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Easing corporate governance in COVID-19

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Anthony Harper

On 16 May a new law came into effect with temporary measures aimed at easing  corporate governance for companies and certain other types of incorporated entities in these times of physical distancing for COVID-19.

The new temporary measures have been introduced by the COVID-19 Response (Requirements for Entities—Modifications and Exemptions) Act 2020 (referred to simply as the “Act” in this article).

The Act:

  • provides that, in some circumstances, organisations can use electronic means (by email for example) for doing things (such as shareholder voting at annual meetings) if their constitution or rules would otherwise prevent this
  • allows these organisations to modify certain requirements or restrictions in their constitution (or rules) if it is not reasonably practicable to comply with them.

These changes apply until 30 November 2020 subject to any extension by Order in Council to 31 March 2021 at the latest.

Use of electronic means

The Act allows certain organisations to accomplish some governance procedures via electronic means if the rules (for example, a company’s constitution or a limited partnership’s limited partnership agreement) either do not allow the use of electronic means, or are silent as to whether electronic means are permitted.

The tasks which may be accomplished electronically include:

  • recording, retaining or providing any information or records
  • calling or holding meetings (including voting at those meetings)
  • signing any instrument.

To make use of electronic means to carry out any of the tasks, a majority of the governing officers must believe, in good faith, that because of the outbreak of COVID-19 it is not reasonably practicable to do the matter by non-electronic means.

In the case of electronic voting, a majority of the governing officers must believe, on reasonable grounds, that the constitution or rules will be substantively complied with and not compromised as a result of the vote.  The officers are also required to sign a certificate to that effect, which must be kept with the organisation’s records.

Where an organisation relies on the provisions in the Act allowing electronic means, it must abide by certain conditions including meeting the relevant legal requirements relating to electronic writing, signatures, retention, production and access from Part 4 of the Contract and Commercial Law Act 2017 (the general law in NZ relating to electronic transactions) and must make reasonable efforts to notify all members and governing officers of the organisation, and the relevant Registrar, of the use of the temporary measures.  This notice would normally be given to members via email and we recommend it state the task accomplished electronically, the reasons for doing so, and that a majority of the officers agreed to its use.

Modifications to constitution or rules

The Act also allows certain organisations to modify their governing documents on a temporary basis if a majority of its governing officers believe, on reasonable grounds, that as a result of COVID-19 it is not practicable to comply with certain governance requirements or restrictions.

Modifications are allowed relating to:

  • calling or holding of meetings (including the method and form of voting at those meetings)
  • giving or receiving information
  • making and keeping records
  • dispute resolution and disciplinary procedures
  • other procedural or administrative processes.

However, it is important to note that certain provisions of the governing document may not be modified in reliance on the Act.  These include:

  • the purpose or objects of the organisation
  • the powers of the organisation (ie the types of business the organisation may not undertake)
  • the disposition of real or personal property
  • the duties of the governing body or governing officers of the organisation.

Of note is that the list of matters that may not be altered in reliance on the Act includes a catch-all that prohibits the modification of any matter if that modification has a material detrimental effect on the rights or powers of any person (including creditors of the organisation).

Where an organisation relies on modified provisions there are certain conditions what must be met including:

  • a requirement to keep a written record of the modification
  • its reasoning for how the requirements for the modifications were satisfied and the beliefs of the majority of governing officers in approving them
  • notifying all members and governing officers and the relevant Registrar for the type of entity of the modification.

Note that the modification would be to the constitution or rules only.  If there is a shareholders’ agreement in place for a company which includes governance requirements or restrictions, the Act would not necessarily extend to modify those requirements.

Exemptions from compliance obligations

Part 3 of the Act grants powers to Registrars and Ministers responsible for overseeing the various classes of organisation to issue exemptions for classes of persons to relax procedural or administrative rules that as a result of COVID-19 have become unduly onerous or burdensome or may not reasonably be complied with fully.

The matters to which the rules relate include:

  • calling, holding and voting at meetings
  • giving or receiving information
  • making or keeping records (and providing access to those records)
  • disciplinary and dispute resolution procedures.

What does it mean?

The changes introduced under the Act go some way to alleviate some of the pressure the governing bodies of organisations are under in terms of the day-to-day running of their business whilst ensuring that the rights and powers afforded to the organisation’s stakeholders remain (albeit in a modified form).

Get in touch!

Anthony Harper’s corporate advisory team has extensive experience in advising businesses on all aspects of corporate compliance.  If you have any questions, or need assistance in your business, including advising on whether your business may make use of the provisions of the Act to modify its governance arrangements for COVID-19 and how best to do so, then please get in touch.

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