Spring 2015 Newsletter

Changes to the Companies Act 1993

Company directors should be aware of the changes to the Companies Act 1993 (the Act) that became law on 24 June 2014. Some changes took immediate effect while others will be implemented later this year. This article focuses on two key changes: new criminal offences and registration of companies.

New criminal offences

One change, now in force, was the creation of new criminal offences for serious breaches of directors’ duties. It is now an offence where:

These changes were introduced following the widescale collapse of finance companies between 2006 and 2012. The collapse of these companies left many ‘mum and dad investors’ stripped of their nest eggs. There was concern following the collapse of these companies that it was sometimes not possible to take action against directors for their reckless or dishonest conduct (although many were prosecuted under provisions in the Securities Act, Financial Reporting Act and the Crimes Act). In introducing the new offences, the Government sought to balance the effect of potential criminal liability deterring people from becoming directors or taking business risk, against the need to deter dishonesty and prevent the substantial harm resulting from breaches of directors’ duties.

The new offences require that the mental elements of dishonesty, bad faith, knowledge and belief must be proved beyond reasonable doubt. These are high thresholds, and should put honest directors at ease.

Registration of companies

Other changes to the Act relate to the registration of companies. For companies that were formed before 1 May 2015 (existing companies), these changes are being introduced in a staggered way.

Since 1 July 2015 existing companies have been required to provide the Registrar of Companies the dates and places of birth of all directors and details of any Ultimate Holding Company (if applicable). The personal details of directors will not be publicly available, however details of any Ultimate Holding Company will be publicly available.

From 28 October 2015, existing companies will need to ensure they have at least one director that either lives in New Zealand, or who lives in Australia and is also the director of a company incorporated in Australia. Details of that Australian company must be provided to the Registrar (which includes ACN, name and registered office address). This requirement already applies for all newly incorporated companies.

All this information will be required in order to file an annual return. Failure to file an annual return will result in steps being taken to remove the company from the register.

These changes have been made in an attempt to protect New Zealand’s international reputation, by seeking to reduce the misuse of the New Zealand company registration process by overseas individuals and groups, who have used companies incorporated in New Zealand to facilitate crime.

Other changes include enhancing the powers of the Registrar of Companies and changes to the provisions about changing control of companies, to align the Act with the provisions of the Takeovers Code.

For more information about how these changes might affect you, contact us for advice.

Passing away without a will – what happens to your Estate?

When a person passes away without a Will, the Administration Act 1969 (Act) sets out how the Estate of the deceased will be distributed.

Firstly, the family (or other potential representatives) need to determine the value of the assets in the Estate. Where the value is less than $15,000 the process is more straightforward, and letters of administration are not required. For Estates worth more than $15,000, letters of administration will need to be obtained.

The Act sets out the process for applying for letters of administration including who may apply, who the eventual beneficiaries will be, and what share of the Estate they will receive.

Where the deceased leaves behind a surviving spouse, civil union partner or de facto partner, this person is entitled to a grant of letters of administration. If there is no surviving partner or spouse, the deceased’s children may apply, or, failing children, a grandchild may apply. The Act contains further provisions for circumstances where someone else has to apply.

Once an administrator is appointed by the High Court, that person then has authority to deal with Estate assets, and those assets are then called in. For example, real estate or shares can be sold, and funds in bank accounts in the name of the deceased can be withdrawn so that all liquidated Estate assets are held in the same account in anticipation of distribution. The Administrator is then tasked to ensure that the Estate is distributed in accordance with the Act. Section 77 of the Act provides an exhaustive list that determines who the beneficiaries of the Estate are, and what they are to receive. For example, if the deceased leaves behind a surviving spouse and children, the Estate is divided as follows:

Any jointly owned property (including jointly owned family homes and bank accounts) will pass to the surviving joint owner regardless of the provisions of the Act,

Depending on who does or does not survive the deceased, the beneficiaries of the estate could also include siblings, parents, grandparents, aunts or uncles. Where none of these classes of beneficiaries exist, the Estate vests in the Crown. The Crown has a discretion under the Act to provide for dependants of the deceased, and persons for whom the deceased might reasonably have been expected to make provision.

These guidelines show the importance of executing a Will where the provisions of the Act do not reflect your wishes. For example, you may wish to make direct provision for nieces and nephews who are not explicitly provided for in the Act, or apportionment of assets under the Act may not be in accordance with your wishes.

If you have any concerns please contact us on 09 407 0170 or email law@mcleods.co.nz.

 

Building contracts & retention sums

Many building contracts will be drafted with progress payments falling due throughout the building process and with the final payment being due on “practical completion”. Practical completion is usually when the job is mostly completed, except for minor cosmetic works, and before the Council issues their Code Compliance Certificate (CCC). A CCC confirms the works have been completed in accordance with the building consent.

To protect your position as owner, we recommend at a minimum that the contract is checked and amended in two ways. Firstly, the progress payments should only be enough to cover the work that had been completed up to the date of that payment. Secondly, the final payment should not be paid until after the Council has issued their CCC. This is because the final inspection can determine that more work is required before the CCC is provided. If your builder has already been paid in full, they can be reluctant (or slow) in completing that final work for you

 

Building your new home – why include a sunset clause?

When building a new home, there are several important steps in the process that have potential to delay final completion date. In some circumstances for example you may be waiting for a subdivision and new title to issue, or there may be an issue with the build that delays or prevents the issue of the Code Compliance Certificate (CCC).

Delays do not automatically give you a right to cancel a contract. It is important therefore to protect your position in the event of unforeseen delays.

A “sunset clause” sets a date by which something must happen – this may be issue of the certificate of title for the property or the CCC. Where the date set down passes and the title or CCC hasn’t been issued, you can cancel the agreement and avoid being locked into an agreement indefinitely.

All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.

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McLeods Lawyers — 21 Hobson Avenue, Kerikeri, Bay of Islands, New Zealand — Phone +64 9 407 0170 — Email law@mcleods.co.nz

The information on this site is not comprehensive legal advice. Please contact us for advice and information suited to your needs.