Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
128: Management of company
or “How a company is run and who's in charge”
You could also call this:

“Companies need special approval for big purchases, sales, or deals worth over half their assets”

A company can’t enter into a major transaction unless it’s approved by a special resolution or depends on such approval.

A major transaction is when a company:

  • Buys or agrees to buy assets worth more than half of what the company owns.
  • Sells or agrees to sell assets worth more than half of what the company owns.
  • Does something that gives it rights or responsibilities worth more than half of what the company owns.

Assets can be anything the company owns, whether you can touch it or not.

When thinking about how much a possible responsibility (called a contingent liability) is worth, the company leaders:

  • Must look at everything they know or should know about it.
  • Can use reasonable guesses about its value.
  • Can think about how likely it is to happen and if the company can reduce or cancel it.

This rule doesn’t apply when a company gives someone the right to take its assets if it can’t pay back money or do what it promised, even if those assets are worth more than half of what the company owns.

Also, this rule doesn’t apply when someone appointed by a document (that gives the right to take most or all of the company’s property) enters into a major transaction for the company.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: 130: Delegation of powers

or “Directors can assign tasks but remain accountable for their completion”
Next

Part 8 Directors and their powers and duties
Powers of management

129Major transactions

  1. A company must not enter into a major transaction unless the transaction is—

  2. approved by special resolution; or
    1. contingent on approval by special resolution.

      1. In this section,—

        assets includes property of any kind, whether tangible or intangible

          major transaction, in relation to a company, means:

          1. the acquisition of, or an agreement to acquire, whether contingent or not, assets the value of which is more than half the value of the company's assets before the acquisition; or
            1. the disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company's assets before the disposition; or
              1. a transaction that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is more than half the value of the company's assets before the transaction.

              2. Nothing in paragraph (b) or paragraph (c) of the definition of the term major transaction in subsection (2) applies by reason only of the company giving, or entering into an agreement to give, a charge secured over assets of the company the value of which is more than half the value of the company's assets for the purpose of securing the repayment of money or the performance of an obligation.

              3. In assessing the value of any contingent liability for the purposes of paragraph (c) of the definition of major transaction in subsection (2), the directors—

              4. must have regard to all circumstances that the directors know, or ought to know, affect, or may affect, the value of the contingent liability; and
                1. may rely on estimates of the contingent liability that are reasonable in the circumstances; and
                  1. may take account of—
                    1. the likelihood of the contingency occurring; and
                      1. any claim the company is entitled to make and can reasonably expect to be met to reduce or extinguish the contingent liability.

                      2. Nothing in this section applies to a major transaction entered into by a receiver appointed pursuant to an instrument creating a charge over all or substantially all of the property of a company.

                      Notes
                      • Section 129(2) major transaction: replaced, on , by section 17(1) of the Companies Act 1993 Amendment Act 1994 (1994 No 6).
                      • Section 129(2) major transaction paragraph (c): amended, on , by section 8(1) of the Companies Amendment Act (No 2) 2004 (2004 No 24).
                      • Section 129(2A): inserted, on , by section 17(2) of the Companies Act 1993 Amendment Act 1994 (1994 No 6).
                      • Section 129(2A): amended, on , by section 10 of the Companies Act 1993 Amendment Act 2001 (2001 No 18).
                      • Section 129(2A): amended, on , by section 10 of the Companies Act 1993 Amendment Act 1997 (1997 No 27).
                      • Section 129(2B): inserted, on , by section 8(2) of the Companies Amendment Act (No 2) 2004 (2004 No 24).