New rules for companies' annual reports all set for June implementation

Regulations required for the implementation of the new rules aimed at lowering the compliance costs associated with the preparation and dissemination of a company's annual report were enacted on 14 May. These regulations and the main amendments to the Companies Act will come into force on 18 June in time for companies with 30 June balance dates.

The Companies Amendment Act 2006 introduced new rules relating to the obligation to provide hard copies of a company’s annual reports to its shareholders. The amendments were passed at the end of last year as part of the Government’s latest business law reform package aimed at improving the regulatory environment for business.

Obligation to send report “on request” only basis

Under the current regime a company must send out a hard copy of its annual report to each of its shareholders within 20 days of its annual general meeting unless the shareholder has waived their right to receive the report. Under the new provisions, a company will now have the option of sending a notice to its shareholders instead of the report in the first instance. Indeed, a hard copy of the annual report will only have to be sent if a shareholder requests a copy of the report within 15 working days after receipt of the notice¹.

Section 209 Notice

The notice must meet the requirements of the new section 209 of the Companies Act 1993 and specify that the shareholders have a right to receive, free of charge and on request, a hard copy of the annual report and provide details of how an electronic copy of the report may be obtained. The notice is also to note whether a concise report is available for the same accounting period and, if there is, provide for it to be made available on the same basis as the full report.

If a shareholder does request a copy of the annual report, the company must send it “as soon as practicable”. It also should be noted that once a request is received from a shareholder, the company must send that shareholder a hard copy of the report each year until the shareholder revokes the request.

No waiver available

Under section 212 of the Act, a shareholder may send a written notice to the company waiving the right to receive all or any documents from the company.  However, section 212 has been amended so that a shareholder cannot validly waive the right to receive both a copy of the annual report and a section 209 notice.  Accordingly, if a company has a general waiver from a shareholder, the shareholder will still need to be sent a section 209 notice.

Concise annual report

The 2006 amendments have introduced the possibility of the company preparing a concise annual report for the same accounting period. This is not a mandatory requirement and it is not an alternative to the requirement to prepare and make available a copy of the full annual report.

If the company does choose to prepare a concise report it must comply with the requirements set out in sections 209(5) and (6) of the Act and the new Regulation 11 of the Companies Act 1993 Amendment Regulations. These provide for a concise report to include:

• financial statements (including any group financial statements) and any auditor’s report required under Part 11 of the Act; or

• summary financial statements; and

• a description of any changes in:

• the nature of the business carried on by the company or any of its subsidiaries; or

• the classes of business in which the company has an interest,

in so far as the board believes it is material for the shareholders to have an appreciation of the state of the company’s affairs and provided the information will not harm the company’s (or it’s subsidiaries’) business.

Electronic copies

The requirement to make available copies of annual reports (and concise reports if there is one) to shareholders by electronic means only arises if the company elects to send out a section 209 notice instead of the hard copy of the reports. However where the section 209 notice is given, the company must ensure that the reports are available (at all reasonable times) in the manner specified in the notice (such as on the company’s website) from the date the notice is sent until a subsequent notice is sent for the next accounting period.

Listed Companies

NZX listed companies will be pleased to note that NZX is amending its rules to align them with the new Companies Act provisions on annual reports. For further details of NZX’s proposed changes see the Securities and capital markets section of this issue of Commercial Quarterly.

 

¹ Under section 392 of the Companies Act “receipt” by a shareholder of a section 209 notice will generally be deemed to have occurred 5 working days after it was posted or delivered to a document exchange.

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