Policy and legislative developments

The Government has implemented the most significant overhaul of New Zealand’s Public Service in 30 years by replacing the State Sector Act with a new Public Service Act.

The Public Service Act 2020 came into force on 7 August 2020. Key features include:

• a more flexible set of options for how the public service can organise itself to better respond to specific priorities
• allowing public servants to move between agencies more easily
• clearly establishing the purpose, principles and values of an apolitical public service, as well as its role in government formation
• supporting the Crown in its commitment to and its relationship with Māori
• strengthening leadership across the public service and, in particular, providing for system and future focused leadership
• shifting the focus from state services to public services (and changing the name of the State Services Commission to the Public Service Commission)
• recognising new organisational forms including:
  • interdepartmental executive boards, made up of chief executives and independent advisors, selected by the Commissioner. The purpose of an interdepartmental executive board is to align and co-ordinate strategic policy, planning, and budgeting departments with responsibilities in a subject matter area, and to support priority work and cross-department initiatives in that area.
  • interdepartmental ventures where an agency is governed by a board and made up of the chief executives of the relevant departments. The purpose of an interdepartmental venture is to deliver services or carry out regulatory functions that relate to the responsibilities of two or more departments, and to assist to develop and implement related operational policy.

For more on the Act see our article State Sector Act reform.

The new Education and Training Act 2020 has passed into law with the majority of the Act coming into effect on 1 August 2020. It replaces all major existing education and training legislation and is intended to be a simpler, more modern and less prescriptive replacement for the previous framework.

It was introduced following the completion of the government’s comprehensive Education Work Programme which included the final report of the Tomorrow’s Schools Taskforce Final Report and the Government’s response to that report: Supporting all Schools to Succeed: Reform of the Tomorrow’s Schools System.

Some of the changes for school boards include:

• four primary objectives covering educational achievement, student safety, inclusivity, and giving effect to Te Tiriti o Waitangi
• a code of conduct for board members that sets out minimum standards of conduct which each board member must comply with
• local complaint and dispute resolution panels for when serious disputes cannot be resolved within the school
• boards will be required to consult students (when appropriate), staff and the school community when making school bylaws.
• the responsibility of enrolment schemes will shift from school boards to the Ministry, although schools must still be consulted on their development.

For more, see our article The new Education and Training Act – what’s changing for boards?

The new Privacy Act comes into force on 1 December 2020 to protect and promote individual privacy. 

The core framework of the Privacy Act 1993 has been retained, including the information privacy principles (although some of these have been updated to ensure they are fit for purpose). New features include:

• agencies will be required to notify the Privacy Commissioner and affected individuals of certain privacy breaches
• the Commissioner will be able to issue compliance notices to agencies to remedy a privacy breach
• the Commissioner will be able to make binding decisions on complaints relating to an individual’s access to information
• agencies will be required to take reasonable steps to ensure that personal information disclosed overseas will be subject to acceptable privacy standards
• there are new criminal offences for misleading an agency in a way to obtain access to someone else’s information; and knowingly destroying documents containing personal information where a request has been made for it.

For more, see our article Are you ready for the new Privacy Act?

Earlier this year the government announced a temporary insolvency package to assist directors and organisations in responding to the challenges created by COVID-19, including introducing a ‘safe harbour’ for directors and a debt hibernation scheme.

To help provide more certainty for directors in complying with their duties during the COVID-19 pandemic, the government has introduced a ‘safe harbour’ for directors. The COVID-19 Response (Further Management Measures) Legislation Act 2020 includes:

• a temporary ‘safe harbour’ from insolvency-related directors’ duties under the Companies Act 1993 and
• a new regime which will allow some organisations affected by COVID-19 to temporarily place existing debts into hibernation (ie a moratorium on the payment of debts).

The ‘safe harbour’ from insolvency-related duties expires on 30 September 2020. For more see:

• our article Safe harbour guidance for directors
• MBIE’s press release Safe harbour for company directors to expire

There have been several recent legislative developments in climate change. These are summarised below.

The Climate Change Response (Zero Carbon) Amendment Act 2020

The “Zero Carbon” Act passed into law late last year, amending the Climate Change Response Act 2002. Its long-term 2050 emissions reduction target will:

• reduce emissions of biogenic methane within the range of 24% to 47% below 2017 levels by 2050, with an interim requirement to reduce emissions to 10% below 2017 levels by 2030 (biogenic methane is all methane greenhouse gases produced from the agriculture and waste sectors)
• reduce net emissions of all other greenhouse gases to zero by 2050.

The legislation provides for three consecutive emissions budgets to be in place at any given time, with the budgets being met as far as possible through domestic emissions reductions and removal. It also introduces adaptation provisions (eg a national risk assessment and adaptation plan) and the Climate Change Minister and Climate Change Commission will have the power to request certain organisations (eg SOEs, Public Service, Local Authorities, Crown Entities (excluding school boards) and Lifeline Utilities) provide information on climate change adaptation.

The Climate Change Response (Emissions Trading Reform) Amendment Act 2020

The government has reformed the NZ Emissions Trading Scheme (NZ ETS) with the introduction of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020. The Act amends the Climate Change Response Act 2002 and is intended to help New Zealand reach its greenhouse gas emissions reduction targets, improve certainty for businesses, make the New Zealand Emissions Trading Scheme more accessible, and improve its administration. The Act provides the legislative framework for the reforms and enables regulations to be made which contain the operational detail and settings for the scheme. The government has made policy decisions on auctioning and unit supply settings. The regulations confirming these decisions are expected to be published later in 2020.

Climate-related financial disclosures

The government is considering adopting mandatory climate-related disclosures (on a comply or explain basis) for listed issuers, banks, general insurers, asset owners and asset managers. The Task Force on Climate-related Financial Disclosures (TCFD) reporting framework is proposed as a default framework. Although mandatory assurance is not proposed at this stage reporting would be required in annual reports. A decision on this is expected in 2020.

For more see our submission on climate-related financial disclosures

After several years in the making, New Zealand now has a new Trusts Act.

This is the most significant trust reform in over 60 years and is relevant to many trustees. The Act includes a list of mandatory and default trustee duties. Default duties apply unless they are modified or excluded by the terms of the trust. The Act also sets out trustees’ obligations to retain records and provide information to beneficiaries.

Mandatory duties include:

• The duty to know the terms of the trust
• The duty to act in accordance with the terms of the trust
• The duty to act honestly and in good faith
• The duty to hold or deal with trust property, and otherwise act, for the benefit of the beneficiaries or for the permitted purpose
• The duty to exercise the powers of a trustee for a proper purpose.

Default duties include:

• The general duty of care
• The duty to invest prudently
• The duty not to exercise any power directly or indirectly for the trustee’s own benefit
• The duty to actively and regularly consider the exercise of the trustee’s powers
• The duty not to bind or commit trustees to the future exercise or non-exercise of a discretion
• The duty to avoid a conflict of interest
• The duty of impartiality
• The duty not to make a profit from the trusteeship of a trust
• The duty to act for no reward
• The duty to act unanimously.

For more see our article What’s changing for trusts?

The Commerce (Criminalisation of Cartels) Amendment Act 2019 introduced a criminal offence for people engaged in cartel conduct, with effect from April 2021.

This offence is in addition to the existing civil prohibition on cartels and forms part of the Commerce Act 1986. Individuals convicted of the new offence will be liable for up to 7 years imprisonment and/or a fine not exceeding $500,000.

For more see:

• the Commerce Commission’s article Cartel criminalisation and directors in the April/May 2020 issue of Boardroom magazine
• our article New criminal offence for cartel conduct

Significant amendments were made to the Credit Contracts and Consumer Finance Act 2003 in 2019. The new provisions are intended to address issues in the credit market including strengthening requirements to lend responsibly and addressing harm to vulnerable customers.

Directors of creditors (lenders) subject to the Act need to be aware of their new responsibilities and potential liability. The changes include:

• a new duty on directors and senior managers of a lender to exercise due diligence to ensure that the lender complies with its duties and obligations under the Act and associated regulations. They will be required to exercise the care, diligence, and skill that a reasonable director or senior manager would exercise in the same circumstances, taking into account:
  • the nature of the business (for example, its size and the nature of the credit provided)
  • the position of the director or senior manager and the nature of the responsibilities undertaken by the director or senior manager.
• “Due diligence” includes taking reasonable steps to ensure that the creditor:
  • requires its employees and agents to follow procedures, or has implemented automated procedures, that are designed to ensure compliance with the Act and regulations
  • has in place methods for systematically identifying deficiencies in the effectiveness of the procedures for compliance
  • promptly remedies any deficiencies discovered.
• new pecuniary penalties of up to $200,000 for an individual and $600,000 in any other case
• restrictions on indemnities and insurance in relation to pecuniary penalties including for directors and senior managers
• directors and senior managers of a lender offering consumer credit contracts will have to meet a ‘fit and proper’ test in order for the lender to register on the Financial Service Providers Register.

Individual accountability in financial services

The Treasury is consulting (until October 2020) on proposals to strengthen the accountability of directors of deposit takers as part of Phase 2 of the Reserve Bank Act review.

The proposals include:

• imposing duties requiring directors to take reasonable care to ensure that a deposit taker is run in a prudent manner, acts with honesty and integrity, and deals with the Reserve Bank in an open and transparent manner and
• enforcing obligations largely under a civil liability framework rather than a criminal framework (although there will still be criminal sanctions for cases of clear intent or recklessness on the part of directors). 

Cabinet has made an in-principle decision that officials should also develop an “executive accountability regime” that extends individual accountability beyond directors to senior managers (outside Phase 2 of the Reserve Bank Act review). This will apply to deposit takers and insurers, and cover prudential and conduct matters. The requirements for directors and senior managers in respect of conduct are expected to supplement provisions in the Financial Markets (Conduct of Institutions) Amendment Bill (see the table below for more information).

Other key in-principle decisions by Cabinet on the future of the Reserve Bank include:

• responsibility for prudential regulation will remain with the Reserve Bank
• the Reserve Bank will have a high level objective to protect and promote the stability of New Zealand’s financial system
• a governance board will be established for the Reserve Bank. This will have statutory responsibility for all the Reserve Bank’s functions, except those reserved for the existing Monetary Policy Committee
• the two separate regulatory regimes for banks and non-bank deposit takers will be united into a single ‘licensed deposit taker’ framework.
• a deposit insurance scheme will be established (insuring deposits up to $50,000 per person, per institution).

For more see:

• our submission on Phase 2 of the Reserve Bank Act Review - consultation 2
• our original submission on Phase 2 of the Reserve Bank Act Review

The outdated Incorporated Societies Act 1908 is to be replaced with a new modern statute.

The reform is extensive and aims to improve governance structures and arrangements for over 23,700 incorporated societies in New Zealand. Many parts of the proposed reform largely mirror requirements for companies and directors under the Companies Act 1993, including officers’ duties. The proposed reform also includes new constitutional requirements, conflict of interest disclosure rules, reporting requirements and mandatory dispute resolution procedures. Consultation on a draft Bill took place in 2016. A Bill is now ready to be introduced into Parliament.

MBIE (the Ministry of Business, Innovation and Employment) has been conducting a review aimed at reducing the exploitation of temporary migrant workers in New Zealand.

The government has announced a number of policy and operational changes to be implemented in stages, with some requiring legislation. Changes include:

• introducing a duty on third parties with significant control or influence over an employer to take reasonable steps to prevent a breach of employment standards occurring
• requiring franchisees to meet higher accreditation standards under the employer-assisted visa gateway system
• disqualifying people convicted of migrant exploitation and people trafficking from managing or directing a company.

For more see:

• MBIE’s Temporary migrant worker exploitation review
• our submission on addressing temporary migrant worker exploitation

Following a review of the retention money scheme for construction contracts under the Construction Contracts Act 2002, the government will introduce legislation to clarify and strengthen existing requirements for the protection of retention money.

Proposed changes to the retention money scheme include:

• retention money must be held on trust in a separate bank account and will be unable to be co-mingled with, or used as working capital
• improving transparency of the retention money held by requiring a contractor to include in a payment schedule the amount of retention money held and the form in which is it being held
• failure to comply with these requirements will be an offence, with directors being held personally liable for up to $50,000, and companies facing a maximum fine of $200,000.

While the government has signalled that it intends the legislation to be passed into law in 2020, the Bill has yet to be introduced to Parliament.

The government has signalled that it will make directors personally liable for company PAYE and GST debt following a recommendation from the Tax Working Group.

The government’s response to the recommendations of the Tax Working Group supports making directors personally liable for PAYE and GST debts of companies. The IoD has strongly advocated against this since it was raised by Inland Revenue in 2016. Our key concern with introducing this new form of personal liability is that it may deter appropriately qualified people from serving on boards. Other concerns include the likelihood of higher compliance and insurance costs, and boards becoming weighed down by conformance rather than focusing on their core strategic role of driving business forward. Withholding funds from Inland Revenue is unlawful and it already has wide powers to take action.

For more, see our submission on the Tax Working Group’s Future of Tax: Interim Report and media release.