New Wave of Company Law Reform in the South Pacific

A new, second generation wave of company law reform is rolling through South Pacific nations. In the early 21st century, Niue and Samoa passed new company law legislation. At present, Vanuatu, Tonga and the Solomon Islands are preparing new company law statutes. All of the draft legislation draws on the New Zealand Companies Act 1993 but has been adapted for local circumstances.

Where did South Pacific Company Law come from?

With a few exceptions, most South Pacific nations followed the law of the United Kingdom. To be sure, the United Kingdom was a great exporter of law. So, for example, British law was first received in Virginia in 1607. Then, for approximately four centuries, British law spread to countries under British rule and came to regulate the lives of about one third of the people on earth. British law first went into North America and Canada. It later went into Australia and New Zealand. Because New Zealand played a major role in the establishment of the Cook Islands, Niue, Tokelau and Western Samoa, all of these jurisdictions follow United Kingdom law via New Zealand.

Fiji and the British Solomon Islands were administered by the British and so they too followed United Kingdom law. New Guinea was administered by the British and then the Australians – it also followed United Kingdom law. Vanuatu (formerly the New Hebrides) had elements of French and English law but presently relies more on United Kingdom law. Tonga followed United Kingdom law.

Generally speaking, all of the South Pacific nations adopted United Kingdom company legislation. For example, until recently, many Pacific island nations had a version of the 1948 UK Company Act.

Where does the Second Generation of South Pacific Company Law come from?

The new, “second generation” of South Pacific company legislation looks to New Zealand for a model. To this extent, New Zealand is a new “exporter” of company law. The reason for this phenomenon requires some explanation.

Subsequent to Polynesian settlement, with the arrival of British columnists, New Zealand initially became a British possession (as an appendage of the Australian colony of New South Wales). It became a separate colony in 1841 and was granted representative government in 1853. It did not achieve Dominion status until 1947.

For most of its history, and especially in the period 1860-1993, New Zealand looked to the United Kingdom for guidance on company legislation. In short, much of New Zealand statute law was derivative. In company legislation, there was a long standing tendency to follow UK legislation word for word. By adopting this policy, New Zealand was able to access the decisions of the United Kingdom courts on its company legislation.

For New Zealand - and by extension many South Pacific nations - the copying of United Kingdom law was a low cost and effective solution to company regulation when resources were minimal.

There were other good reasons for New Zealand to follow United Kingdom law - cultural bias and legal heritage being but two of them. Another important reason for following a United Kingdom model for company law was that the primary outside source of capital for New Zealand was the United Kingdom. The adoption of a United Kingdom model for company law in New Zealand gave United Kingdom investors confidence in New Zealand investments. In the result, New Zealand followed United Kingdom company legislation until 1993.

In 1993, New Zealand enacted the Companies Act 1993. For the first time, United Kingdom models were abandoned. In a decisive break with the past, the Companies Act 1993 was based on a Canadian model which in turn was based on corporate law statute of the State of New York. Generally speaking, the new legislation quickly became the regional benchmark for “best practice”. So it was not surprising that South Pacific nations began to model their new, second generation company legislation on the New Zealand Act.

Why is Good Company Legislation Important for South Pacific Nations?

Just as roads, ports and airports represent important physical infrastructure, good commercial law - including company law - represents important legal infrastructure. It is crucial to get the best legal infrastructure in place in order to encourage business.

Internationally, the overwhelming majority of all enterprises are small to medium-sized enterprises (SMEs). Clear, concise and user-friendly company law encourages the formation of SMEs as limited liability companies thereby stimulating the overall economic development of the nation.

Good company legislation can also be designed to address the particular characteristics of Pacific island nations. For example, the draft company legislation of the Solomon Islands makes provision for the registration of “community companies”. Community companies are a special type of company designed for use by kin groups especially where land is under customary ownership. The use of a community company enables the use of community assets in a way that benefits all members of the community while at the same time removing the potential for abuse sometimes experienced with the use of trusts.

The use of new information technology

A significant part of company law reform in South Pacific nations is to ensure the optimum use of new information technology (IT). The New Zealand Companies Registry is a world leader in the use of information technology for the incorporation and the administration of companies.

In New Zealand, it is possible to form companies and file company documents such as the annual return online. However, in order to access the cost savings associated with the use of the Internet, numerous changes must be made to company legislation. For example, standard requirements for the filing of written consents by directors need to be changed to make optimum use of the Internet. These types of changes are particularly important for South Pacific island nations because they address the “tyranny of distance” problem and make it easier to administer companies.

At present, the Solomon Islands and Tonga are considering using the IT platform used by the New Zealand Companies Registry for their own Companies Registries. This solution has already been adopted by Niue. The solution has a number of advantages. In particular, because company data is backed-up in a secure, separate and dedicated server held in New Zealand, the particular South Pacific Company Registry will always be immune from fires, floods or tidal waves.

The public consultation process

Feedback from end users and other stakeholders is a vital part of the company law reform process. To this end, the governments of the Solomon Islands, Tonga and Vanuatu are actively engaging with citizenry to ensure that their views are reflected in the design of proposed legislation.

What are the desired outcomes of company law reform?

Most nations desire economic growth to improve the welfare of their citizens. The second generation wave of company law reform in South Pacific nations is designed to produce user-friendly legislation that makes the incorporation and administration of companies via the Internet a relatively straightforward and inexpensive process. It is expected that these reforms will encourage commercial risk-taking, stimulate employment opportunities, address more directly the particular characteristics of South Pacific nations and encourage economic growth.


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