LEGAL
A fresh look at directors’ duties in our modern world
Joyce Chiu, In-house Counsel & Advisory Services, REINZ
Conventionally, the primary objective of a company is to make its shareholders a financial profit. However, that is not essential, especially when the company’s shareholders determine the company’s purpose. Every company sets its own objectives; it is how these objectives are pursued and achieved that is the measure of a company's success. A Director’s duties should, therefore, be measured against the company’s chosen objectives. The Companies (Directors Duties) Amendment Bill was introduced to Parliament on 23 September 2021, and it is currently awaiting its first reading. The Bill amends section 131 of the Companies Act 1993 pertaining to Directors’ duties to act in good faith and in the company’s best interests.
When the Bill receives Royal Assent and passes into law, Directors will have the statutory mandate to consider matters beyond a company’s profitability. Such matters include recognising the principles of Te Tiriti o Waitangi, environmental impacts, ethical behaviour, fair and equitable employment practices, and the interests of the wider community. This broader remit is in line with the growing interest for Directors to recognise the concept of modern corporate governance theory. We see that there has
been an increase in scrutiny for companies to be responsible and liable for social and environmental concerns that influence our communities and natural environment. As the Bill currently stands, these duties are permissive rather than mandatory. However, it is a legislative acknowledgement of what many Directors may already be practising and what is considered to reflect a company’s best interests. REINZ awaits as to whether the Bill will achieve its aim after receiving the Select Committee’s recommendations.
COVID-19 rent abatement provisions in leases On October 5 2021, REINZ filed public submissions on the Government's proposal to uphold an implied term — also known as a 'no access' clause — in commercial leases that do not already contain a rent reduction clause. The Act received Royal Assent on 2 November 2021, and is now in force. Our submissions raised members’ concerns about how quickly the COVID-19 Response (Management Measures) Legislation Bill (Bill) reached the final step before becoming law, with only two weeks for the Finance and Expenditure Committee to consider all submissions and proposed suggestions. REINZ also raised that the inability to access commercial premises was not an indicator of a tenant’s inability to pay rent and expressed concerns about the unbalanced burden placed on commercial landlords to ease the effects of COVID-19. The Finance and Expenditure Committee published their recommendations on 14 October 2021.
The Committee’s suggestions were limited to the implied term beginning on August 18 2021, and for certain types of leases to be excluded from the legislation. It also recommended that mediation be the default process to deal with any resulting disputes. The Committee stated the new implied term should emulate clause 27.5 of the of the Auckland District Law Society's Deed of Lease, to provide for what constitutes a fair and proportional rent abatement where a tenant cannot access the premises due to an epidemic. The Committee acknowledged that it struggled with the criteria to determine what would be considered eligible for rent relief
amongst tenants. No solution or alternative criteria was recommended. The Select Committee noted official guidance is currently being developed as to how a ‘fair proportion’ should be assessed, while allowing for a degree of flexibility for negotiation to be led on a case-by-case basis. However, this guidance will not have any legal force. Although we have yet to receive this guidance, I think it fair to say that many of us will be disappointed by the lack of guidance in this regard, as this provided an opportune moment to minimise disputes between commercial landlords and tenants. SUMMER 2021/22
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