NEW ZEALAND Law and Practice Contributed by: Graeme Quigley, Ashton Goatley and Erin Hickey, Webb Henderson
3.3 Board Composition The Companies Act requires every company incor - porated in New Zealand to have at least one director that lives in either New Zealand or an “enforcement country”. If living in an enforcement country, the direc - tor must also be a director of a body corporate that is incorporated in that enforcement country under a law equivalent to the Companies Act. At present, Australia is the only approved “enforcement country”. The constitution of a company may increase the mini - mum number of directors. The Listing Rules require listed companies to have at least three directors – two of whom must ordinarily reside in New Zealand and two of whom must be inde- pendent directors. The CGC further recommends that the majority of the board be independent directors. Industry-specific legislation may impose stricter obli - gations on the board composition of a company in that industry. For example, the Reserve Bank of New Zealand’s Banking Supervision Handbook for the banking sector and its governance guidelines for the insurance sector both require at least half of the com - pany’s directors to be independent. See also 3.5 Independence of Directors . 3.4 Appointment and Removal of Directors/ Officers Section 153 of the Companies Act provides that direc - tors are appointed by ordinary resolution of the share - holders, unless the constitution provides otherwise. The court has the power to appoint directors on the application of a shareholder or creditor if there are no directors – or fewer directors than the quorum – and it is not possible or practicable to appoint direc - tors in accordance with the company’s constitution. Directors may be removed by an ordinary resolution of shareholders at a meeting if provided that this pur - pose is stated in the notice of meeting. These provisions may be modified by the constitution. For example, in an incorporated joint venture it is com - mon for each shareholder to be able to appoint and remove a specified number of directors, regardless of
whether the shareholder is entitled to exercise more than 50% of the votes at a shareholder meeting. 3.5 Independence of Directors Directors are restrained from acting in situations where their personal interests may conflict with the company’s interests. Section 131 of the Companies Act requires a director to act in good faith and in what they believe to be the best interests of the company when exercising powers or performing duties – see 3.6 Legal Duties of Directors/Officers . A director is “interested” in a transaction if, in broad terms, the director (or their parent, child or spouse/ partner, or another entity of which the director is a director, officer or trustee) is a party to it or may derive a material financial benefit from it, or if the director has a material financial interest in another party to it, or is otherwise directly or indirectly materially interested in the transaction. An interested director must promptly disclose the interest to the board (unless the transaction is in the ordinary course and on the company’s usual terms), and the disclosure must be recorded in the interests register. A director may disclose an ongoing interest in a named person or company, with the effect that the director will be treated as having disclosed an interest in any future transaction with that person or company. Failure to disclose an interest does not invalidate the transaction but does allow the company to avoid the transaction within three months following disclosure of the transaction to all shareholders if the company did not receive fair value (based on the knowledge of the company and the interested director at the time the transaction was entered into), but this is subject to protections for third‑party purchasers for value with - out notice. Under the Companies Act, an interested director may generally vote on matters relating to the transaction, be counted in the quorum, and otherwise do any - thing as though the director were not interested in that transaction. In practice, boards’ charters or codes of conduct often provide for conflicted directors to
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