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NZX Listing Rule changes now in full effect

July 03, 2019


Partners James Hawes, Don Holborow, Andrew Matthews, Michael Pollard

Corporate governance

It’s been a big week for law changes this week: the much talked about ban on plastic bags, a new petrol tax, insulation requirements for rental homes now in effect, over 65s now able to join KiwiSaver, a new Family Violence Act, expanded paid parental leave, a new operating model for Oranga Tamariki. With so much activity it would have been easy to overlook that the recent changes to the NZX Listing Rules are also now in effect.

This set of Listing Rule changes is about shareholder protection and consistency. It represents another element of a growing trend across the corporate governance landscape (particularly in the financial markets, but likely to spread beyond), to adopt practices that protect the rights and interests of the smaller, generally retail, market participants.

Many of the changes are more or less ‘business as usual’ but some represent more significant change. We have explained four of these below.

One unified market

All companies with their shares listed on the NZX are now on one unified market, operating under one set of updated and streamlined Listing Rules.

This means that the NXT and AX boards, with lower disclosure and corporate governance requirements, no longer exist, and companies previously listed on those boards have now migrated to the Main Board.

Ensuring continuous disclosure processes are right

A listed company must disclose all material information of which it is, aware, or ought reasonably to be aware, (except where an exception to disclosure applies). This introduces the concept of “constructive knowledge”, where a director or senior manager “ought reasonably to have come into possession of material information”.

In practice this means directors (and senior managers) need to ensure appropriate escalation processes are in place, enabling the right people to determine, quickly and effectively, whether information is “material” and needs to be disclosed to the market.

Ensuring managing directors are regularly considered for re-election

Every director, including managing or executive directors, must retire and stand for election every three years. This changes the long-standing rule that a managing director could remain on the board for five years. The rule change reflects a fundamental shareholder protection policy that NZX has been keen to implement.

Ensuring one share equals one vote

Previously, voting could be on a “show of hands” basis, meaning only those shareholders physically present in the room were able to vote (unless a poll was demanded). A poll enables all shareholders to vote their shares - including through postal votes and proxies for those not present physically, and ensures a one vote per share held approach (rather than one vote per hand raised). This represents a fairer approach to voting and is something the New Zealand Shareholders’ Association has pushed for.

All NZX listed companies have until their next shareholders’ meeting to update their constitutions to ensure they comply with the revised Listing Rules. This will see those issuers going to shareholders to approve amendments to their constitutions, but in most cases this should be seen as housekeeping.