NZ policymakers back criminal sanctions for reckless directors

Commerce Committee chairman Jonathan Young

BUSINESSDESK: New Zealand directors could face criminal sanctions if their reckless behaviour leads to offer documents containing false statements as an overhaul of the nation's decades-old Securities Act gets a step closer.

Parliament's Commerce Committee, chaired by National MP Jonathan Young, backs criminal liabilities for "reckless" directors, shooting down opposition from a range of submitters on the Financial Markets Conduct Bill.

The committee tweaked some of the bill's wording to spell out where liability falls under the regime, it says.

"We believe that the liability regime should not discourage capable and prudent people from becoming directors with overly punitive sanctions, and companies should be able to attract directors with diverse skills and background," the report says.

"Although directors should supervise capital raising and exercise due diligence regarding offer documents, they should be able to focus mainly on business strategy and supervising management, rather than on compliance and liability." 

The legislation beefs up the costs of corporate malfeasance though it backs away from criminalising negligence and major misjudgements. It also puts the onus on the Crown to prove an offender had a "guilty mind".

New Zealand's corporate community was seeking to water down the level of culpability, saying recklessness too easily blurred into negligence.

The politicians accepted Ministry of Business, Innovation and Employment advice that the criminal definition of recklessness was clear.

The MoBIE report to the committee said the bill won't criminalise reckless conduct or general risk-taking, rather it will only impose consequences when a person's recklessness attracts criminal liability.

"Departing from knowledge or recklessness could increase the incentive for unscrupulous people to flout the law, which would be contrary to the purpose of promoting confident and informed participation," the MoBIE report said.

The Commerce Committee recommended changes spelling out who could get captured as an accessory under the liability regime after New Zealand's biggest law firms suggested advisers such as lawyers and auditors may be unnecessarily captured.

The report reduced the exemption threshold for a large wholesale investor to an individual or business with net assets of $5 million or annual turnover of $5 million for the past two years, from $10 million in assets or turnover of $20 million.

"We believe that an individual or business meeting the lower threshold is likely to be sufficiently sophisticated to participate in wholesale offers of financial products," the committee says.

The legislation, which aims to consolidate New Zealand securities law into one act with a goal of improving financial market conduct and restoring investor confidence, will go back to the House for its second reading.

This article is tagged with the following keywords. Find out more about My Tags

Post Comment

4 Comments & Questions

Commenter icon key: Subscriber Verified

Now we just need to apply the same accountability and standards to mayors and district councillors when their ineptitude and reckless behaviour threaten the economic wellbeing of their captive current and future ratepayers

Reply
Share

.....and to all the other company directors who destroy shareholder value - particularly in privately-held companies - but concoct all sorts of spurious reasons why they should not be held accountable.

Reply
Share

So no-one will mind a massive increase in directors fees to cover them for the new risks they face.

Reply
Share

The article is very confusingly written but it sounds like the risks for directors will be significantly reduced, not increased. At present it is a strict liability offence, ie the Crown only needs to prove the prospectus was misleading. The director then has to prove as a defence that they didn't know and there's no reason why they should have known.

Reply
Share

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7845 0.0017 0.22%
AUD 0.8994 0.0002 0.02%
EUR 0.6203 0.0010 0.16%
GBP 0.4929 0.0003 0.06%
HKD 6.0847 0.0131 0.22%
JPY 84.0120 0.0180 0.02%

Commods

Commodity Price Change Time
Gold Index 1233.8 -1.760 2014-10-14T00:
Oil Brent 85.4 -4.470 2014-10-14T00:
Oil Nymex 81.2 -4.530 2014-10-14T00:
Silver Index 17.4 0.035 2014-10-14T00:

Indices

Symbol Open High Last %
NZX 50 5145.9 5168.7 5145.9 0.33%
NASDAQ 4246.2 4281.3 4213.6 0.32%
DAX 8765.4 8854.4 8812.4 0.15%
DJI 16321.9 16463.7 16321.1 -0.04%
FTSE 6366.2 6403.4 6366.2 0.42%
HKSE 23087.5 23230.3 23048.0 0.67%
NI225 15009.8 15044.3 14936.5 -0.13%