Corporations (Investigation and Management) Act 1989

The Corporations (Investigation and Management) Act 1989 is a special intervention law for serious corporate distress. Its title and objects show that it is designed to help determine whether corporations are at risk and to enable action to be taken in appropriate cases.

The Act gives the Registrar of Companies powers to obtain information and investigate the affairs of corporations to which the Act applies. In some situations, the Financial Markets Authority, or FMA, also has powers under the Act.

This is not a routine compliance Act for most businesses. It is an escalation framework. It is used where ordinary company law tools may not adequately protect members, creditors, beneficiaries or the public interest.

Once the Act is engaged, control over records, assets, payments and decision-making can change quickly. That is why any notice under this Act should be treated as urgent.

The Act applies to any corporation that is, or may be, operating fraudulently or recklessly. It can also apply where it is desirable to preserve the interests of members or creditors, protect beneficiaries under a trust administered by the corporation, or for another public interest reason, if those interests cannot be adequately protected under the Companies Act 1993 or in another lawful way.

The definition of corporation is broad. It covers a body of persons whether incorporated or not, and whether incorporated or established in New Zealand or elsewhere.

The Act also reaches some overseas bodies. If an overseas body carries on business or has assets in New Zealand, the Act applies to that New Zealand business or those New Zealand assets as if they were held by a separate person.

It can also extend beyond the main entity to associated persons. That includes a person who directly or indirectly controls management, owns directly or indirectly 20% of issued shares, is directly or indirectly controlled by the corporation, or is 20% or more owned by it. For Part 1, a person substantially indebted to the corporation is also treated as an associated person.

The Act says a corporation is operating fraudulently or recklessly if it contracts debts that its officers did not honestly believe on reasonable grounds it would be able to pay when due, as well as all its other debts including future and contingent debts.

It also covers carrying on business or operating in a reckless manner, or carrying on business or operating with intent to defraud creditors or members, or for another fraudulent purpose.

That language is aimed at serious conduct. It goes well beyond ordinary commercial pressure or a temporary downturn.

The Act also includes a specific disclosure pathway for retirement village statutory supervisors. If a statutory supervisor becomes aware of information supporting a reasonable opinion about inability to pay debts, balance sheet insolvency, likely insolvency, or a material breach or likely material breach of the deed of supervision, the supervisor must disclose relevant information to the Registrar as soon as practicable.

Part 1 gives the Registrar strong information-gathering powers. The Registrar may require a corporation or an associated person to supply information relating to the business, operation or management of the corporation, for stated periods and in a stated form.

The Registrar may also require that information to be audited by an auditor approved by the Registrar.

The Act also contains powers to obtain information and documents, requirements on entering and searching premises, and powers for a person appointed to carry out an investigation. Hindering an investigation is an offence.

For a business owner, the practical point is simple. If a notice arrives, organise a disciplined response. Failing to comply without lawful justification or excuse is an offence. So is supplying information that is false or misleading in a material particular.

The Act also preserves legal privilege. A person who has acted as a solicitor or barrister does not have to disclose privileged communications made in that capacity.

If a final court decision later declares certain exercises of power under section 17 or sections 19 to 21 unlawful, the Act requires destruction or return of affected information and documents and prevents their use in evidence or for later powers under Parts 2 or 3.

A corporation does not become at risk automatically under the Act. The power sits with the Registrar or the FMA. If either has reasonable grounds to believe that a corporation is, or may be, a corporation to which the Act applies, they may give written notice to the corporation that it is considered to be a corporation at risk.

Every notice must state the grounds on which it is given. The FMA may only use this power for a corporation that is a financial markets participant.

Once a notice is given, the corporation must promptly consult with the Registrar or the FMA about its circumstances and methods of resolving its difficulties. Associated persons, officers and employees may also be required by written notice to consult.

The Registrar or FMA may then give advice and assistance. That can include help with negotiating a sale or other disposition of the whole or part of the capital or business undertaking, or help with a scheme for resolving the corporation’s difficulties.

The regulator may also give directions in writing. These can stop the corporation from removing from New Zealand, transferring, charging or otherwise dealing with property or funds without prior approval. They can require money received for investment to be placed in a trust account. They can also require other action specified in the notice to preserve members’ and creditors’ interests.

Directions must be expressed to apply for a period not exceeding 21 days. They may be amended, and they may be revoked at any time.

Section 35 creates a practical compliance risk that businesses should not miss. A corporation that acts in contravention of, or fails to comply with, a direction under section 33 commits an offence against the Act.

The offence risk is not limited to the corporation itself. An officer or employee who obstructs, hinders or prevents the corporation from giving effect to a direction also commits an offence.

In practice, that means internal communication matters. If a direction affects payments, asset dealings, customer money or approvals, staff need clear instructions straight away. A breakdown between legal, finance and operations can create avoidable exposure.

Part 3 deals with statutory management. The Act structure shows a broad framework covering when a corporation or associated person can be declared subject to statutory management, the powers of the statutory manager, a moratorium, restrictions on removal of assets, suspension of payment of money owing, vesting of management in the statutory manager, sale powers, tracing powers, court directions and termination.

For ordinary businesses, the practical lesson is that statutory management is a major control shift. Management of the corporation vests in the statutory manager. Prior winding up, liquidation or receivership is to cease.

The statutory manager has broad powers under the Act, including powers to carry on the business, pay creditors and compromise claims, terminate contracts of agency or service, sell the business undertaking, and in some cases deal with secured assets.

If you are a supplier, lender, landlord, customer or shareholder, expect the normal decision-makers to be replaced. If you are inside the affected business, your first question should be who now has authority to instruct staff, approve payments, access records and communicate with counterparties.

The Act has a specific provision on reporting requirements in other Acts. The practical point is to avoid broad assumptions. It is not correct to say that all filing obligations are generally affected.

The Act provides that most enactments do not require annual or other returns while a company is subject to statutory management. But the Act expressly preserves the position under the Income Tax Act 2007 and the Data and Statistics Act 2022.

There is also an Order in Council power in this area. So if your business is in statutory management, or dealing with a company that is, reporting obligations should be checked carefully against the Act and any relevant orders rather than assumed away.

Once a corporation becomes subject to statutory management, all persons with possession or control of its books, records, documents or other property must forthwith deliver or yield possession to the statutory manager.

If a person fails for 7 days to comply, that person commits an offence. The Act states a fine of up to $5,000, plus a further fine of up to $100 for every day after those 7 days during which the offence continues.

The statutory manager may also certify the failure to the court. The court may inquire into the matter and may punish the offender in a way linked to contempt powers.

It is not a defence to say the property was held as trustee, subject to a lien or other charge, or under a receivership or management role. At the same time, the person’s rights in the property continue while the management continues, and on termination the property is to be returned subject to the Act and any court order.

The offence risk becomes more serious if records are tampered with. A director, officer, servant, agent or other person commits an offence if, with intent to defeat the purposes of the Act, they destroy, alter or conceal any book, document or record of, or relating to, a corporation subject to statutory management, or send or attempt to send it out of New Zealand.

The same section also makes it an offence to fail or refuse to answer, to the best of the person’s knowledge and ability, any question asked by the statutory manager in relation to those records or any property, or to wilfully give a false answer.

The Act states that a person convicted under section 68 is liable to imprisonment for up to 2 years or a fine of up to $50,000.

For business owners, this means record preservation is not just good practice. It is a direct legal risk point once statutory management is in play.

If your own business is under pressure, this Act is a reminder to act early. Directors and managers should test whether debts can honestly and reasonably be expected to be paid when due, keep records current, and avoid transactions that could look like asset stripping or concealment.

If client or investor money is involved, handling controls should be reviewed immediately. A direction can require money received for investment to be placed in a trust account, so weak money-handling systems can become a major problem very quickly.

If another business you deal with is affected, focus on authority, payment risk and document control. Ask who now has power to instruct you, whether payments can still be made in the ordinary way, whether goods should still be supplied on credit, and whether any enforcement step is affected by statutory management.

Also remember that the Act says there is no obligation on the Registrar or the FMA to supervise the affairs of any corporation or to exercise powers in any particular case. Silence from a regulator is not a sign that a counterparty is safe.