The principal driver has been the government’s desire to maintain New Zealand’s reputation as a trusted place to do business, and to restrict the ability of New Zealand-registered shell companies to be used for offshore criminal purposes.

The key changes proposed are outlined below:

1. Requirement to have a New Zealand resident agent: The Bill requires companies registered in New Zealand to have a resident agent if they do not have a director living in New Zealand or in an “enforcement country” (to be listed in regulations).  A resident agent:

• must be a natural person over 18, cannot be the company’s auditor, and must meet the qualification requirements for a director
• will be legally responsible for the company’s administrative affairs, and will be liable if it fails to comply with its reporting and record-keeping obligations.  An agent can put forward a defence to liability if he or she proves that all reasonable and proper steps were taken to ensure the relevant requirements would be complied with.
• will be covered by the insurance and indemnity provisions in the Act that apply to company employees
• will not be de facto a manager, and will not be a deemed director under the Act
• must comply with certain directors’ duties (the duty not to disclose company information except for company purposes or required by law, and the duty not to acquire or dispose of shares at other than fair value)
• must notify the Registrar if there are no directors or fewer than a quorum
• will not be liable for the acts, omissions and decisions of other people that occur within three months before the agent resigns (intended as an incentive for a resident agent to resign if he or she becomes aware of the non-compliance of others).

A six month transition period applies, after the Bill becomes law, in which companies must appoint a resident agent.

2. Enhanced Registrar’s Powers: The Bill provides the Registrar with enhanced powers to investigate and deal with non-compliance with the Companies Act, including the power to “flag” companies on the register that are under investigation.  The Registrar can also remove a company from the register if it has provided incomplete information or persistently failed to comply with its statutory duties in a persistent and serious way.

Similar changes are proposed to the Limited Partnerships Act.

3. Criminal sanctions for breach of director duties: The Bill proposes that breach of a directors’ duties:

• To act in good faith and the best interests of the company (section 131) will, if the director knows the breach is seriously detrimental to the company’s interests; or
• To ensure the company does not trade in a reckless manner (section 135) will, if the director knows that the breach will result in serious loss to the company’s creditors

in each case, attract a prison term of up to five years or a fine of up to $200,000.

4. Restrictions for Code Companies: The Bill also provides that companies governed by the Takeovers Code will no longer be able to conduct long form amalgamations under part 13 of the Companies Act 1993. In addition, more rigorous voting thresholds and judicial oversight will apply to court approved schemes of arrangement, amalgamation or compromise.

The legislative timetable for the Bill will become clearer, after the outcome of November’s general election.  We will provide an update once this is known.

For further information on the implications of these proposed changes for your business, please contact your usual Dawson Harford advisor.

From 1 October 2011, gift duty is no longer payable.  This has particular significance for family trusts.  Gifting programmes commonly in place for family trusts whereby gifts of $27,000 per year are made will no longer be required.    

What paperwork will still be needed?

The only change in paperwork is that a gift statement will no longer need to be filed with the Inland Revenue Department.  You must still have deeds of gift evidencing all gifts made – regardless of who those gifts are made to.

Should I forgive in full any debt owing to me by a trust?

While in many cases, it will be appropriate for any debt outstanding to be immediately forgiven, this is not automatic.  Consideration should be given to a number of factors including:

• Whether there is some accounting advantage in leaving a debt owing
• Personal insolvency and the ability for creditors to recover gifts made to a trust
• Relationship property issues
• Possible impact on social welfare assistance including residential care subsidies
• The change in status from being a creditor of the trust (where you can usually require repayment of any debt) to solely being a discretionary beneficiary of the trust (where you cannot require any payment be made to you)

Whether or not a debt should be forgiven is therefore dependent on your personal circumstances.

Practical implications of the change

Annual gifting programmes currently provide a good annual check up for trusts – with this often being an opportunity for a trustee meeting and ensuring that any funds advanced to the trust throughout the year are documented.  The challenge for many trusts going forward will therefore be to ensure that good compliance is maintained to reduce the risk of the trust structure being challenged at a later date.  Given the removal of restrictions on gifting, it is likely there will be greater scrutiny of trusts going forward, particularly in the area of social welfare assistance, including residential care subsidies.

Particular care should be taken with compliance, including maintaining regular trustee meetings, keeping clear records and ensuring that gifts to the trust are documented correctly.

The National Policy Statement for Freshwater Management 2011 (NPS) sets out the key objectives and policies that direct local government to manage water in an integrated and sustainable way.  NPS policies will affect many different interest groups including regional and local councils, landowners, farmers, businesses and iwi and requires regional councils to make significant changes to their regional plans to accommodate these new requirements.

NPS Objectives

Under the NPS, the government’s overarching objectives are:

• Quality: Maintain and improve NZ’s current freshwater quality;
• Quantity: Safeguard the life supporting capacity of fresh water, ensuring efficient allocation and use while preventing over-allocation, and protecting the significant values of wetlands;
• Integrated Management: Improve integrated management of fresh water; and
•  Tangata Whenua: Provide for the involvement of iwi and hapu to ensure tangata whenua values and interests are reflected in the management of fresh water.

These objectives are set out in a number of detailed objectives and policies which require regional councils to review and, if necessary, alter their regional plans:

• To set quality limits for freshwater, specify targets and implementation methods to ensure these standards are met;
• To ensure efficient allocation of fresh water for activities, set criteria for transferring water take permits and to prevent and phase out over-allocation; and
• To ensure that management of fresh water resources is completed in a sustainable and integrated manner and involve iwi and hapu in the management of fresh water resources.

Timing

The NPS comes into effect on 1 July 2011. Each regional council must implement the policy as promptly as is a reasonable, and so it is fully completed by no later than 31 December 2030. Where a regional council finds it impracticable to complete implementation of a policy fully by 31 December 2014, the council may implement by a programme of time-limited stages to be fully implemented by 31 December 2030.

If you are a landowner, developer, farmer, iwi  (and own land on or near a stream, river or lake), local government organisation or fresh water stakeholder this policy may affect you, and it is important you are aware of its implications.

Please contact Chris Linton or Justin De Lille, or your usual Dawson Harford representative for more information.

Since the onset of the global financial crisis, there have been increasing concerns about the quality of enforcement in securities markets. Failures of a number of finance companies, and concerns around the KiwiSaver regulatory environment, have highlighted these issues.

The FMA, which is loosely modelled on the Australian Securities and Investment Commission, will be a new consolidated market conduct regulator for New Zealand’s financial market. It will focus on promoting fair, efficient and transparent financial markets, and will have a more active surveillance and enforcement role in relation to those markets. The FMA will take over the existing regulatory functions of the Securities Commission (the current market conduct regulator), the Government Actuary (the current regulator of superannuation and KiwiSaver schemes), and consolidates other regulatory functions fragmented across the Ministry of Economic Development (mainly prospectus review and enforcement of governance laws that apply to financial market participants).

The FMA will have:

• the power to exercise an investor’s right to take civil action against a financial market participant when it is considered in the public interest to do so. Proceedings may be brought retrospectively in respect of damage and harm that was caused before the FMA was set up;
• the ability to use regulations to prevent products from being structured in such a way to deliberately avoid being supervised by the FMA;
• enhanced warning powers to deal with low-ball unsolicited offers; and
• a new oversight regime for registered exchanges, including the ability to undertake real time surveillance of market activity.

The establishment of the FMA is the first step in an overall review by the Government of the financial sector and securities law generally. It is envisaged that the review will be completed by the middle of next year with major reform to follow.

Supplies will be required to be zero rated if, as at settlement date:

• the supply is from one registered party to another registered party; and
• the supply is partly or wholly of land, or an interest in land; and
•  the land is to be used by the purchaser for making taxable supplies; and
•  the purchaser will not use the property as their principal place of residence.

If any of the above conditions are not met, then the going concern rules will continue to apply.

Key aspects of the new rules include:

• Many transactions that were previously “plus GST” tranactions will now be zero rated.
• The definition of land in the GST Act has been significantly expanded to include various interests in land.
•  The rules around nominations have changed.
• Vendors will have new obligations to collect information from the purchaser and make enquiries to ensure that transactions are to be zero rated.
• If Vendors make all due enquiry, then vendors will not be liable for GST in a case of mistake or misrepresentation by the purchaser.
• Vendors will still need to declare zero rated transactions on their GST returns.
•  If transactions involve the purchaser acquiring assets which are not to be used solely for making taxable supplies, then the purchaser must account for GST on the component which is not to be used for making taxable supplies.
• Transitional provisions apply to binding agreements entered into before 1 April 2011.

The changes are significant and shift the focus of where obligations and risks lie between the vendor and the purchaser.  You must therefore ensure that you obtain advice specific to your situation prior to entering into any agreement for sale and purchase.

Key changes in Incoterms 2010 include:

• Two new Incoterms – DAT and DAP – have replaced Incoterms 2000 rules DAF, DES, DEQ and DDU.  DDU (Delivered Duty Unpaid) was a commonly used Incoterm and will now need to be replaced.  DAT (Delivered at Terminal) or DAP (Delivered at Place) are the most similar, with the key difference between them being which party is responsible for the terminal and unloading and forwarders fees at the destination.
• The Incoterms were originally aimed at international trade to overcome the uncertainties of contractual terms in different countries.  However, there has been more and more demand for standard terms to be applied in domestic trade.  Incoterms 2010 have been modified so that they can be applied to domestic trade.
• The Incoterms 2010 have been organised according to those that can be used for any mode of transport (EXW, FCA, CPT, CIP, DAT, DAP, DDP) and those that are only applicable for sea and inland waterway transport (FAS, FOB, CFR, CIF).
• Provision has been made for security-related clearances and for electronic records and procedures.

When using Incoterms, it is important that they are correctly stated, including the correct place name (e.g.  DAP Auckland).  This will ensure that obligations lie and risk passes as intended.

It should be stressed that the scope of Incoterms is limited to matters relating to the rights and obligations of the parties to a contract of sale with respect to the delivery of the goods sold.  Incoterms do not apply to the contract of carriage.  They also do not include every term related to a contract of sale – they only apply in respect of delivery.  All other terms related to the sale need to be included in a contract of sale.

• Provides for a direct service between Courts, in either country, when initiating documents of certain civil proceedings (in the same manner those documents would be served in New Zealand);
• Interim relief may be applied for and granted in either country and given support in the other;
• Expands the range of civil court judgments which are enforceable in both countries;
• Provides registration for competition law judgments which do not impose a civil pecuniary penalty;
• Provides the requirements for registration of Australian judgments which impose civil pecuniary penalties or regulatory regime criminal fines; and
• Permits the use of technology that enable parties and their lawyers to appear in proceedings in the other country (although remote evidence is still governed by Part 4(1) of the Evidence Act 2006, and the corresponding Australian legislation).

The Act, and its operative functions, are part of a wider Trans-Tasman agenda aimed at increasing compatibility between Australia and New Zealand across a number of different legal, social and economic planes. Such developments were recently endorsed by the New Zealand Supreme Court in the case of The Commerce Commission v Telecom Corporation of New Zealand and Telecom New Zealand Limited SC 76/2009, which concluded: “Under agreements between the two countries, competition law in New Zealand and Australia and associated enforcement provisions, are increasingly being framed in a common way to address anticompetitive practices affecting trans-Tasman trade.”

The ever increasing compatibility of the Australian and New Zealand civil procedure systems will continue to allow for increased efficiency in civil, commercial and criminal spheres in both countries.  Over the next few years, we expect to see more legislation of this type in an attempt to harmonise the law and streamline procedures between New Zealand and Australia.  If you would like to discuss the Trans-Tasman Proceedings Act 2010, please contact Simon Stokes.  All of our partners and staff regularly advise on trans-Tasman issues and would be happy to discuss issues within their specialty areas.

The New Zealand High Court has jurisdiction over a defendant if the documents commencing proceedings are served according to New Zealand’s High Court rules, either within or outside of New Zealand.  The Court can dismiss the proceeding if it decides the foreign Court is a more appropriate channel for the case to be heard.

An action based on a foreign judgment in New Zealand can be brought (a) in common law; (b) by registering the judgment under the Reciprocal Enforcement of Judgments Act 1934; or (c) by registering a memorial of the judgment under the Judicature Act 1908.  Certain foreign judgments that affect a person’s status, such as an order of dissolution of marriage, may be recognized in New Zealand without a proceeding. 

The Reciprocal Enforcement of Judgments Act 1934 enables judgments of certain foreign Courts to be registered in any Court of New Zealand, without the need to issue a proceeding.  Those countries include Australia, Belgium, Fiji, France, Hong Kong, India, Malaysia, Singapore, Tonga and Western Samoa.

The Judicature Act 1908 enables any person, who obtained a judgment favourable to them in any Court of Her Majesty’s Dominions, to apply for that judgment to be authenticated in the office of the High Court.  This procedure does not apply to judgments that the Reciprocal Enforcement of Judgments Act 1934 applies to.

The foreign judgments that are not governed by the Reciprocal Enforcement of Judgments Act 1934 or the Judicature Act 1908 can be subject to common law registration and enforcement.  The foreign judgment will be deemed as creating a simple contract debt.  The foreign Court that issued the judgment does not need to be superior.  An action based on a foreign judgment must be commenced in the High Court by way of filing a statement of claim, and the proceedings must be served on the defendant pursuant to the High Court rules.  For the purposes of limitation, the action in the New Zealand Court needs to be brought within 6 years of the date of the foreign judgment.  The plaintiff of such proceeding may recover interest from the date of the foreign judgment to the date of the judgment in New Zealand, either at a rate under the law of the country in which the original judgment was given; or at the rate prescribed in the Judicature Act 1908.

If you would like to discuss the enforcement of a foreign judgments in New Zealand, please contact Simon Stokes , Erica Lee  or your usual Dawson Harford & Partners adviser.

In both cases, the North Shore City Council (“the Council”) appealed the decisions of the Court of Appeal regarding its liability for negligent inspection in leaky homes cases.  In the Court of Appeal, the Council was held liable in negligence to the owners of the apartments in these two complexes.

The Supreme Court dismissed the Council’s appeals.

The Supreme Court declined to reconsider the law as approved by the Privy Council in the case of Invercargill City Council v Hamlin [1996] 1 NZLR 513 (“Hamlin”) for two reasons. First, because many people will have relied on that decision in organising their affairs, and secondly, because the Court was satisfied that the decision in Hamlin was correct, and remains correct.

What does the decision mean? 

The Supreme Court has affirmed that when undertaking inspections in the course of construction, a council owes a duty of care and will be liable for loss caused by negligent inspection.  That duty is owed to the initial and subsequent owners of all premises intended to be used as homes (according to the plans submitted to the council).  It does not matter whether the home is a stand-alone building or part of a block of apartments or whether the initial/subsequent owner(s) are occupiers of the home.

Overruling the Court of Appeal and restoring the decision of the High Court, the Supreme Court found that the loan contract facilitated by GE Custodians (GEC) was not oppressive in terms of s118 of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act). They held that the contract did not breach the reasonable standards of commercial practice and therefore there could be no justification for reopening the contract.

The Supreme Court felt the decision turned on whether GEC or the mortgage broker knew of the intentions of the Bartles to invest with Blue Chip. While GEC knew the Bartles were of retirement age, they represented themselves as self-employed investors, and had no knowledge that the Blue Chip investment was the underlying reason for the loan application. Furthermore, as the Bartles received independent advice from a solicitor, GEC were entitled to proceed on this basis without further enquiry.

The Court said that although this was a tough result for the investors in Blue Chip, it would be unfair to allow the law to develop in this manner, by holding a lending company responsible for a situation that they had no knowledge of. A lender can only be expected to act in accordance with the standards of commercial practice that arise in light of the facts that are known to them. Imposing the duty to enquire into the affairs of prospective borrowers would be economically inefficient. The Court considered that the outcome may be different if the Bartles hadn’t received independent advice.

The CCCF Act governs the disclosure of information to consumers under credit contracts and also aims to prevent oppressive credit contracts and/or oppressive conduct by creditors.  In this case, GEC had complied with disclosure requirements under the Act and the contract was not an oppressive credit contract.  However, with the Court of Appeal and Supreme Court taking opposing views, the matter was clearly right on the borderline of what should be considered “oppressive”. We recommend that any person providing finance to consumers seek legal advice to ensure that they comply with the requirements of the CCCF Act, both in terms of their documentation and procedures.