The coalition government is planning to drop what it calls a “huge layering of personal liabilities for directors” to encourage more listings on the stock exchange.
Speaking to RNZ’s series RICH: The meaning of wealth in Aotearoa, Commerce Minister Andrew Bayly said the key to creating more wealth was to make it easier for companies to attract investment, grow and become exporters.
He revealed plans to scrap requirements for companies to tell prospective investors about future earnings forecasts.
He also hinted other obligations on company directors may go – including possibly removing the personal liability for climate-related disclosures.
The changes would make it easier for companies to list on the New Zealand Stock Exchange (NZX), which in turn would help companies and the economy grow, Bayly said.
“Company directors are a crucial part of the puzzle when it comes to growing the economy and creating wealth for New Zealanders.
“One of my chief concerns is that, over the last few years, the corporate veil has been pierced and there has been a huge layering of personal liabilities for directors.”
Piercing the corporate veil is a legal phrase in which courts put aside limited liability and hold a company’s shareholders or directors personally liable for its actions or debts.
“Company directors have become personally liable for a range of things like disclosing climate related information and matters relating to CCCFA [Credit Contract and Consumer Finance Act] lending and health and safety,” he said.
This “disincentivised” people from taking company directorships.
“To rebalance this, I am interested in shifting the liability from directors to companies – so the requirement is still there but it’s less of a deterrent at an individual level.”
His first step was to make it easier for mid-size companies – which typically found it harder to find funding – to list on the NZX.
“We’ve got some rules that make it not that attractive [to list]. So we’re going to ease those.”
That involved getting rid of current requirements for companies wanting to list on the NZX to publish estimates of how much they were likely to make in coming years.
“There’s a big issue around prospective financial reporting. That requirement in itself is very costly and comes with a lot of risks so we are going to remove those rules.”
Increased compliance costs and regulation had made it unattractive for businesses to list on the NZX, Bayly said.
“I have been discussing these issues with industry and am looking at possible solutions, which I expect to be able to shed more light on later this year.”
Removing directors’ personal liability from climate-related disclosure requirements could be one of those possible solutions, Bayly suggested.
The mandatory climate-related disclosures regime was introduced in 2021 by the former Labour-led government and came into force in January 2023. The National Party supported the legislation.
“Whilst we want to meet climate related objectives, some of the reporting requirements make it so difficult that people will look at it and say: ‘Should I list? Or should I just get another type of investor like a private equity firm?’
“We want to make the settings so that actually, listing is a very valuable and viable route for them to access capital,” Bayly said.
‘Too tough’ to attract investment via listing
Labour MP David Parker, who before politics was involved in several start-up companies, including as the founding chief executive of A2 Milk, agreed there were barriers to listing on the stock market and “over regulation” when it came to capital raising.
Parker, who has previously held the revenue, trade and export and economic development ministerial portfolios, said it had become too costly to list.
“When I was doing prospectuses for a number of the companies that I was raising money for, we could knock out a prospectus, including all of the related professional, legal and accounting costs for about $50,000.
“The directors weren’t taking an excessive amount of risk and the investors were properly informed.
“Now, that just never happens, and there is, as a consequence, the inability of people to invest and support these ventures that are going to grow jobs, and innovation is inhibited.”
Simplicity KiwiSaver chief executive, Sam Stubbs, agreed it was currently “onerous” to list on the NZX and believed Bayly’s changes were “sensible”, but warned against making it too easy to list.
“At the moment it’s too tough, but it can also be too easy and you get rat bags listing on the stock exchange. When you list companies you have to have enough credibility for KiwiSaver funds to look at them, so it can’t be the wild west.”
But it did not have to be an either-or situation, Stubbs said.
“The listed market is shrinking at the moment, and that’s a global phenomenon. But there’s a lot more private equity money running around so a lot of these companies are saying ‘why bother with the transparency of listing and public liability.'”
Some KiwiSaver funds, like Simplicity, were doing more private equity deals, he said.
“I think that will grow and thrive alongside whatever we do with our stock market.”
Bayly said the pool of money available to invest in companies also needed to grow. One way to achieve this was to encourage KiwiSaver funds to invest more in New Zealand companies, and increase the amount people were saving for retirement. There were no current plans for compulsion in these areas.