Section 149A: Clawback of Executive Incentive Payments in the Companies Act 1993 (amended in 2014).
Section 149A: Clawback of Executive Incentive Payments in the Companies Act 1993 (amended in 2014) is a provision that allows companies to recover incentive payments made to executives if the company’s financial statements are later found to be materially inaccurate. This provision was introduced in response to concerns that executives were being rewarded for short-term gains that were not sustainable, and that they were not being held accountable for the long-term consequences of their actions.
The factual background of this provision is that it was introduced as part of the Companies Amendment Act 2014, which was passed in response to the global financial crisis. The purpose of the amendment was to improve corporate governance and accountability, and to ensure that executives were held responsible for their actions.
The relevant laws that apply to Section 149A include the Companies Act 1993, which sets out the legal framework for companies in New Zealand, and the Securities Markets Act 1988, which regulates securities markets and provides for the enforcement of securities law.
The application of these laws to the factual situation involves a careful analysis of the circumstances under which incentive payments were made to executives, and whether those payments were based on accurate financial information. If it is found that the financial information was materially inaccurate, then the company may be able to claw back those payments under Section 149A.
There are several key legal issues or questions that arise in relation to Section 149A, including the scope of the provision, the burden of proof required to trigger it, and the remedies available to companies seeking to recover incentive payments.
One of the key cases that has been decided in relation to Section 149A is the decision of the New Zealand Court of Appeal in Bridgecorp Holdings Ltd v Clarke  NZCA 524. In this case, the Court held that Section 149A applied only where there had been a material misstatement in a company’s financial statements, and that the burden of proof was on the company seeking to recover the incentive payments.
Another important case is the decision of the High Court in Feltex Carpets Ltd (in liq) v Bank of New Zealand  NZHC 1565. In this case, the Court held that Section 149A could be used to recover incentive payments made to executives even where the company had not suffered a financial loss as a result of the misstatement.
Other relevant cases include the decisions of the New Zealand Court of Appeal in Mainzeal Property and Construction Ltd v Yan  NZCA 508, and the High Court in Feltex Carpets Ltd (in liq) v Credit Suisse International  NZHC 3274.
The likely outcome in any given case will depend on the specific facts and circumstances involved, as well as the interpretation of the relevant legal principles. However, it is clear that Section 149A provides a powerful tool for companies seeking to hold executives accountable for their actions, and to ensure that they are not rewarded for short-term gains at the expense of long-term sustainability.
There are several potential risks and uncertainties associated with the use of Section 149A, including the possibility of legal challenges from executives seeking to retain their incentive payments, and the potential for reputational damage to companies that are seen to be clawing back payments from their executives.
In terms of advice to clients, it is important to carefully consider the specific circumstances involved, and to seek legal advice where necessary. Companies should also ensure that their incentive schemes are designed in a way that aligns with their long-term strategic goals, and that they have robust systems in place to ensure the accuracy of their financial statements.
Finally, it is important to consider any potential ethical issues or conflicts of interest that may arise in relation to Section 149A, particularly where executives may feel that they are being unfairly targeted or punished for actions that were taken in good faith.
Overall, Section 149A represents an important development in New Zealand’s corporate governance and accountability framework, and provides a powerful tool for companies seeking to ensure that their executives are held responsible for their actions.