 |
 |
 |
|
|
Feature Articles
IMPORTANT NOTE: All of our Feature Articles are provided subject to the disclaimer set out in our legal page.
COMMERCIAL LAW
COMMERCIAL PROPERTY
COMPANY LAW
E-COMMERCE
ESTATES
RESOURCE MANANGEMENT
SENIOR LAW
TRUSTS
 Download PDF Printable Version
There are few areas of human endeavour that are not affected by the Privacy Act 1993. Our experience is that the ambit of the Act is not well understood. There are many misconceptions as to the rights and obligations imposed.
The focus of the Act is on information about individuals. Controls are imposed on the collection and disclosure of such information.
The Act identifies twelve distinct principles in relation to privacy protection. Those principles can be briefly summarised as follows:
- The purpose of collection of personal information.
Information must be collected for a lawful purpose and must be necessary for that purpose;
- The source of personal information.
Information about an individual is required to be obtained from that individual with a number of limited exceptions including where the information is publicly available and where the individual has authorised its collection.
- Collecting information from an individual.
Where information is collected from an individual the individual must be made aware of several specific matters including that the information is being collected and the purpose for which it is being collected.
- Manner of collection of personal information.
Information may not be collected unlawfully or in circumstances that are unfair or that intrude to an unreasonable extent upon the personal affairs of the individual.
- Storage and security of personal information.
Information is to be stored with sufficient safeguards to protect against loss or unauthorised access.
- Access to personal information.
Where information is held about an individual in a form that can be readily retrieved the individual concerned is entitled to obtain confirmation that information is held and have access to that information.
- Correction of personal information.
Where information is held about an individual the individual is entitled to request the correction of that information. There is an obligation to ensure that information retained is accurate, up to date, complete and not misleading.
- Accuracy of information.
Information must be checked before it is used. A person holding information is not entitled to use the information until it has been checked as accurate, up to date, complete, relevant and not misleading.
- Information not to be kept longer than necessary.
Personal information must not be retained longer than is necessary for the purpose for which the information is lawfully able to be used.
Limits on use of personal information.
A person holding information that is obtained for one purpose is not able to use it for other purposes except in certain limited situations.
- Limits on disclosure of personal information.
A person holding information is not entitled to disclose that information to anyone except in certain restricted circumstances.
- Unique identifiers.
Persons holding information are only able to assign "unique identifiers" (for example code numbers) to individuals if it is necessary to carry out their functions efficiently. The same unique identifier used by other persons e.g. government agencies cannot be used.
The foregoing summary covers the various principles that are likely to be relevant in most cases. The summary is by no means exhaustive. Matters likely to be relevant in any particular situation could well have been omitted.
With the exception of the right of an individual to receive information about himself or herself the various principles do not create rights that are legally enforceable through a Court of Law. Redress for breach of the Act's principles is, however, available through a complaints body known as the Complaints Review Tribunal. The Complaints Review Tribunal has power to issue restraining orders, can order defendants to rectify situations and award damages. Ignorance or negligence on the part of the defendants will not be a defense.
Codes of Practice: The Act contemplates that codes of practice for various industry and sector groups will be developed. Code of practice certificates are obtainable through the office of the Privacy Commissioner . Codes of practice are settled in conjunction with the Privacy Commissioner's office and can provide for standardised compliance requirements within a particular industry or sector group.
To comply with the Act most businesses need to ensure that the manner that they deal with information about their employees and customers are dealt with in accordance with the Act's requirements. Failure to do so could prove costly.
If you have any doubts as to whether your practices and procedures comply with the Act you should obtain advice from a solicitor familiar with the Act's requirements. For assistance with Privacy Act assistance James Young.
 Download PDF Printable Version
The Consumer Guarantees Act 1993 ("the Act") covers amongst other things:
- guarantees for goods and services and compensation for consumers;
- contracting out;
- romalpa clauses.
The Act supplements a range of existing consumer protection Acts in place and general remedies available under contract law. Other Acts conferring benefits on consumers include:
- The Sale of Goods Act 1908;
- The Fair Trading Act 1986;
- The Contractual Remedies Act 1979;
- The Hire Purchase Act 1971;
- The Contractual Mistakes Act 1997.
The general structure of the Act imposes a wide range of obligations on the supplier of goods to consumers. "Consumer" has a special and limited meaning. For a person to be a Consumer the acquisition must be "for personal, domestic or household use or consumption". If the person you are supplying is not a "Consumer" then the purchaser does not get the benefit of the guarantees imposed by the Act. Where your purchaser is a "Consumer" your purchaser receives the following guarantees from you:
- you have a right to sell the goods;
- the goods are of acceptable quality and fit for the purpose they are sold for;
- the goods meet any requirement made known by you before purchase;
- the goods are reasonably fit for any purpose represented by the supplier;
- the goods correspond with any description of sample supplied;
- where price is not determined by contract that it is a reasonable price (in some cases);
- spare parts and repair services are available for goods for a reasonable length of time after sale. A supplier may contract out of his guarantee by clearly stating in the contract that spare parts and repairs will not be available;
- Consumers have the right to rely on any express guarantees given by manufacturers even if these guarantees are not given directly to the Consumer.
The Act confers on end users a number of additional guarantees from manufacturers.
Although you may not consider yourself to be a "manufacturer" the word has a special definition under the Act. Where goods are manufactured outside New Zealand and the foreign manufacturer of the goods does not have an ordinary place of business in New Zealand the person who imports or distributes those goods is deemed to be a "manufacturer" for the purposes of the Act. By that mechanism the ultimate consumer of goods receives the following guarantees from you in respect of goods where you are deemed to be the "manufacturer":
- That the goods are of an acceptable quality.
You are deemed to guarantee that they are fit for all purposes for which goods of the type in question are commonly supplied, are acceptable in appearance and finish, are free from minor defects, are safe and durable having regard to the nature of the goods, any statements made about the goods in any packaging or label on the goods and any representation made about the goods by the supplier or the manufacturer. The guarantee given is comprehensive. It is imperative that all goods in respect of which you are the manufacturer have packaging and labelling fully appraising the end user of their nature and quality. Failure to do so will effectively extend the scope of the guarantee being given.
- That the goods comply with the description applied to the goods by or on behalf of the manufacturer or with the consent of the manufacturer.
This guarantee includes descriptions added by yourself, descriptions on goods as received by you or descriptions added to goods by on-sellers with your consent. There are a number of steps you should take to limit your exposure. In particular your procedures, contract documentation and packaging should be reviewed by a solicitor.
- That the goods fail to comply with guarantees as to repairs and parts.
There is a guarantee imposed by the Act that manufacturers will take reasonable action to ensure that facilities for repair of goods and the supply of parts for goods are reasonably available for a reasonable period after the goods are supplied. This guarantee can only be excluded by ensuring that consumers are notified at or before the time goods are supplied to them that the manufacturer does not undertake that repair facilities and parts will be available for those goods.
- The final additional guarantee imposed on manufacturers is that goods comply with guarantees included with the goods.
If any goods are received by you with written guarantees from manufacturers you will be deemed to have given those guarantees as well. Again you should have your documentation including any such guarantees considered by a solicitor so that you do not end up guaranteeing more than you intend.
There are opportunities under the Act for contracting out. Supply Contracts need to be carefully drafted to ensure that any contracting out is permitted by the Act.
Where you use Conditions of Sale they should be drafted having regard to the provisions of the Act.
Most suppliers will be familiar with reservation of ownership provisions known as Romalpa Clauses. You should be aware that Section 5 of the Act guarantees Consumers a right to undisturbed possession of goods. The section only applies when the goods are supplied to a Consumer. A buyer who acquires the goods for the purpose of re-supplying them in trade or using them in the course of the process of production or manufacture or repairing or treating in trade other goods or fixtures on land is not a Consumer. This effectively excludes all wholesale transactions. It also excludes retail transactions where the goods are going to be used in production, manufacture or treatment of something else.
As with most Acts of Parliament which have application to your business it is unwise to make assumptions as to how the Consumer Guarantees Act 1993 affects your business. The best time to receive good advice is before the problem arises. The Act has the potential to impose obligations on you as a seller that you do not expect. It may well be that when you are fully appraised of your potential liabilities that you will wish to change the way you do things and the documents you use.
If you require assistance on Consumer Guarantees Act matters contact James Young, Rod Gillespie, Bill Macdonald or David Butler.
 Download PDF Printable Version
An unstated policy underlying the Credit Contracts and Consumer Finance Act 2003 ("the Act") is that business and investment finance does not require to be regulated in the same manner as consumer credit. Consequently, most of the provisions of the Act apply only to consumer credit contracts.
The Act regulates consumer credit quite strongly while leaving business and investment credit contracts highly deregulated. The exception is the oppressive contract provisions which will continue to apply to all credit contracts.
The regulation of business/commercial finance transactions is effectively being left to common law principles and other statutes.
For the majority of the provisions of the Act to apply, you must be dealing with a consumer credit contract and not just a credit contract. A consumer credit contract is basically one under which the debtor is a natural person, the purpose to which the credit will be applied must be primarily for personal, domestic or household purposes and the creditor must usually be in the business of giving credit (wide definition).
As a result, credit contracts where the debtor is a company, an incorporated society or similar incorporated body will not be a consumer credit contract and accordingly will not be subject to most of the provisions of the Act.
The Act requires a determination of the purpose for which the debtor enters into a credit contract to be made. It is important for the lender to determine the debtor’s motivation in entering into any transaction. This is particularly the case where credit is being granted in terms of something which may be acquired for either personal or business use.
Section 14 of the Act permits lenders to obtain a declaration from the debtor before the debtor enters the credit contract that the debtor’s purpose is either or both primarily for the purpose of business or investment. Having such a declaration is held to be relatively conclusive evidence that it is not a consumer credit contract. The result is that the credit contract will not fall within the ambit of the Act.
The proviso to section 14 is that where the creditor or the person who obtains the declaration knows, or had reason to believe at the time the declaration was made, that the credit was in fact to be used primarily for personal, domestic or household purposes, this negates the effect of the declaration and potentially brings the credit contract entered into within the ambit of the Act as a consumer credit contract.
It is not sufficient for the declaration to form part of the loan or security document and it must be a separate written document.
Where individual directors or shareholders of a company debtor give to a creditor a guarantee in respect of a commercial credit contract, those parties will not be entitled to benefit of section 26 of the Act - provisions which relate to disclosure.
Guarantees of credit contracts (not just consumer credit contracts) remain subject to Part 5 of the Act - the oppressive contract provisions.
If you require assistance on Credit Contracts and Consumer Finance Act matters contact Wendy Dewes.
Download PDF Printable Version
Purchasers of commercial property should always address the cost of insurance and the insurability of buildings before making a purchasing decision. Without insurance cover you will not be able to uplift mortgage advances which may cause problems if you have settlement obligations to meet. Careful attention needs to be given to a mortgagee's requirements in respect of earthquake insurance. On occasions a building purchaser or owner may be caught between a mortgagee's requirements and the availability of cover.
The Earthquake Commission no longer insures commercial buildings. Insurance cover is available from the Commission only in respect of "Residential dwelling houses" and their contents up to a maximum of $100,000 plus GST in respect of a dwelling house and $20,000 plus GST in respect of contents. Limited cover is also available in respect of land slip and loss of land.
There are potential problems for the owners of commercial properties in respect of their earthquake cover. In most cases cover is now freely available from insurance companies but may be expensive where the site insured is regarded as earthquake prone or the building is in any way sub-standard. In some cases, buildings may not be insurable against earthquake at any price if the site is sensitive enough and the building is sufficiently badly constructed.
Money can be saved with good advice by, for instance, insuring widely scattered buildings on a "first loss basis". If, for instance, a building owner had substantial buildings in Invercargill and Whangarei, it is highly unlikely that the same earthquake would damage both buildings, so rather than pay a premium calculated on the basis of $10,000,000 of cover for two $5,000,000 buildings, it may be possible to insure the buildings simply for $5,000,000 on the basis of one loss and reinstatement. It would not, of course, be prudent in many cases to adopt that robust approach to premium saving in respect of fire insurance.
Download PDF Printable Version
Most lenders adopt a cautious and risk averse approach to lending. The cautious lender, when taking security, will regard insurance cover as an important part of their security. There are some traps that have, from time to time, caught the incautious or poorly advised lender.
Lenders, whether their security is by way of mortgage over land, or a charge, or hire purchase arrangement in respect of a motor vehicle, or any other form of security, have an insurable interest in the assets covered by the insurance policy. The trick is to ensure that the lender has access to the insurance in the event of a claim without being placed at risk by the actions of a borrower.
An insurance company can decline claims on the basis of misrepresentation or non-disclosure by an insured party. Unless some elementary precautions are taken, a lender may find that insurance cover is not available in the event of loss. In one quite notorious New Zealand case a lending institution lending considerable sums of money on the security of a very expensive helicopter, found that because the insurance cover had not been properly taken to reflect the lender's interest and the borrower had misrepresented the skill and experience of the available pilot in an insurance proposal, after the helicopter crashed the proceeds of the insurance policy were not available to it.
There are some fairly simple rules to follow.
- Most properly prepared securities provide that insurance is to be taken in the name of the lender and the lender is to be the prime insured party. Get the securities right, and insist on the assertion of the lender's right to be the designated insured.
- Don't ever accept a policy with a lender described as an "other interested party", whatever the insurance company's computer tells you it can or cannot do.
- Make sure the description of insurable interest in the policy follows the requirement of the security documents.
- The optimum provision is to require the insurance to be directly in the name of the lender so that, for instance, the insured in an insurance policy is described as "Frederick Friendly as mortgagee of Ormond Overdrafts".
Some banks and institutions require that insurance stand in the name of "Alligator Consolidated Bank Limited as mortgagee of Modest Enterprises Limited for their respective rights and interests, loss if any payable to the bank whose receipt shall be a full discharge", or something similar. Insurance companies will frequently issue policies in a different form whatever their instructions and may then argue that it is their practice to do it their way. Insist on getting it right and don't take no for an answer.
Many lenders now adopt the practice of entering into what are usually called "Continuous Agreements" with insurance companies to provide for the continuation of cover in the event of non-payment of premiums or misrepresentation for non-disclosure by the borrower. Substantial lenders should always investigate that possibility, or alternatively, arrange their own stand-by and fall-back policies.
Special securities require special insurance. In appropriate cases, ensure that boats have adequate marine insurance cover, aircraft adequate aviation insurance and if you are relying heavily on cash flow from a business to cover your loan, make sure that good quality business interruption insurance is in place. Those are but a few examples of special circumstances that you may need to think about.
Finally, and to summarise, don't forget that when it comes to lending transactions, Murphy's Law frequently operates. The worst may well happen, and that in most cases, it is possible to insure against the consequences of "the worst".
For all insurance law inquiries James Young.
Download PDF Printable Version
The Companies Act was enacted in 1993. All new companies have, since 1994, been incorporated under that Act. Amendments were also made to the Companies Act 1955, under which companies were previously incorporated. Those amendments overhauled many areas of company law (for example directors' duties, liquidations and shareholder remedies).
Until 30 June 1997 companies incorporated under the 1955 Act continued to operate under Memorandum and Articles of Association. They were important documents. They set out the "rules" under which a company operated. A company's Articles of Association governed rights of first refusal on the sale of shares, quorums for meetings, transmission of shares on death of a shareholder, procedures for appointment of directors and similar matters.
Companies incorporated under the 1993 Act do not have Memoranda and Articles of Association. They are governed by a number of default provisions under the 1993 Act and, if they choose to adopt one, by the terms of a document called a Constitution. The 1993 Act contemplates that many of its default provisions may not be appropriate or desired by a company. To the extent permitted by the Act new companies may adopt a Constitution that modifies the Act's default regime.
Under the Companies Re-registration Act 1993 all 1955 Act companies were required to re-register by 1 July 1997. On that date, if re-registration had not been completed existing Memorandum and Articles of Association were automatically cancelled. Such companies since then have been governed by the default regime of the 1993 Act.
Most companies will not want to be in a position where they are governed by the default regime. If a company, whether under the old Act or the new, does not have a Constitution it may well need one.
To adopt a Constitution a number of steps require to be taken including preparation of a Constitution, the passing of appropriate resolutions and the filing of documents with the Registrar of Companies.
We are happy to assist in preparing a draft Constitution, appropriate resolutions and in filing all necessary documents.
We are also able to incorporate companies electronically at very short notice.
If you would like us to prepare a draft Constitution for your consideration or incorporate a new company please contact one of our partners, James Young, Rod Gillespie, Bill Macdonald or David Butler.
Download PDF Printable Version
The "Solvency Test" under the Companies Act 1993 now affects many actions of Directors who need to think very carefully about whatever they are doing in the light of the Solvency requirements of the Act.
The "Solvency Test" laid down in section 4 of the Act is something that all Directors and Officers of the Company must think about constantly.
The test is simple:
- Is the Company able to pay its debts as they become due in the normal course of business?
- Is the value of the Company's assets greater than the value of its liabilities including contingent liabilities?
In considering whether the Company meets the test, Directors must have regard:
- To the Company's most recent financial statements that comply with section 10 of the Financial Reporting Act 1993; and
- All other circumstances that may affect the value of the Company's assets and liabilities including its contingent liabilities.
In short, in deciding whether a company is solvent, directors must be hard-headed and realistic.
The directors of a company must consider whether a company meets the solvency test in any of the following circumstances:
- Distributions to shareholders - bear in mind that "distribution" has an extended definition in the Act. It does not just mean acquisition by a company of its own shares.
- Redemption of any shares.
- Assistance by the Company in a purchase of its own shares.
- An amalgamation proposal.
- Exercise of any of the powers under section 107 of the Act which enables certain things to be done (with unanimous consent).
Special considerations apply under the Act in the following circumstances:
- Amalgamations (see section 4(3).
- Distributions (see section 52(4).
- "Unanimous consent" situations (see section 107), but also look at section 108 which affects the position.
To summarise, directors of every company doing anything affecting the structure of the company or in dealing with shareholders, must ask the question "do we need to deal with solvency test issues?"
If there is any doubt, get legal advice. If we can assist contact James Young.
Download PDF Printable Version
A new word has entered the intellectual property vocabulary, "softlifting" which means the unauthorised copying of computer software.
Recent newspaper headlines have said it all with regard to what is happening in New Zealand. A headline "Raid on software pirates a rare victory" signalled growing interest on the part of the New Zealand Police in softlifting. The circumstances of the First case involved an Asian immigrant operating out of Auckland and was bought under the Copyright Act 1994. A guilty plea was entered and the businessman concerned was fined $15,000 on each of two charges. The charges carried a maximum penalty of $50,000 each or three months jail. The Business Software Alliance, the computer industry's watchdog organisation, was responsible for laying the complaint with the Police and it is clear that it is becoming more pro-active. In the course of his submissions, the prosecutor noted that enquiries had been made, through Interpol, in an effort to trace the origins of the private disks.
The Business Software Alliance says that Software piracy is rife in New Zealand. They estimate the rate of piracy at 24%, an estimated $40 million each year being lost to software piracy.
The Police view is that softlifting goes beyond the merely technical offence, and is also theft in terms of the Crimes Act.
The Business Software Alliance is now advising criminal prosecution, rather than civil action, which they regard as too expensive and too slow. In the past the Police have taken taking the view that if civil action has been commenced, they will not proceed with a criminal prosecution, due to the pressure on their resources and that the ability to deal with the problem civilly indicates that they would not vigorously pursue a criminal complaint. That stance may now be modified by the Police, and it is understood that there are a number of cases under investigation.
For assistance on IT matters contact Michael Hofmann-Body our IT partner.
Download PDF Printable Version
If you are the spouse, partner, parent, child, grandchild or step-child of a person who has died, then you may have a claim against their estate under the Family Protection Act. Initially, a successful claimant needed to establish need and the lack of proper maintenance and support from the deceased's estate. The grounds for successful claims have been varied and some decisions have referred to "moral duty". We have noticed an increase in the number of enquiries, particularly in relation to the rights of children of a first marriage where their surviving parent has subsequently remarried. In these circumstances, the testator or testatrix is often required to make difficult decisions balancing the claims of children of the first marriage against the claims of a second spouse or partner.
Claims under the Family Protection Act are subject to specific time limits and it is important to comply with them. In addition, if notice of a claim is given, then under the Administration Act time starts to run from the date of that notice. It is very important that time limits in relation to the claim be complied with, failing which the estate can be distributed. This can make recovery difficult.
For assistance with bringing or defending Family Protection Act claims contact James Young.
Download PDF Printable Version
How many people put off the preparation or up-dating of a will? "I must do it but I'm fit and well and it can wait, I don't plan to die for at least another 30 years".
Unfortunately, life (and death) often don't work like this. People die unexpectedly. Circumstances in life can quickly change - partners die, people separate and marriages dissolve. Usually, a marriage or remarriage revokes any will you already possess.
Another excuse people often use is "I have nothing to leave anyway". But it is surprising how soon people can acquire assets, which you may specifically want to be left to a particular person.
The preparation of a will is an integral part of estate planning, preserving the family assets and protecting your family upon your death.
There are many reasons why you need a will irrespective of your age, or your circumstances:
- To avoid the extra legal cost and delays of an intestate estate (an estate distributed by law, due to the absence of a will). It is invariably easier and cheaper to deal with a person's assets when a will is in existence.
- To prevent your assets being left to people other than those you wish to benefit. A regime for distribution applies to intestate estates but it may be very different from what you want.
- To provide certainty as to your intentions. A will provides a clear picture of your most recent wishes and can avoid family acrimony or dispute.
- To ensure that the care and welfare of your children will be as you intend. Everyone's circumstances are different and a will can ensure your dependent children's needs will be met.
- To ensure your children are protected if your spouse or partner should remarry or enter into a new relationship.
- To protect the assets in your estate from attack.
- To enable you to choose your own trustees and executors. There may be a particular family member or friend who you wish to nominate to fill this important role.
- To make specific bequests to friends or charities.
- To stipulate your particular wishes regarding burial or cremation and guardianship.
- If you have just established a family trust.
If you would like a new will prepared contact Lesley Grant.
Download PDF Printable Version
If you are considering the development of property or using property for any particular purpose then you will come in contact with the Resource Management Act 1991. This overview is restricted to one category of Resource Consent - Land Use Consents and the Resource Consent process.
The Act divides land uses into five categories. The requirements for each category of activity differ:
- Permitted Activities
These are activities that are allowed without a Resource Consent provided they comply in all respects with any conditions specified in the District Plan.
- Controlled Activities
These are activities where Local Authorities are required to grant consent but can impose conditions having regard to a range of criteria set out in the Act.
- Discretionary Activities
These are activities where Local Authorities have a discretion to grant a Resource Consent. In exercising that discretion they are required to have regard to a range of criteria set out in the Act including the actual or potential effects of allowing the activity, the Rules of the District Plan and the relevant policies and objectives of the District Plan.
- Non-complying Activities
These are activities that require a Resource Consent being outside of any of the previous three categories but which are not prohibited. All applications for consent for non-complying activities must be notified. As for Discretionary Activities, Councils have a discretion whether or not to grant consent to a Non-complying activity however, before being able to exercise that discretion, the Council must first be satisfied that the effect on the environment of the proposed activity will be minor or that the consent will not be contrary to the objectives and policies of the Plan. If neither of those criteria are met then the Council is unable to grant consent.
- Prohibited Activities
These are activities which are expressly prohibited and for which no Resource Consent can be obtained.
In considering an Application for Resource Consent Councils are not entitled to take into account the affect of trade competition on trade competitors.
Resource Management law is not without its complexities. There is a wealth of reported and unreported decisions of the Environment Court and its predecessor the Planning Tribunal.
Local Authorities have a discretion as to whether or not applications for Resource Consent (other than non-complying activities) are publicly notified. The decision whether to notify or not can be critical. It involves a preliminary assessment of potential effects. If the Council can be persuaded that effects will be minor and to deal with an application on a non-notified basis then an early decision can be obtained. Conversely where public notification takes place, rights of submission arise, which can lead to a lengthy process. It will involve a hearing before a committee of the Council and, should a submitter be dissatisfied with the Council's decision, an Appeal to the Environment Court. The discretion not to notify an application can be exercised by the Council where it is satisfied that the adverse effects on the environment of the activity will be minor and that the written approval has been obtained from every person whom the Council considers would be adversely affected by the granting of the consent.
Local Authorities have printed forms available for applicants wishing to complete their own applications for Resource Consent. You stand a better chance of success if a more comprehensive application is lodged. An experienced Resource Management Lawyer can advise you on the best ways of approaching your proposed development. A proper analysis of the District Plan's provisions as they relate to your proposal will identify areas where modifications should be made to your plans or where additional expert information (e.g. engineering advice) should be prepared and made available to the Council.
It is important that you adopt the correct strategies from the outset. Neighbourhood consents may be required. You must ensure that the application and the assessment of effects that accompanies it are sufficiently comprehensive so that the application's passage through the Resource Management process will not be delayed by requests for additional information.
Resource Management Law is a specialist area. Solicitors specialising in Resource Management have a familiarity with the Resource Management Act, particular District Plans, know the Council Officers and Council requirements and are able to advise on the appropriate experts to be engaged.
For assistance on Resource Management matters contact David Butler.
Download PDF Printable Version
There are two types of Enduring Powers of Attorney. One for personal care and welfare and the other for property (your possessions and assets).
Personal Care and Welfare
An Enduring Power of Attorney for personal care and welfare can only come into effect if you become mentally incapable. Mentally incapable means the inability to understand the effect of any decisions which may be made relating to a person's personal care and welfare. An example of this is where a decision is required for a person with Alzheimer's disease who needs to be placed in care. Under an Enduring Power of Attorney for personal care and welfare only an individual person must be appointed. It is common for this person to be a member of the donor's family.
Property
An Enduring Power of Attorney relating to property contains several features. The person giving the Power of Attorney can choose when the Enduring Power of Attorney comes into effect. The options are:
- immediately the document is signed (if a person wishes someone else to manage his or her affairs from the date of signing);
- at some specified time in the future;
- or if the person giving the Power of Attorney becomes mentally incapable ("mentally incapable" in relation to property means that the person giving the Power of Attorney cannot manage his or her property affairs).
In addition an Enduring Power of Attorney relating to property has the following further features:
- The person giving the Power of Attorney can decide whether it covers all of his or her property or just specific assets.
- The person giving the Power of Attorney can decide whether there are particular conditions he or she would wish to impose upon the use of the Power of Attorney.
- The person giving the Power of Attorney can stipulate whether it is to take effect for a period of time or for the rest of his or her life.
An Enduring Power of Attorney relating to property can be cancelled or changed at any time provided the person giving the Power of Attorney understands what he or she is doing.
If a person becomes sick or is incapacitated as a result of an accident then unless an Enduring Power of Attorney is in place the family and other close relatives cannot make important decisions. To obtain authority to make such decisions in the case of an accident or illness, it is necessary to make an application to the Court for a manager to be appointed to make decisions on financial matters and a welfare guardian on personal matters. Such applications can be expensive, stressful and take time.
Any person over 18 or anyone who is married should give serious consideration to making Enduring Powers of Attorney. An Enduring Power of Attorney operates while the person giving it is alive. This is to be contrasted with a Will which only takes effect upon death. A Will does not come into effect if a person is mentally incapable. Indeed, in that situation the solicitors acting will not be able to divulge the terms of the Will to family members.
If you require an Enduring Power of Attorney contact Lesley Grant.
Download PDF Printable Version
A Trust is an obligation binding on one or more persons (the Trustees) to deal with property for the benefit of others (the Beneficiaries). The Trustees legally hold and deal with the property but do so for the benefit of the Trust and not in their individual capacity. The Trust is usually established by Deed.
Who are parties to a Trust Deed?
- The Settlor
Someone must set up the Trust. Where a Trust is established by a Will that person is known as the Testator; where a Trust is created by someone who is still alive that person is known as the "Settlor". A "Trust Fund" is established by the Settlor often with an amount as small as $10.00. This may be added to from time to time as the Settlor or anyone else wishes to place more money or assets in the Trust. You can be both a Settlor and a Beneficiary of a Trust and many Trusts are set up in this way.
- The Trustees
Trustees have a number of important roles. They decide how the Trust Fund is invested and to whom income and capital are paid. Practical control of Family Trusts is maintained by reserving the power of appointment and removal of Trustees and Beneficiaries to the Principal Beneficiaries.
- The Beneficiaries
The Trust Deed says who the Beneficiaries are. The Trustees normally have a discretion to decide which of them will benefit as to capital and income. In most cases Trusts are established for the purpose of benefitting the Principal Beneficiaries, usually a husband and wife (or partners) and their children.
The Trust Fund and life of the Trust
After the initial settlement on the Trust, the Trust Fund may be built up by gifts, (up to $27,000.00 in each 12 months free of duty), loans repayable upon demand and free of interest or by the Trust Fund purchasing assets. The Trust Fund can be added to. It can own real estate, borrow on mortgage, have bank accounts, generally hold all types of assets and investments and operate according to the powers in the Trust Deed. If gift duty is to be avoided, gifting programmes for substantial asset transfers can take years to complete.
A Trust (apart from a charitable one) cannot carry on forever. Most Trust Deeds provide that the Trust continues for a fixed number of years (not exceeding eighty which is the maximum allowed by law) or for such shorter period that the Trustees decide.
The Number of Trusts
One effect of the establishment of a Family Trust can be to take relationship property outside the application of the Property (Relationships) Act 1976. To preserve for each spouse/partner a measure of control in what was their interest in the assets being transferred we can draft special clauses providing how the Trust assets are to be dealt with on separation. An alternative is to prepare what are known as Mirror Trusts. Where it is intended to transfer business assets to a Trust as well as personal assets (such as the family home) we often recommend that separate Trusts be formed so that there is no intermingling of personal and business assets. This can avoid GST or income tax complications in respect of personal assets.
Uses for Family Trusts
- Retirement Planning and Family Provision
A Trust can be a convenient vehicle for investments which the Principal Beneficiary wishes to keep distinct from other assets and possible claims.
- Split Income
A Trust can be used to split income amongst several members of a family reducing the total tax payable if the beneficiaries are on lower tax rates. The "kiddies tax" does impact here though the ability to income split remains very important.
- Asset Protection - Creditors
This is one of the most common reasons for setting up a Family Trust. For many people in business their personal and/or business assets are at risk. Members of partnerships and sole traders have unlimited personal liability. In many cases limited liability protection under the Companies Act does not provide full protection. It is a common practice of Banks and major trade creditors to obtain personal guarantees. If assets are transferred to and owned by a Family Trust they are not available for creditors or, in the extreme case of bankruptcy, the Official Assignee. There are, however, qualifications to the foregoing which we discuss with Principal Beneficiaries.
- Achieving Testamentary Wishes
From time to time we have clients who are concerned that on their death their estate will not be dealt with in accordance with their wishes. There are a number of Acts of Parliament which confer rights of claim upon persons for whom testamentary provision is not made. For example, children, spouses and partners for whom provision is not made under Wills can bring claims under the Family Protection Act 1955. Spouses and partners may also claim under the Property (Relationships) Act 1976. Such claims are limited to the deceased's estate. If assets are disposed of during the deceased's lifetime to a Family Trust they can be dealt with in accordance with the Trust's provisions and can be put out of reach of the claims of persons disappointed at the testamentary provision made for them.
- Relationship Property
We have clients who wish to make financial provision for their children. They have been concerned at the possibility that their children's marriages/relationships may break up with their children's spouses/partners receiving half of the benefit of the financial assistance pursuant to the Property (Relationships) Act 1976. By channelling the assistance through a Family Trust the financial assistance can be protected.
- Protection from User Pays Charges
There is an increasing tendency for services to be provided by the State on a user pays basis. Income and asset testing is common. In recent times there has been considerable concern at possible asset attack in relation to rest home subsidy charges. We have clients who are concerned that assets they had intended leaving to their children would become charged to the State to cover accrued rest home charges. By transferring their home and other assets to a Trust they hope to put them beyond reach of the State. The issues arising from this need to be fully understood because avoidance legislation has been in place for many years (Social Security Act 1964).
This Article is an introduction only to Family Trusts. It is not intended to be comprehensive. Family Trusts are an area where considerable expertise is required in tailoring the Trust Deed, the transfer of assets and a gifting programme to your particular needs.
If you would like to discuss setting up a Family Trust contact Rod Gillespie or James Young.
Download PDF Printable Version
The obligations of a trustee are onerous and potentially expensive. Trustees have found themselves subject to substantial claims from beneficiaries for loss or damage suffered as a result of acts or omissions on their part. If you accept appointment as a trustee it is not a sinecure and should be treated seriously.
What follows applies generally to all trusts but in particular to trusts created by Wills and to Family Trusts. Those seeking to understand their roles and responsibilities under Te Ture Wheua Maori Act 1993 are referred to the Department of Courts publication “Trustees’ Duties A Guide” available at http://www.justice.govt.nz/maorilandcourt/pdf/td.pdf
We normally recommend that more than one trustee be appointed, including one independent trustee.
Duty to ensure that the trust fund is managed in a proper manner
Trustees must know the terms of the trust. This means reading and fully understanding the Will or trust deed (“the trust document”) in terms of both relevant case law and legislation. They should:
- Know who the beneficiaries of the trust are and their individual circumstances and if necessary how to prioritise between them.
- Know when the beneficiaries are entitled to receive capital and/or income from the Trust.
- Know the specific obligations placed on the trustees in the Trust document.
- Know when the term of the Trust is scheduled to expire.
- Know what the assets and liabilities of the trust are, the actions or inactions of former trustees and the state of the trust. This will involve holding copies of documents of title and the physical protection of trust assets. In addition trustees may need to insure against any risk or liability which a prudent person, may insure against.
Other requirements are to:
- Ensure that any payments by the trust are made to the correct beneficiary.
- In the case of an existing trust to confirm that trust affairs are in order and if necessary to adopt remedial action and in a new trust to set up structures and adopt procedures to enable proper management and administration.
- Periodically monitor and review the administration and investments of the trust.
- Seek proper professional advice e.g. from share brokers, real estate valuers.
- Keep informed of trust issues as they arise to ensure appropriate trust related decisions are made.
Duty to invest appropriately
Since 1988 trustees have had the ability to invest trust funds in any type of property at all, however unless expressly allowed by the trust document, speculation is prohibited. This does not mean that trustees are prohibited from making investments that may carry a degree of risk - it is the taking of unreasonable risk that must be guarded against. Accordingly, trustees must when formulating an investment policy, have regard to the prudent person requirements of the Trustee Act 1956. Under section 13B of that Act trustees have a duty to invest prudently and “to exercise the care, diligence and skills that a prudent person of business would exercise in managing the affairs of others”. Professional trustees have an even higher standard imposed. While modern trust documents normally modify the strict requirements under that Act trustees should desirably follow the requirements of section 13E which provides that the trustees may have regard to the following matters so far as they are appropriate to the circumstances of the trust:
- The desirability of diversifying trust investments.
- The nature of existing trust investments and other trust property.
- The need to maintain the real value of the capital or income of the trust.
- The risk of capital loss or depreciation.
- The potential for capital appreciation.
- The likely income return.
- The length of the term of the proposed investment.
- The probable duration of the trust.
- The marketability of the proposed investment during, and on the determination of, the term of the proposed investment.
- The aggregate value of the trust estate.
- The effect of the proposed investment in relation to the tax liability of the trust.
- The likelihood of inflation affecting the value of the proposed investment or other trust property.
Duty to keep and render accounts
Beneficiaries are entitled to request from the trustees information concerning the trust and its management. In the case of trusts that are not discretionary trusts, if the trustees have not disclosed the accounts to a beneficiary (including a contingent beneficiary), there is a duty to render an account to that beneficiary on request. This may include copies of trust documents such as the document establishing the trust, annual accounts and supporting financial statements and investment strategies. In the case of modern discretionary trusts there may be a wide range of possible beneficiaries. There is no requirement to disclose accounts to those possible beneficiaries. Beneficiaries are not entitled to copies of the trustees’ reasons for exercising or not exercising their various powers and discretions.
To meet their obligations trustees need to have in place systems to enable the safe custody of trust documents, the accessing of required information, the preparation of financial accounts, the meeting of taxation obligations, the recording of resolutions and the steps taken in carrying out actions required pursuant to such resolutions.
While actual requirements will vary depending on the degree of professional and accounting assistance available to the trustees the trustees should keep a “minute book”. This will incorporate:
- A copy of the Will (as admitted to Probate) or Trust Deed (including any related deeds such as Deeds of Variation, Deeds of Retirement and Appointment of new Trustees).
- A copy of any important documents including Agreements for Sale and Purchase, Transfers, Deeds of Acknowledgment of Debt, Deeds of Partial Forgiveness of Debt.
- A copy of any Memorandum of Wishes executed by the Testator or Settlor.
- Resolutions (to record all decisions reached).
- Details of beneficiaries (addresses, dates of birth, dates of marriage etc. all as relevant to the particular trust with copies of any supporting certificates as obtained).
- Annual financial statements and a schedule of Assets and Liabilities.
- Copies of important trust correspondence (including copies of any formal accounting, investment advisor or legal advice obtained).
- Banking details (cash book or cheque book and bank statements).
- Tax records (as relevant).
Duty to act in the best interest of all of the beneficiaries
Trustees need to consider what is in the best interest of all beneficiaries both present and future. Subject to any express authorisation in the trust document, by statute or with the consent of all beneficiaries this means:
- They must act impartially and balance the interests of persons presently entitled to receive income with those ultimately entitled to receive capital.
- They must not profit from their position as trustees.
- They must not sell property to the trust or purchase property from the trust.
- They must avoid situations where their own personal interests come into conflict with the interests of the trust.
Duty to meet Tax Obligations
The trust is a separate legal entity for tax purposes and accordingly may need to register with the IRD and obtain an IRD number and if appropriate G.S.T. registration. If the trust earns income the tax treatment can involve accrual accounting and accounting advice needs to be taken prior to filing initial returns.
Taxation obligations vary depending on individual circumstances. Because of the possibility of trustees becoming personally liable for the trust’s tax obligations, specialist accounting advice needs to be sought as required.
Importantly there is a need for trustees to resolve, within 6 months following the end of its financial year, how any income earned by the trust will be treated. Options (depending on the terms of the trust) are:
- To distribute income to the beneficiaries or to any one or more of them. In this case recipients are taxed at their individual tax rate; or
- To treat the income as trust income in which case it is currently taxed at 33%; or
- Any combination of these options.
If a resolution is not passed within the 6 months (generally by 30 September) the income will be treated as trust income and taxed at the trust income tax rate. This could result in the loss of potential tax savings.
Duty to act in person
Trustees must be personally involved in, and make decisions about the trust. They should meet in person as required but at the absolute minimum should meet on a formal basis at least annually taking the opportunity to discuss the current status of the trust’s assets and reviewing its investment plan. All trustees must consider issues independently and not be under the influence of their co-trustees. Where necessary the trustees should obtain professional advice from valuers, investment or financial advisers, accountants and lawyers. We consider that after due deliberation it is preferable for trustees’ decisions to be unanimous (though some trust deeds allow for majority decisions) as the trustees become jointly and severally liable for their decisions. In the case of professional trustees liability to banks and lending institutions is usually limited to the trust assets. The duty to act personally means that trustees:
- Cannot (except as expressly authorised by the trust document) delegate their responsibilities to others.
- Can employ agents to give effect to decisions taken e.g a real estate agent to sell a trust property once a decision to put a property on the market has been taken. Even then the agent must be selected, properly instructed and supervised by the trustees.
- Must take decisions for themselves. They may have regard to the wishes of the Testator or Settlor and to interests of beneficiaries but in the absence of a binding direction in the trust document they cannot be dictated to. An exception arises in the case of a will when all beneficiaries are adult (20 years of age or more), of sound mind and have vested interests. In this case all of them can join together to achieve their combined wish.
This Article is an introduction only to Trustees Duties. It is not intended to be comprehensive.
If you would like to discuss making a Will or the setting up of a Family Trust contact Rod Gillespie or James Young. If you have any general enquiries concerning your obligations as a Trustee contact either of the above.
|
|
| |
 |
|
|