‍The change

As the new decade rolls in, so will changes to which private companies are considered “code companies” under the Takeovers Act 1993 (Act) and Takeovers Code (Code).  

Previously, all unlisted companies with 50 or more shareholders and 50 or more parcels of shares were considered “code companies” under the Act.  

The recently passed Regulatory Systems (Economic Development) Amendment Act (No 2) 2018 will introduce a two-staged test, requiring a company to also be “at least medium sized” for the Act and Code to apply.  The threshold for “medium sized” is that a company (and its subsidiaries) must have at least $30 million of assets or at least $15 million of revenue, at the end of the company’s last completed accounting period.   For most companies the end of their accounting period will be the end of their financial year (often, 31 March).    

The 50 shareholder / 50 share parcel limb of the “code company” test remains unchanged.  

‍In practice

No longer being a “code company” will mean that smaller companies (companies with 50 or more shareholders, 50 or more share parcel numbers, and less than $30 million in total assets or turnover less than $15m) will be able to have:

• new investors acquire more than 20% of shares;
• a shareholder increase its shareholding above 20%; or  
• a majority shareholder acquire more than 5% of shares,

without having to make a Code compliant takeover offer.    

What this means for you and your business

The additional asset or income threshold comes as a result of a Takeovers Panel recommendation, who felt that costs of compliance under the previous test were disproportionate to the benefits that small unlisted companies received under the Act.    

Interestingly, up until 2006 the Code applied to unlisted companies with 50 or more shareholders and $20 million or more of assets. We welcome the return of an asset threshold, and the new income threshold, and we are sure our clients with large numbers of shareholders, often due to having share purchase schemes, will consider this a positive change for the start of the new decade.  

New Zealand is a haven for small entities – no doubt this exemption be a welcome change for many making their mark.

The changes to the definition of “code company” will take effect from 13 January 2020.  

A full copy of the Regulatory Systems (Economic Development) Amendment Act (No 2) 2018 here - http://www.legislation.govt.nz/act/public/2019/0062/latest/LMS85567.html

Guidance: https://www.takeovers.govt.nz/guidance/codeword/issue-50/code-to-exclude-small-code-companies/