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.