing transformation of Companies House, New Zealand is now considering similar reforms. The government has announced plans to modernize the Companies Act for the first time in three decades.
The proposed Corporate Governance Amendment Bill aims to modernize, simplify, and digitize business practices. Among the key changes is allowing directors to conduct more business electronically and removing the requirement for directors to list their home addresses in public databases. A significant feature of the bill is the introduction of unique identifiers for directors, designed to curb fraudulent activities and enhance transparency in tracking directorships across various companies. This initiative mirrors Australia's 2021 introduction of the Director Identification Number, which aims to improve transparency and combat "phoenixing," a practice where assets are shifted from failing companies to new ones, leaving debts behind.
A significant feature of the bill is the introduction of unique identifiers for directors, designed to curb fraudulent activities and enhance transparency in tracking directorships across various companies.
The reforms will also eliminate the need for directors to publicly disclose their home addresses, addressing serious privacy and safety concerns. This long-overdue reform is expected to boost compliance by allowing directors to register an alternative service address, such as that of their business or lawyer, thereby maintaining accountability while safeguarding privacy. These changes will update the Companies Act, aligning it with the needs of the modern business environment and dismantling outdated legal barriers to growth and innovation.
These changes align with a global trend of transitioning from "good faith" registers to more rigorous systems. For example, under the United Kingdom's Economic Crime (Transparency and Enforcement) Act, Companies House is shifting from a "good faith" approach to a "verified" approach. Historically, Companies House operated on a good faith basis, where information submitted by companies was accepted at face value with minimal checks. This system, however, had limitations, particularly in preventing fraudulent activities such as the creation of shell companies for money laundering or other illegal purposes.
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With the introduction of the Economic Crime Act, Companies House is undergoing significant reforms that will require verification of information provided to the registry. This includes identity verification for Directors, Persons with Significant Control (PSCs), and those filing information on behalf of a company—a major change from the previous system, where no mandatory identity verification process existed. The information submitted to Companies House will now be subject to greater scrutiny, with more checks and validations to ensure accuracy and authenticity, including the verification of company addresses and other key data.
The shift to a verified approach aims to improve the accuracy of information available to the public, thereby increasing transparency and making it more difficult for bad actors to exploit the system. Companies House will also have enhanced powers to query and investigate information, reject filings that do not meet the new standards, and take action against non-compliant entities. These changes are designed to bolster the integrity of the UK's corporate registry, making it more difficult for criminals to misuse companies for illicit purposes and improving the overall trustworthiness of the data held by Companies House. The move from a good faith approach to a verified system represents a significant step in the fight against economic crime.
Service addresses are intended to protect directors' privacy while ensuring they can still be contacted for official business purposes.
It is encouraging to see New Zealand finally moving toward allowing directors to provide an alternative address for service. This issue has been a source of frustration for directors over the years and has led some vulnerable or privacy-conscious directors to breach the current law by not providing their residential address. Several countries already allow directors to provide an alternative address, known as a "service address" or "address for service," to their registrar of companies instead of publicly listing their home address. This practice is primarily intended to protect directors' privacy while ensuring they can still be contacted for official business purposes.
Countries like Australia, Canada, Hong Kong, Ireland, Singapore, and the United Kingdom permit directors to use a service address that will be publicly available on the company's register while keeping their residential address confidential. These provisions help balance the need for transparency in company administration with the privacy and safety concerns of individual directors.
As New Zealand and other jurisdictions seek to tighten the integrity of their business registers, we can expect more changes. Transparency, compliance with increasing FATF requirements, and a desire to ensure the integrity of business information will drive ongoing changes to the legislation and the registry services themselves.
text by Justin Hygate
Vice President of Registry Solutions at Foster Moore