A Season of Change for Polytechs

Introduction

New Zealand's 16 polytechnics are entering a season of change. The government's plan is to replace polytechs with a single organisation delivering a regional network of accessible vocational education by the end of 2022.

The first phase of the change process is planned for 1 April 2020. The new laws making these changes are complex and still in rough draft form.

We've prepared this article to give you clarity about what the planned 1 April law changes mean for polytechs from a legal compliance and governance perspective.

Setting the Scene

The draft law bringing about the changes to polytechs is called the Education (Vocational Education and Training Reform) Amendment Bill. The Bill is big and impacts areas well beyond polytechs which are our focus here.

The Bill was introduced to Parliament on 26 August 2019 and the Select Committee is due to report back to Parliament by 10 February 2020. This leaves very little time until the first wave of change is due to come into effect on 1 April.

As is often the case with draft legislation which has been speedily put together, the Bill has inconsistencies and errors which we hope will be sorted out in the next version. We'll provide an update to this article as soon as a clearer version of the Bill is available.

Assuming the planned timeframe doesn't change, here's an overview of the timeline for the changes to polytechs:

Different - yet mostly the same for now 

On 1 April 2020 polytechs will become subsidiaries of the New Zealand Institute of Skills and Technology (NZIST). The plan is for these subsidiaries to become part of NZIST by the end of 2022.

Our focus here is on the legal changes to polytechs on 1 April 2020.

Polytechs have been fairly independent organisations from a legal governance perspective. This will change in April in two significant ways when they become Crown entity subsidiaries of NZIST and they become companies.

Before we dive into what's changing in April, let's have a quick look at what's not changing so much.

What's not changing so much in April 2020?

It looks like the name of each polytech will remain largely the same, with just the word 'Limited' being added to it. For example, Northland Polytechnic, becomes Northland Polytechnic Limited.

Operationally, much will stay the same in April 2020.

The rights, assets, liabilities, approvals, accreditations, employees and students of each polytech will be moved to the corresponding new subsidiary company.

There will be tweaks to how the provisions of the Education Act apply to the subsidiary companies. The current Bill is quite inconsistent on these tweaks, so we will watch with interest and provide more clarity when it's available.

As NZIST becomes more established in 2020, it will take on a gate-keeper role for its subsidiaries for TEC funding from the 2021 year. It will also have more oversight and control in significant investment and expenditure decisions.

What does it mean to become a Crown entity subsidiary?

Here's a quick overview of what it means to be a Crown entity subsidiary:

• You are 'owned' by your parent entity. In this case NZIST owns all your shares. NZIST can also disestablish you and absorb you into itself (even prior to the end of 2022).
• The parent has a legal duty to make sure its subsidiaries operate within rules set out in the Crown Entities Act, like not doing things the parent can't do, acting consistently with the parent's objectives, and complying with rules that apply to employees.
• The governance rules that applied to you as a tertiary education institution under the Crown Entities Act will still apply to you as an NZIST subsidiary. There's confusion about whether other parts of the Crown Entities Act will apply. The next version of the Bill should remove this confusion.

What will it mean to become a company?

From 1 April, the legal 'entity' of a polytechnic will disappear. Polytechs will then be operating as limited liability companies under the Companies Act. The Companies Act imposes a raft of important duties on an organisation and those responsible for running it.

At a very high level the duties for a company include:

• Properly appointing directors to manage, or direct and supervise the management of, the business and affairs of the company. NZIST appoints directors to its subsidiaries. There will be 4 to 6 directors. Initially at least half must come from the region the subsidiary predominantly operates in. 
• Specific duties on directors personally, general duties on the board of directors, and rules and processes for board meetings.
• Important rules for major transactions.
• Rules about annual reports and financial statements.
• A range of administrative requirements from keeping company records up to date at the Companies Office, insurance restrictions, and preparing a company constitution (noting that an NZIST subsidiary is required to have a constitution that states it is a Crown entity subsidiary under the Crown Entities Act.)
• Rules about shareholder rights, shares, distributions to shareholders and so on.

Some duties under the Companies Act get modified for subsidiaries of NZIST. 

What's next?

Once the Select Committee reports back to Parliament in February the Bill will need to be fast-tracked to become law by the end of March 2020. We're hoping that despite the tight timeframes all the wrinkles in the current version of the Bill will be sorted out.

At ComplyWith we'll be working hard to give our 7 polytech customers clarity about the law changes and what these mean from a legal compliance angle. We'll do this by aiming to provide further updates as things hopefully become clearer. We'll also prepare compliance content for the new laws, although finalising the content will depend on when we get to see a final version of the new laws.

In the meantime, if there is anything we can do to help your organisation, or you have questions about the law changes, please contact us.

help@complywith.com | 04 384 4410