Commercial Law

Everyone knows about the Consumer Guarantees Act 1993 (CGA), which provides a “consumer” with remedies if a business has failed to provide goods or services to a reasonable standard. But what happens if you are a business purchasing goods? The answer is not found in the Consumer Guarantees Act 1993; it is found in the Contract and Commercial Law Act 2017 (the CCLA). The CCLA implies seven conditions and/or warranties in a contract for the sale of goods: right to sell; conformity with description; fitness for purpose; merchantable quality; conformity with samples; rights of examination, and; acceptance. Not every breach of contract allows for rejection, but a trivial breach of a condition does. This means that a buyer can return goods supplied to a seller. Importantly, whether a term is a condition or a warranty depends on the construction of the sale of goods contract. An important implied condition is “fitness for purpose”. This means that goods must be reasonably fit for purpose. But, unlike the CGA, this condition will only apply where the buyer makes known to the seller the particular purpose for which the goods are required, and that the goods are of a description that it is in the course of the seller’s business to supply. What this means is that when a buyer of a vehicle makes known to the seller that they will be using a vehicle to tow a caravan, then there is an implied condition that the vehicle is fit for that purpose; towing a caravan. This was the case in Finch Motors v Quinn (No 2) [1980] 2 NZLR 519. Mr Quinn, the buyer, told the seller that he wanted a car for towing a boat on extended trips. The seller, Finch Motors, told Mr Quinn they had the ideal car for the job. Not long after the sale, Mr Quinn used his car to tow the boat when it overheated. This, the Court found, was a breach of the implied condition that goods are fit for purpose. There is also an implied condition that goods are of a “merchantable quality”. This is similar to “acceptable quality” under the CGA. The test for whether goods are of a “merchantable quality” is found in an old case, Taylor v Combiner Buyers [1924] NZLR 627. In that case, the Court asked the following question: Are the goods of such a quality and in such a state and condition as to be saleable in the market, as being goods of that description, to buyers who are fully aware of their quality, state, and condition, and who are buying them for the ordinary purposes for which goods so described are bought in that market? Unlike the CGA, the CCLA allows contracting parties to vary or exclude the implied conditions and/or warranties. This includes fitness for purpose and merchantable quality. To do this, the contract must be clear as to the conditions and/or warranties that it purports to vary or exclude. In Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 (HL), for example, the seller’s terms and conditions stated that there is “no warranty express or implied”. The Court found that this did not exclude implied conditions, only implied warranties. If the seller wanted to exclude the implied conditions, including fitness for purpose and merchantable quality, they had to do so expressly. Holland Beckett has experience advising buyers and sellers. This is a complex area of law and Holland Beckett is available to assist.

Holland Beckett is pleased to announce that Hilary Anderson has joined the firm as Special Counsel.    Hilary is a specialist property and commercial lawyer and joins our property and commercial law practice working closely with Dean Thompson and his team.   “The appointment comes at a time of significant momentum for the firm as we grow our commercial and development practices,” says Dean Thompson, Partner at Holland Beckett. “Hilary has always impressed us in past dealings with her common sense and commercial approach. She will be a great addition to the team.”    Hilary enjoys a wide variety of work for private clients, property developers and commercial clients, with expertise in residential and commercial property transactions and finance, property development, conveyancing, subdivisions, commercial leasing, franchising and contract matters. She also has a special interest in trusts, asset planning and protection with significant experience in complex or large estates. Named as one of New Zealand Lawyer’s Rising Stars in 2022, Hilary is a driven but straightforward and approachable lawyer.   Born in Ōhope, Hilary has strong connections to Whakatāne and the Eastern Bay of Plenty. She has called Tauranga home for more than a decade and has strong relationships and an incredible reputation in the community.    Holland Beckett is delighted to have identified a talent and to have her join the team at a time of growth. The Bay of Plenty based firm has almost outgrown their current Tauranga premises and will move to new offices in the CBD next year, marking the next phase in the firm\'s success. Dean Thompson adds, “we have always got room for good people.”   Please reach out to Hilary for any property or commercial enquiries hilary.anderson@hobec.co.nz or 07 571 3836. 

It is not an easy time to be selling a small business. High inflation and waning consumer demand has lead to compressed margins and reduced revenue for many. Uncertainty in the global markets due to wars, protectionism and the changing geopolitical landscape has blunted the confidence of prospective purchasers. Closer to home, sub 3% interest rates are now a fading memory and house prices have come off their peak, so fewer aspiring business owners can easily ‘top up their mortgage’ to fund the purchase of a business. How can sellers respond? Business owners looking to sell and wanting to achieve the best price for their business may need to consider options to reduce a purchaser’s reliance on third party finance to fund the acquisition of their business. This may include: Asset restructuring: Premises, plant and equipment are restructured to reduce the capital investment required by a purchaser. For example, valuable machinery could be retained by the seller and leased to the purchaser, meaning that the purchaser does not have to finance the upfront cost of purchasing that asset. Vendor finance: The seller advances a portion of the purchase price to the purchaser to be repaid by the purchaser over time. Vendor loans vary widely in terms of whether they bear interest, whether they are amortising (repaid gradually over the term) or repaid in a lump sum on a fixed date. Earn Outs: The purchaser agrees to pay part of the purchase price in instalments contingent on the business achieving certain financial targets. Payments could be fixed or adjusted based on the level of revenue generated by the business. Vendor Shares: The vendor retains shares in the business. The vendor might give the purchaser options to acquire 100% of the shares over time. Objectives and Risks From a seller’s perspective, the most common objective of using any of the above mechanisms is to achieve a better price for their business. Compared to fully bank or finance company debt funded transactions, vendor funded transactions generally expose the seller to risk of purchaser default over a longer period. This is because repayment of vendor loans or achievement of earn-out targets depend on the success of the business under new ownership. These risks can be reduced by, for example: Requiring the purchaser to pledge security to the seller (mortgages, personal guarantees, registered security interests). Giving the seller a right to appoint a director for so long as they continue to hold shares in the business. Contractual provisions that exclude artificial reduction of gross profits for the purposes of earn out calculations. Complexity and Cost If not managed well, transactions that include vendor funding mechanisms can be more complicated and take longer to negotiate than similar deals that are not vendor funded (and increased legal costs as a result). Also, the downstream consequences of vendor funding arrangements need to be carefully thought through to avoid unforeseen negative consequences. For example, if the vendor registers a security interest in the business assets, how will that affect the purchaser’s ability to raise finance or obtain trade credit moving forward? In our experience, the best outcomes typically start with a well-designed structure. Convoluted and legally complicated structures are generally less effective in practice than more straight forward, logical structures. Complexity can often be avoided if the transaction is properly designed from the outset. Business owners considering vendor funding options should: Discuss potential structures with their business broker or lawyer to identify fit-for-purpose options that could be offered to potential purchasers; Focus on the characteristics of the business and the specific circumstances and objectives of the seller and buyer when designing a transaction structure - do not start with a particular structure in mind and adapt it to fit the circumstances (this is a recipe for legal complexity); and Try to aim for a structure that makes commercial sense and avoids risks being transferred to a party who cannot control it or who would not naturally be exposed to it. A well designed vendor funding structure should be easy for all parties to understand and give the purchaser sufficient freedom and control to ensure the business remains successful while minimising the default risk faced by the seller. Our commercial team at Holland Beckett is experienced in business sale transactions from $50,000 to $100 million including vendor funding arrangements of all types and would be happy to discuss how to make the sale of your business a success for you and your purchaser.

The Incorporated Societies Act 2022 (“New Act”) came into force on 5 October 2023.  The New Act replaces the Incorporated Societies Act 1908 (“1908 Act”). All existing incorporated societies must apply to reregister under the New Act before April 2026 if they wish to continue as an incorporated society.  Failing to do so will result in the society being deregistered. The online registration process is now open to existing societies on the Companies Office website. What do I need to do? In order to reregister, the society must first: Update its constitution to comply with section 26 of the New Act. Develop a membership record and membership consent form to comply with section 76 of the New Act; Have at least 10 members to comply with section 74 of the New Act; Hold consent in writing from each of the committee/board members (officers) to be an officer and ensure that each officer meets the criteria recorded in section 47 of the New Act; Provide at least one person’s contact details to enable the Companies Office to contact the society. What must the constitution contain? Section 26 sets out all matters which must be included in a constitution. These matters are largely administrative.  One of the most important additions is the requirement to have a dispute resolution procedure.  The compulsory provisions include: The name of the society. The purposes of the society. How a person becomes a member of the society, including a requirement that a person must consent to be a member. How a person ceases to be a member of the society. Arrangements for keeping the society’s register of members up to date. The roles, functions, powers, and procedures of the committee/board. How the contact person or persons will be elected or appointed. How the society will control and manage its finances. The method by which the constitution may be amended. Procedures for resolving disputes, including providing for how a complaint may be made. Arrangements and requirements for general meetings. The nomination of a not-for-profit entity, or a class or description of not-for-profit entities, to which any surplus assets of the society should be distributed on a liquidation of the society or on, or to enable, the removal of the society from the register. It is also an opportune time for you to review the society’s objects and any procedures that may no longer be fit for purpose. How do I vary/replace the constitution? You must refer to your current constitution.  Most constitution contain a ‘variation/amendment’ provision describing the procedure that must be followed to formally vary or amend the constitution.  You are likely to find that the proposed changes must be circulated prior to a general meeting and can only be adopted if a resolution is passed by the majority stipulated in the constitution. How can Holland Beckett assist? Holland Beckett can assist you with reviewing and updating your constitution, reviewing and developing policies to comply with the New Act and navigating the reregistration process. Please do not hesitate to contact us if you require assistance with this transition.

The Consumer Guarantees Act 1993 (CGA) provides a consumer with remedies if a business has failed to provide them with goods or services to a reasonable standard, regardless of whether the consumer has a written warranty or guarantee from the supplier or manufacturer. The CGA is intended to foster a trading environment in which consumer’s interests are protected, businesses compete effectively, and consumers and businesses can participate confidently. Does the CGA affect me? If you supply products or services as a normal part of your business, you are likely to be considered \'in trade\' and the CGA will apply to your business transactions. The CGA will affect you if you are a manufacturer of products that are subsequently supplied to consumers, even if those products are indirectly supplied through distributors and/or retailers. Parties to business-to-business transactions can (and regularly do) agree to exclude or modify some or all of the default guarantees and remedies under the CGA, but such an agreement must be in writing and the parties will only be bound if it is fair and reasonable.  A manufacturer of a product could exclude the CGA in a contract with a distributor, but that will not affect the rights of an end consumer of that product under the CGA against the manufacturer. What are my obligations under the CGA? As a business or person in trade, any goods or services you manufacture or supply must meet the minimum requirements outlined in the CGA. Goods must: Be sold with clear title free from security interests Be of acceptable quality Be fit for purpose Match their description Comply with samples Be reasonably priced, if there is no predetermined price If delivered by the supplier, be delivered on time Have spare parts or repairs available Services must be: Performed with reasonable skill and care Fit for purpose Provided within a reasonable time Priced reasonably, if there is no predetermined price For more detail on these obligations, see the guidance available on the Consumer Protection website. When might I be liable to claims under the CGA? If a supplier has breached a guarantee under the CGA, the consumer may have remedies including requiring the supplier to repair, replace or refund the purchase price. The consumers remedy will depend upon the severity of the breach and the type of product or service concerned. For smaller claims, if a consumer is unable to resolve the matter directly with a supplier, a cost effective approach may be to make a Disputes Tribunal claim. If you are would like to understand more about your rights or responsibilities under the Consumer Guarantees Act, Holland Beckett can provide you with advice and guidance. 

The collapse of high-profile construction businesses such as Mainzeal and Ebert Construction and subsequent judgments dealing with the distribution/management of retentions have prompted some important legislative changes affecting the construction industry. The most recent change being amendments to the Construction Contracts Act 2002 (CCA) contained in the Construction Contracts (Retention Money) Amendment Act 2023 (“the Amendment Act”). Scope The Amendment Act affects retention money (commonly referred to as retentions) withheld under a commercial construction contract entered into or renewed after 5 October 2023. Purpose The main purpose of the Amendment Act is to provide contractors with more transparency and control over retentions held against them, and to ensure that those retentions are not intermingled with other funds of their customers, which had previously made recovery difficult if the customer became insolvent. Retention Money Scheme Retention money is money owed to a contractor that is held back by the customer to secure the performance of the contractor’s obligations under a construction contract. It is common for a customer to be entitled to hold back a percentage of each of the Contractor’s progress payment claims which accumulates as retentions. In 2017, an earlier amendment to the CCA introduced mandatory rules contained in a then-new Part 2A of the CCA that determined how retentions are required to be held, accounted for and used by the party retaining them. However, deficiencies in these rules were highlighted in the context of liquidation proceedings and related cases following from the collapse of Ebert Construction in 2018. In particular, although the intention that retention money would be held “on trust” and that accounting records must be kept by the party holding those retentions was clear, it was less clear that retention money had to be held in a segregated account or what the consequences were if retention money was not held and accounted for with in the correct manner. New Requirements The Amendment Act clarifies and supplements the previous provisions in the CCA regarding retention money. In particular: the party who is entitled to withhold retentions is deemed to hold that money on trust from the point in time that it becomes entitled to withhold them (ie. the portion of a payment claim that is able to be held as a retention must be held on trust whether or not the balance of a payment claim is actually paid to the contractor); retention money must be segregated from other funds, for example in a trust account or escrow arrangement with a third party. This is to avoid retentions being intermingled with other funds of the customer; and accounting records, including a ledger for each retentions account, must be kept by the party holding retention money; contractors are entitled to certain information about their retention account including in what type of account, and with whom, the retentions are kept and ledger records; continuity of the trust applying to retention money in the event of a liquidation or receivership of the customer is expressly provided for; MBIE is given powers to enquire into and enforce compliance with the retentions rules directly; and new penalties for non-compliance are introduced including fines of up to $50,000 for a director and up to $200,000 for a company. Next Steps Our construction law experts at Holland Beckett can assist people who intend to withhold retention money under a construction contract to ensure they comply with the above requirements and to advise contractors on their rights and remedies in relation to retentions held against them.

The purpose of the Fair Trading Act 1986 (FTA) is to promote confidence and fair competition amongst business and provides a number of rights to consumers. The Commerce Commission works hard to enforce fair and proper trade practices of businesses providing goods and services to the New Zealand market. A recent example being the $840,000 fine recently received by TheMarket.com for misleading conduct (charged under s10 of the FTA). The Fair Trading Amendment Act 2021 (Amendment Act) came into force on 16 August 2022. The Amendment Act has introduced a further restriction to consumer contracts, extended the scope of business that must now comply and prohibited door-to-door salespeople from entering or remaining on residential property when told to leave. Unconscionable conductThe Amendment Act now prohibits any conduct in trade that is ‘unconscionable’. The Amendment Act has not provided a definition of what unconscionable conduct consists of, but does provide some guidance for the Courts at s8 of the FTA. We can expect a similar approach to be taken in the New Zealand Courts as has been in the Australian Courts, where it has been defined as being “against conscience or to offend conscience” (Stubbings v Jams 2 Pty Ltd [2022]). Small Trade ContractsPrior to August 2022, the prohibition of unfair contract terms at s26A of the FTA only applied to standard form consumer contracts – this is the contract between a company and the consumer (typically the person at the end of the chain). The Amendment Act has extended the scope of s26A of the FTA to apply to small trade contracts. The criteria for this is: Each party to the contract is engaged in trade; The contract is not a consumer contract; and The contract does not form part of a trading relationship that exceeds an annual threshold of $250,000 at the time the contract is entered into. Door-to-door salespeopleSection 36RA of the Amendment Act states any uninvited direct salespeople must immediately leave the residential property (or not enter) if told to do so by the person residing at the property. A breach of this provision can result in a fine of up to $10,000 for an individual and $30,000 for a business. How can we help?Businesses should be taking a proactive approach when drafting and negotiating consumer contracts or contracts that fit the small trade contract criteria. Holland Beckett Law can review your standard form contracts or provide drafting advice to ensure your contracts are acceptable to commercial standards. If you would like to know more or need help with your contracts please get in touch.

What is a guarantee and indemnity? When approaching a lender for finance, they may request a guarantee be provided as security alongside the loan documents. A guarantee is a separate promise to the lender stating if the borrower doesn’t meet their obligations under the loan, you as guarantor will fulfil them. Lenders require you to see a lawyer before you sign a guarantee. This is because when they go wrong, they can go really wrong, and (before you sign up to a guarantee) you need to have a good understanding on the risk involved and your rights and obligations under the guarantee. A ‘bank’ guarantee can take various different forms such as: A couple guaranteeing their family trust’s borrowings Parents guaranteeing their child’s borrowings A person guaranteeing their company’s borrowings There are other forms of guarantees which we do not discuss here, such as providing a guarantee under a lease or an agreement for sale and purchase.  What you should know about guarantees What is an indemnity? Often called a “Guarantee and Indemnity”, an indemnity is actually a separate obligation to a guarantee. A guarantee relates to the debt or default of the person who is primarily responsible for the loan (the borrower) while the guarantor has the secondary obligation. An indemnity is a contract by one party, to prevent the other party against loss. An indemnity creates a primary obligation from the guarantor to the lender. Meaning an indemnity can be enforceable, even when the guarantee may not be. Limited vs Unlimited A guarantee can be unlimited, meaning any debt created by the borrower will be captured, or the guarantee can be limited to a specified amount. This limits your exposure under a guarantee as you would only be liable to the extent of the guaranteed amount. Lenders lean toward unlimited guarantees as this is a better credit position for them. All Obligations Under an “all obligations” guarantee you are liable for any current and future debts the borrower owes to the lender. Do you know every debt the company, trust or child you are guaranteeing has, or may get in the future? If not, you may be signing up for debt you are not aware of.  If you are the sole director and shareholder of your company, you likely have a fair idea of the company’s financial situation. However, if you are guaranteeing your child to help them into a house, you may not have the full picture of debts they have (such as credit cards or car loans).  It is important to have clear communication and transparency between parties.  You can also consider asking for financial information or accounts to give you additional comfort, if available. Joint and Several If you are not the sole guarantor, the lender will often include wording that the guarantors are “jointly and severally liable”. This reserves the lender’s right to seek payment from any person on foot under the guarantee (to the exclusion of the others). In the event that one has more valuable assets and a higher prospect of meeting the guarantee liability were it called up, then they could pursue that person singularly. If you are looking at entering into any sort of guarantee (including those not discussed above, such as a guarantee in a Deed of Lease for example), we recommend you touch base with our property law team who will assess your particular circumstances and give tailored advice about any risk and your rights and obligations in respect of the proposed guarantee.

Similar to the trend seen overseas, working remotely has become a more common and standard practice, which has impacted the way some businesses now operate in New Zealand. Accordingly, when tenants under commercial leases are reviewing their leasing requirements they may decide that they no longer require the same area of premises. This may lead to a tenant transferring their rights under a commercial lease to another party by way of an assignment or sublease. In order to determine which arrangement is best for your business and circumstances, it is important to understand the differences between the two. A sublease is where the tenant (commonly referred to as the sublandlord) transfers part or all of the tenancy under the sublandlord’s existing lease to a third party. It is important to note that the sublandlord retains an interest in the premises and there is no direct contract between the headlandlord and the subtenant. As a result, the sublandlord is still responsible for all lease obligations but the subtenant pays a contribution for the part of the premises that they sublease from the sublandlord. The subtenant is responsible to the sublandlord for the lease obligations under the sublease. This type of arrangement is particularly common when the sublandlord no longer requires all of the leased premises and wishes to recover some of the costs under the headlease. It is vital to ensure that the timeframe for the sublease arrangement does not extend beyond the term under the headlease. If you are considering subleasing part of your premises, the first step would be reviewing your headlease terms to see if there are any restrictions on the area or any parts within the premises that can or cannot be sublet. An assignment of a lease involves the new tenant (commonly referred to as the assignee) agreeing to take on all of the existing tenant’s (commonly referred to as the assignor) lease obligations. The transfer of the interest is for the remaining duration of the lease. While the assignment of lease terminates the assignor’s right to possession, the assignor’s liability under the lease commonly continues to the expiry of the current lease term unless provisions are included within the Deed of Assignment of Lease or negotiated with the landlord to provide otherwise. This liability also extends to any guarantors provided. However, the standard ADLS Deed of Assignment of Lease includes an indemnity from the assignee in favour of the assignor against any claims the landlord may raise against the assignor or the assignor’s guarantors. Once you have established which option is best suited for your business’s circumstances you need to ensure that the headlease allows for an assignment or a sublease to be granted and approach your landlord for their consent to the assignment or sublease. If you want to assign or sublease your commercial lease or have queries about your lease, please contact us to find out which option is best for you.

If you are involved with sports clubs, religious groups, other community or social associations, or even certain iwi organisations – the new Incorporated Societies Act 2022 (the Act) may affect you and your organisation. At over 100 years old, the Incorporated Societies Act 1908 was no longer able to keep up with the needs of New Zealand’s 24,000 incorporated societies. The new Act came into force on 6 April 2022 and puts in place a more modern governance framework for societies and the volunteers who administer them. It aims to give more guidance to these self-governing groups and provides new dispute resolution options that did not exist previously. Now that it is enacted, societies need to understand how they are affected by the Act and what needs to be done to transition to the new regime. This is particularly important because failing to comply (and failing to re-register) will result in the de-registration of the society. Fortunately, the provisions do not come into force all at once, but over a staggered transitional period of around three and a half years. Key changes The Act makes a number of key changes to the current framework including: Registration:  All incorporated societies will be required to re-register under the Act by 1 December 2025. Failure to re-register by this date will mean that a society ceases to exist. To re-register societies must satisfy the new requirements under the Act. Constitution:  The Act will require all societies to have a constitution which provides specific detail of the composition, roles, powers, functions and procedures of the committee. This is more substantial than what is required under the former Act. The Act also expressly acknowledges the ability for a society to incorporate and express tikanga practices within its constitution. Minimum membership requirements:  The minimum number of members has reduced from 15 to 10. All societies will be required to start with and maintain a membership of at least 10 members. Bodies corporate will continue to count as 3 members. Consent:  Every person must consent to becoming a member of a society. With groups like sports clubs, it may not be clear that signing up means joining as a member of the incorporated society. Committees:  All societies must have a committee (a governing body) which is comprised of at least three members of the society who are appointed as officers. This is a new requirement which was not provided for in the 1908 Act. The Act outlines the core duties of the committee such as managing or directly supervising the affairs of the society. It also outlines the qualification criteria for members and other officers. Officers:  The Act codifies existing common law duties owed by officers. These align with those under the Companies Act 1993 and include: The duty to act in good faith and in the best interests of the society. The duty to exercise powers as an officer for a proper purpose. The duty not to act, or agree to the society acting, in a manner that contravenes the Act or the constitution of the society. The duty to exercise the care and diligence that a reasonable person with the same responsibilities would in the same circumstances. The duty not to permit the activities of the society to be carried out in a manner that is likely to create a substantial risk of serious loss to creditors. The duty not to permit the society to incur an obligation unless the officer believes at that time on reasonable grounds that the society will be able to perform the obligation when it is required to do so. These duties are owed to the society rather than to members. However, a member can apply to the Court to enforce those duties. Dispute Resolution:  Societies must have procedures in place to resolve disputes and grievances. These can be personal to a society but must meet minimum procedural requirements including natural justice requirements. Reporting:  Societies will be required to prepare financial statements and accounting records that comply with generally accepted accounting practice. Requirements for this are size-based, with larger societies being required to have their accounts audited. Offences:  The Act outlines various offences including making false or misleading statements, fraudulent use or destruction of property, falsification of register, records, or documents, operating fraudulently or dishonestly incurring debt, improper use of “Incorporated”, “Inc.”, or “Manatōpū”. Financial Gain:  The Act tightens provisions relating to a society not being for financial gain and provides guidance as to when a society will be considered to be operating for the financial gain of its members. Following this it introduces a fine not exceeding $50,000 for failure to comply with this rule. Amalgamation:  The Act allows two or more societies to amalgamate. This is essentially a simplified version of the amalgamation process contained in the Companies Act 1993. Enforcement:  Enforcement provisions will be introduced which outline who is able to apply for Court orders and the type of order a Court can make. This is important to ensure accountability where there may be a breach of constitution or officer duties. Registrar:  The registrar of Incorporated Societies will have reinstated functions and powers, with the addition of wider powers to inspect, copy and take possession of documents and standing to initiate enforcement proceedings if it is in the public interest to do so. What do you need to do? If you are an officer, or otherwise involved with a society’s governance, you will need to consider how the above changes impact your organisation. You should: Review your membership application process to ensure that you are clearly seeking and obtaining consent to become a member of your club or organisation. Review your constitution to ensure it is compliant with the regulations in the Act and if not, make necessary changes. Review your members’ register to ensure it is up to date and that you meet minimum membership requirements. Consider whether your current officers meet the new criteria to continue as officers. Prepare your application for re-registration and ensure it complies with regulations in the Act (including s 5(3) of Schedule 1). Apply for re-registration of your society before 1 December 2025. It is not yet possible to register under the new Act. But it is important that societies are prepared and ready to step into the new regime when the time comes. Well governed societies may benefit from beginning the transition, consulting members on updates to their rules or constitution, and being ready for registration, which will be looked upon favourably by members, sponsors and funders. Holland Beckett Law is passionate about assisting local not-for-profit and community organisations. Please reach out if you would like to discuss how the above changes are going to affect your society. We would be happy to assist you through the re-registration process, or review your rules/constitution to ensure compliance.

The Court of Appeal recently released a judgment concerning the scope of a restraint of trade clause, following the sale of a business. The business bought by the purchaser involved the manufacture, distribution and installation of partitioning systems and door systems, commonly used in office fit-outs. Shortly after the sale, the vendors bought another business that was a supplier of components of partitioning and door systems. The sale and purchase agreement signed by the parties included a restraint clause that sought to prevent the vendors from engaging in any business that was “the same or substantially similar to” the business being sold to the purchasers. Importantly, the restraint specified the business activities it sought to protect: “namely the manufacture, importation distribution or installation of … partitioning systems or door systems”. The purchaser believed that the vendor was in breach of the restraint of trade clause given the relatedness of the products being sold, and the High Court agreed. However, the Court of Appeal thought differently. Overturning the decision of the High Court, the three judges held that the business activity of each business was not the same or substantially similar on account of the fact that the business that was sold by the vendor dealt with complete systems, while the business that was bought dealt only with components of such systems. In reaching its conclusion, the Court relied on the specific wording in the restraint clause. Because the clause named complete systems only, and because componentry could not be regarded as a complete system and only a small part thereof, there was no substantial similarity. The decision has highlighted the importance of using wording in a restraint that will provide the parties with the certainty required for them to understand the parameters of what is being agreed. Had the clause used in this situation included the further wording: “namely the manufacture, importation distribution or installation of … partitioning systems or door systems, and including componentry of such systems”, There is a possibility this matter would have been decided differently or may never have made it before the Courts in the first place. Of course, expanding the scope of a restraint of trade clause too widely may result in it being deemed invalid. So, the specific wording used should be carefully considered and seek only to extend the scope of protection to a reasonable level. If you need any advice or assistance in determining the reasonableness or validity of a restraint of trade clause, please remember that it is better to seek help prior to making any big decisions. You may save yourself the headache of being embroiled in legal action and be in a position to move forward with confidence.

Firstly, do you have a trade mark registration? If so, and if the other trader is using the same or a confusingly similar brand name in relation to the same or similar goods or services then it is likely you have the right to prevent the use and could make a request that the other trader immediately stop using your intellectual property. However, if the other trader was already using the brand name before you filed your application, there is a chance that you will have to either accept that another trader using a similar brand name in the market place, or you could potentially negotiate with the other trader to see if you can come to some sort of pragmatic solution. If you do not have a trade mark, the issue becomes a bit more uncertain. We have had situations where clients have been happily using brand names on their products, only to then receive a polite but firm “cease and desist” letter directing them to stop using the name because it infringes a trade mark registration they own that predates the first use by our client. In one particular instance, our client was using what appeared to be a really novel and unique name on a food product, only to be told they were infringing a trade mark owned by a major American company (a.k.a. a trade mark owner with big pockets for paying legal expenses and little interest in negotiating with a small New Zealand company). The main problem for our client was that they had spent a fairly hefty amount on graphic design and marketing for their product and had six months’ worth of packaging already bought and paid for. The task of having to delete every photograph or reference to the trade mark on their social media pages was tiresome, but re-educating their customers about the name change also proved to be a headache (same great product, just with a way better name …). That is why we would always recommend carrying out thorough clearance searches before you set your heart on a particular brand name, and why it is preferable to obtain a trade mark registration for your cracking great brand names. It can save time, money and hassle down the track and give you peace of mind right from the start. We can help you conduct thorough research and investigate your ideas before your products or services are put to market and, once you have confirmed your brilliant brand name is available, we can help you with any trade mark applications you may wish to file.

What is a trade mark? A trade mark is a badge of origin, it allows customers to distinguish the goods and/or services of one trader from those of another. The most commonly registered trade marks in New Zealand consist of words, slogans, or logos but registrations can also extend to other types of trade marks including sounds, colours or shapes (think of the good old ANZAC red poppy, that shape is a registered trade mark). To be registered, a trade mark needs to be distinctive (an invented word is always a great trade mark), cannot be descriptive and must not be identical or confusingly similar to a trade mark that is already registered in New Zealand, in respect of the same or similar goods. A registration only extends to the territory in which it is registered (so a New Zealand trade mark registration only covers New Zealand, although there is an option of filing simultaneously in a number of countries to get broader territory protection) and only provides rights in respect of the same or similar goods and/or services as those specified in the registration. That means a registration for ZESPRI in New Zealand in relation to kiwifruit would not provide the right to prevent a trader in France from using or registering the word ZESPRI in respect of tennis rackets. A registered trade mark will often be accompanied by the ® symbol. A trade mark that is not registered but which the trader is claiming to be a trade mark (maybe because it is not yet registered) sometimes appears with a ™ symbol. A registration will last for 10 years from the date it was first filed, but can be renewed for as long as it remains in use. What is the benefit of having a registered trade mark? A registered trade mark gives a trader the legally enforceable right to prevent another trader using an identical or confusingly similar trade mark in respect of the same or similar goods to those covered by the registration. A registration becomes a publicly available record which can therefore have the effect of deterring others from using an identical or similar trade mark. If you don’t obtain a registration, there is a chance that you would not be able to prevent another trader from using a similar trade mark, or (even worse) that you would be forced to stop using the trade mark you had your heart set on and just paid a graphic designer a substantial amount of money to create a logo for. Another important reason is that a trade mark can be placed on your books as an asset of the business. It can have a value attached to it, meaning that if you ever decide to sell the business it can be taken into account. And don’t fall into the trap of thinking that because you have registered a company name or a domain that incorporates your trade mark that you have a useful intellectual property right, neither a company name or domain will give you any specific rights to exclusive use. How do we go about getting a registration? Ideally, before you take any other step on your branding journey you would first obtain a trade mark registration or at least undertake a clearance search to ensure that no other trader has already claimed the right to it. It is less than ideal to put time, energy and money into a branding strategy that then has to be changed at the last minute because you find out there is a dormant registration owned by a global company who will not think twice about sending a “cease and desist” letter demanding you to stop all use (and destroy all packaging/signage/advertising). However, we would still advise filing an application to register your trade mark at any stage (whether before or after first use). The more well-known your brand/idea/product/service becomes, the more valuable it also becomes. We can help by providing advice as to whether your trade mark is likely to be accepted, whether there are any existing registrations that may pose a problem for you and by making sure that you are applying for the right aspects of your branding and correct specifications of goods and services to give you the best trade mark registration possible.

Purchasing a kiwifruit orchard comes with lots to think about and plenty of due diligence to undertake. Often the purchase will be conditional on these further investigations, so what is important to consider? For most orchardists, water and compliance are key considerations. Often water is sourced from a bore, either on the land itself or from neighbouring properties pursuant to an easement or water supply scheme. However, to take water for irrigation or frost protection, you not only need the legal right to convey the water from its source potentially across your neighbours\' land but also consider the terms of this easement and rules around how you are to share pump maintenance and running costs with your neighbours. As well as ensuring there is the appropriate Resource Consent to draw either surface water or bore water at a sufficient rate to irrigate or provide the necessary frost protection. Resource Consents have strict allowable flows and volumes and require metering and monitoring to ensure compliance. In some cases water storage on site is necessary to make sure that sufficient volumes of water are readily available in times of peak demand without breaching the flow limits. In addition to water, overall compliance by the vendor is important, such as not exceeding their licensed plantable area, ensuring Global Gap compliance, maintaining the required spray programme and diary to Zespri’s export standard, etc. Another big factor is the ownership of the crop that may be on the vines or could have been picked. Special care is needed when a settlement is likely to take place around picking time as the treatment of hanging fruit can be different from picked fruit from a tax point of view. Most agreements will clearly state who retains ownership of the current crop and who is to benefit from the sale proceeds, even if it is already (or will be by settlement) picked and in the coolstore. With Zespri’s trailing payment method over the year following the picking of a crop, there can be significant cashflow impacts for a buyer if they don’t also buy the crop, as they may not get any income from the orchard until the following year\'s crop, starting up to 12 months later. In this case sufficient finance would need to be in place from the outset to fund orchard expenditure until income is received. Ultimately the ownership of the crop has an impact on the overall price paid for the orchard and a purchasers funding requirements. Other considerations include: Legal Title and any other registered interests or easements on the land Licence Ownership Any ongoing management agreements Your structure and ownership entity KPIN transfer Chattels and Improvements and the apportionment of values Zespri shares and many more. If you are contemplating purchasing your first orchard or expanding your existing operations, please contact us with any queries before entering into an agreement.

An earlier version of this article was published on 23 August 2021. This revised version was published on 7 September 2021 to reflect the mandatory record keeping rules now being in force, and to include information published by the government after 23 August 2021. New Zealand is famous world wide for its Covid stopping Lockdowns. But our ability to sustain regional and localised lockdowns, and to avoid the full economic impact of shutting down our economy, is only because of our ability to contact trace quickly and effectively. As the huge number of contact events and places of interest in the current outbreak has shown, this ability is of critical importance in the new Delta environment. This is why, on 23 August 2021, the Government announced its a decision (which had been in discussion for a number of months) to formally require most businesses to keep contact tracing records at all alert levels. These requirements came into force at 11.59 pm on 7 September 2021. At the time of the 23 August announcement, it had been suggested a similarly wide-reaching requirement on individuals to sign in would be imposed. Because of difficulties around enforcement, it has since been clarified that scanning or signing in will not be mandatory. BackgroundContact tracing has obvious privacy concerns – it requires people to provide personal information and creates an accessible record of the places they have been. Making it mandatory has continued to be controversial throughout the pandemic. Probably as a result of this controversy, the Government has long held off on making it a mandatory requirement unless there is an active outbreak. Until the new rules came into effect, at alert level 1 businesses and event managers had only been required to display a QR code at or near their main entrance. Only at alert level 2 or above had businesses – and then only a small number of businesses – been required to keep a fuller record of who had visited and to monitor compliance with that requirement. Outside of businesses, there have also been record keeping requirements for social gatherings – in particular, gatherings at marae, weddings, funerals, tangihanga and religious services. Again, until the new rules came into effect this had only applied at alert level 2 and above. The New Requirements for Businesses and Event ManagersFrom 11.59 pm on 7 September 2021 a “contact record rule” applies to certain businesses and services. Ensuring a range of contact tracing options are available is part of the new normal. Which businesses are affected depends on which alert level a business is operating under. At alert level 4, the rules apply to primary industries, supermarkets, petrol stations, courts and tribunals and the justice sector, and providers of: health services (including pharmacies and funerary services); food delivery services for bakeries, uncooked food suppliers, and alcohol suppliers; cooked food delivery services contracted by health service providers (like Meals on Wheels); purveyors of essential non-food consumer products; building, construction, and maintenance services; postal, courier, freight, logistics, and transport services; scientific services; school and community-based services; key utilities and communications; government and security services; and pest management services. At lower alert levels, the above services remain affected by the new rules. Also affected at lower alert levels are businesses not able to operate at level 4, including cafes, restaurants, barbers, rest homes, libraries, museums, swimming pools, massage parlous, beauticians, barbers, hairdressers, exercise facilities, cinemas, theatres, casinos, and concert halls and nightlife venues. Visitors to aged care and healthcare facilities will also need to be provided with scanning in options, as will those attending social gatherings including those at private houses, marae, weddings, funerals, tangihanga and faith-based services. The person in charge of providing an affected business or service at a particular workplace to have “systems and processes” in place to allow every person aged 12 or over who enters their workplace to either scan their QR code or record their visit in another way. This could involve either having them create their own contact record by signing a register at the door or dropping a slip into a box, or having a staff member take down details. The key requirement is that people who are not able to scan QR codes have a convenient way to record their visit, however long they are at the premises. The requirement is in addition to the existing rule that means workplaces have to display a QR code at or near their main entrance. For businesses with multiple premises, or event managers that run events at different locations, their manager on the day at each of their sites is responsible for ensuring the requirement is complied with. The coming into force of these additional rules is a good reminder to ensure that members of your management team are familiar with their obligations under the Covid orders. The government has also made clear that it expects scanning and signing in facilities to be made available to all workers, contractors, customers, and volunteers. Workplaces with multiple entries and exits should ensure QR codes and registers are made available at all of these doors, including employee entrances. PenaltiesCompliance with the new rule is mandatory. An intentional breach of the requirements carries the risk of a conviction resulting in a criminal record and up to six months’ imprisonment or a fine of up to $4000. While during previous lockdowns the Police have been cautious in using their formal powers, preferring to warn people, during the current outbreak we have seen the Police making greater use of their formal enforcement powers. With the greater threat to the community and economy that Delta represents, and the importance of being able to quickly trace contacts to combatting the spread of the virus, we expect to see the Police quicker to prosecute non-compliance of the rules than earlier in the pandemic. The Courts are also taking offences against the Covid orders seriously. During the March 2020 lockdown, many people who breached received short sentences in prison: deliberate flouting of the law carries a very real risk of similar treatment. For many people the risk of a criminal conviction will also be a significant deterrent. Businesses that face conviction will of course only risk a fine in most cases, but will also need to weigh up the considerable reputational risk conviction brings. PrivacyWhile businesses will now be required to comply with these obligations, it is important that they also take into account their obligations under the Privacy Act 2020 when recording information. Key obligations include: Only gathering information that is necessary; Only using information for the purpose for which it was gathered; and Destroying information when it is no longer needed. Contact tracing information should be kept separate and, in accordance with the Covid Orders, destroyed after 60 days. It should not be used for other purposes (like client data bases) without specific permission. As the information is highly personal, it must also be stored carefully to avoid anyone accessing it. The risks of getting things wrong in terms of privacy are serious with compensation for breaches awarded under the Privacy Act 2020 often exceeding $10,000. A number of businesses, citing privacy concerns, have moved away from having a register book open on the counter towards having complete-and-tear forms that are posted in boxes. We consider this can better help businesses comply with their Privacy Act obligations to protect personal information against wrongful access. It will however be important that the information posted in the boxes is regularly collated so that it is accessible to contact tracers. Non-Compliant Customers When the mandatory record keeping rules were first announced, the Government suggested that customers and visitors to venues would also be put under an obligation to make use of scanning in facilities. This caused anxiety for some business and event operators, it not being clear if they would be expected to enforce scanning in, or turn away non-compliant customers. The government has now clarified that scanning or signing in will not be mandatory. A spokesperson for the Department of Prime Minister and Cabinet has said that “there is no expectation or requirement that businesses or locations should force a customer or visitor to scan in or provide” contact tracing details. Nor are they “required to expected to turn people away who may refuse to make a record of their visit”. This is a welcome clarification for businesses already likely to be under pressure with recent closures, for whom being made to turn away non-compliant customers would cause further loss. With the media reporting widespread resistance to mandatory contact tracing requirements in some sectors of the community, it is also likely to spare businesses from becoming a flashpoint for anti-Covid restriction agitation. Where We Can HelpHolland Beckett Law has been advising our clients on what the ever-changing array of public health measures means for them day-to-day. The changes in messaging around mandatory scanning in requirements illustrates how quickly the situation can develop. With the frequent changes to the rules, it is important to have people on your side who understand the requirements and can help you ensure your business complies with all of the requirements. We are more than happy to discuss your situation and help you better understand your rights, obligations, and options.

During Lockdown, we have been acting for both businesses and consumers dealing with consumer issues arising from COVID-19 related travel and lockdown restrictions. Examples of some of the issues we are assisting with: Travel We assist people where they have had flight and accommodation bookings cancelled. Customers have been experiencing a range of issues with their cancelled bookings, including delayed/rude contact with the travel agent/airline; being offered a credit but not a refund; being entitled to a refund but being charged cancellation or other fees; and not receiving a refund promised. For example, Air New Zealand is continuing to refuse to offer refunds for COVID-related cancellations, offering only credits (unless a refundable flight was purchased or certain international flights). While the world has some tolerance with this type of action as this is not the first lockdown, it is still upsetting to customers because the cancellation was not of their choosing. Delivery of good/services We assist businesses or consumers where businesses have been prevented by the lockdown from fulfilling or delivering goods or services paid for, meaning that customers are not receiving what they have paid for. For example, gyms continuing to collect weekly membership fees when clubs are closed. Alternatively, some services, such as accommodation booking sites, are charging cancellation fees. Many of these disputes are troubling. Even though we are in unprecedented times and lockdowns are now anticipated, it does not mean that parties’ contractual rights or legislative obligations/protections do not apply. In many of the above scenarios, it is a question of who should bear the risk and cost of the restrictions – should it be the customer so that the business can continue to operate, or should it be the business because they cannot provide their goods/services? Often it is the consumer that does so, whether or not a business’ terms and conditions provide for it. Taking a commercial view on this, the businesses’ perspective is understandable. However, it is not necessarily lawful or fair to the consumer. Depending on your circumstances, consumers may have rights of action for and/or businesses may be at risk of claims in relation to: Breach of contract, where terms and conditions or policies are not followed, even if the breach was caused by the lockdown; Consumer Guarantees Act 1993, where consumers can be entitled to damages or other relief to ‘remedy’ a failure to provide goods or services to a reasonable standard (or at all); and Fair Trading Act 1986, where a person has been misled by a business (for example, travel agents informing customers that they are not entitled to a refund when their terms and conditions say they are). If you are concerned about any consumer related issue, when as a consumer or business, at Holland Beckett Law we can provide you with advice and guidance in this time. Please do not hesitate to contact us.

We advise clients on all aspects of commercial leasing, both landlords and tenants, many of which are currently dealing with the impacts of COVID-19. A common issue for commercial tenancies is payment of rent during periods where the tenant’s business cannot operate due to alert levels. This includes: The tenant’s ability to pay rent (as a result of reduced income); Whether relief is available to the tenant through a rent abatement; and In turn, the flow on effects for commercial landlords who rely on rent to meet their mortgage repayments. Even with shorter periods of lockdown, the financial impact to both landlord and tenant can be significant. Temporary Relief when Payments are OwingAs a result of the first Level 4 lockdown in 2020, the government inserted relief provisions into the Property Law Act 2007 (PLA). These temporary relief provisions remain in effect, and provide for (among other things) more time for payment arrears to be remedied before certain enforcement powers can be exercised. The way that these provisions operate is to extend the requisite notice periods under the PLA. By way of example, usually rent has to be in arrears for no less than 10 working days before the landlord can serve the required notice of its intention to cancel the lease. That notice must allow the tenant to remedy any defaults within a period of no less than 10 working days. However, during a COVID-19 outbreak, the rent must be in arrears for 30 working days before the landlord can serve notice of intention to cancel, and the notice must give 30 working days for defaults to be remedied. If this delayed payment in turn affects the landlord’s ability to meet mortgage repayments, the PLA provides for relief there too. In normal circumstances, a lender/mortgagee has to give a borrower/mortgagor at least 20 working days’ notice before it can exercise its powers under the loan documents to take possession of or sell mortgaged property. During a COVID-19 outbreak, the lender must give no less than 40 working days’ notice. If these strict notice requirements are not followed, this could prevent or invalidate any enforcement action taken and give rise to a claim for loss. Rent AbatementStandard commercial leasing terms provide for rent abatement in an ‘emergency’ where the tenant cannot access the premises. COVID-19 triggers these provisions, but there can be uncertainty putting them into practice. Please refer to our specific article on this rental abatement during lockdowns:  UPDATE: The ADLS Lease and Epidemics. How to Resolve Rental IssuesIt is preferable for the landlord and tenant to resolve these issues by agreement, if possible. Standard commercial leasing terms provide for any disputes to be resolved by mediation (if the parties agree) or otherwise by arbitration. At Holland Beckett Law, we can assist with negotiations with your tenant or landlord, provide swift and clear advice on the proper procedure that needs to be followed and if necessary, we can guide you through the mediation or arbitration process.

A change to the Commerce Act makes cartel behaviour a criminal offence, with the risk of up to seven years’ imprisonment. What is a cartel and how can businesses avoid engaging in cartel behaviour, intentionally or accidentally (this includes small to medium businesses, not just those big corporates).  For those unfamiliar, what is the definition of cartel business/behaviour and the illegal acts associated with this? The Commerce Act actually prohibits a wide range of there are a range of restrictive trade practices. These include cartel-like behaviour but also extend to taking advantage of market power, resale price maintenance and practices substantially lessening competition. A cartel is where two or more businesses agree not to compete with each other. It applies both to the buying and selling behaviour of businesses. This conduct can take many forms, including price fixing, dividing up markets (eg. by region or by suppliers used), rigging bids or restricting output of goods and services. Factors that may increase the risk of cartel-like behaviours include: being in a market where you know most (or all) of your competitors; having competitors who are also customers or business partners; markets/sectors in which staff frequently move between businesses; and contact with your competitors through work or at social events, in particular where this might involve discussion of: pricing, fees, customers, territories, future plans/strategy or following set rules. Resale price maintenance is where a supplier prevents resellers from independently setting their prices. This can lead to increased prices for consumers. While it is unlawful for suppliers to directly or indirectly enforce a price, the use of a recommended retail price (RRP) is permitted so long it is solely a recommendation. Taking advantage of market power occurs where businesses who have substantial market power take advantage of that power for anti-competitive purposes. For example: lowering prices to drive competitors out of the market; refusal to supply competitors; increasing the prices for competitors to access infrastructure needed to compete; exclusivity deals with retailers or distributors; bundling of products; or otherwise acting in a way that they would not have been able to if there were competition). This may be more likely for larger businesses but it will depend on the size and influence of your business relative to the size of the market(s) in which it operates. Agreements or understandings for the purpose, or likely to have the effect, of substantially lessening competition in a market are illegal. In general terms, this is where businesses take joint steps to prevent new competitors entering the market or make it more difficult for existing competitors to gain market share (though there are limited exceptions for things like business partnerships and individual restraints of trade). This is illegal regardless of whether or not it is intentional. These restricted practices generally only apply to products and services supplied in New Zealand markets. However, if a business supplies products or services to other markets, it is very likely those markets will have their own laws prohibiting anti-competitive practices. What are the sanctions for engaging in restrictive trade practices? Depending on the seriousness of the offence, sanctions will vary but they include cease and desist warnings, requirement for undertakings to comply, potentially large fines and imprisonment. Fines can be as high as $10 million (or, if higher, three times the commercial gain or 10% of turnover) and, from April 2021, prison sentences for breach of the cartel rules carry a maximum prison sentence of seven years. In terms of liability for sanctions, the net can be cast very wide and (in addition to engaging in cartel behaviours directly) includes aiding and abetting others and failure to report others. How can businesses mitigate the risk of involvement in restrictive trade practices? Businesses should ensure they are aware of what trade practices are restricted by the Commerce Act and educate staff that may be in situations where these practices may emerge. The Commerce Commission offers the following practical tips for businesses engaging with their competitors: Think carefully about who you are, or may be, in competition with, especially if sub-contracting is involved. Do not agree prices, discounts or any matters relating to price with your competitors (unless it is a specific sub-contract you are discussing). Do not agree to restrict output in any way, or to allocate customers or geographic markets between competitors. Do not exchange pricing, how much you plan to produce in the future, customer information or which markets you sell into with your competitors. If you are approached by another business to discuss pricing, allocating customers, bids for contracts or restricting outputs you should raise an objection straight away. Leave the discussion immediately. Make sure that you and your staff are familiar with the requirements of the Commerce Act. Keep records of who has attended training. Review internal documents, policies and procedures for compliance with the Commerce Act and seek independent legal advice. If you become aware of anti-competitive conduct, contact the Commerce Commission straight away. How has COVID-19 impacted on the risk to businesses in this area? The Commerce Commission has acknowledged that the exceptional circumstances surrounding the COVID-19 pandemic may require businesses to collaborate in order to ensure the security of supply of essential goods and services that are important to New Zealanders. The Commerce Commission stated that there will be no enforcement action taken against businesses who are cooperating to ensure that essential goods and services are supplied to New Zealanders. This will not, however, extend to unscrupulous behaviour and the collaboration in question must meet the following requirements: must be undertaken in good faith; relates to essential goods and services; aims to benefit consumers or the public interest; only covers the scope and duration that is necessary for the COVID-19 pandemic; information shared must only extend to that necessary to address the COVID-19 pandemic; and includes all necessary measures to reduce the existence of competition-lessening through the inclusion of smaller or independent businesses. Please note: This is a short summary and is general in nature. It is not legal advice and specific legal advice should be sought in relation to the matters discussed if they arise. If you have any questions about this topic, please contact the writer or a member of Holland Beckett Law’s commercial team to discuss.

Holland Beckett Law, in partnership with a panel of experienced arbitrators, has developed a speedy cost effective procedure to deal with disputes over rent abatement. The Government restrictions at Alert Level 4 have resulted in the closure of physical premises for all non-essential businesses. With the recent move to Alert Level 3, many commercial premises are able to partially reopen, although operations are still limited depending on the nature of the business. Restrictions to access are having a fundamental impact on tenants and landlords alike. Tenants are unable to operate fully and their revenue and cashflow is significantly affected. For some, this may mean an inability to meet their current rent and other liabilities, which in turn has a significant impact on the landlord’s own business. Access restrictions are contemplated in many current commercial leases. The ADLS form of lease (among the most common) contains provisions relating to rent abatement during times of limited or no access. Where a lease contains such a provision, tenants and landlords can attempt to reach an agreement regarding what rent is fair in the circumstances. Fairness implies an assessment of both parties’ positions. Accordingly, the effect on the landlord ought to be considered as well as the tenant. In some circumstances, despite a tenant having no access, they may still receive some benefit from the lease. The extent to which the tenant has access is critical. Rent deduction ought to be assessed by reference to the extent to which the tenant is unable to access the premises and accordingly unable to fully conduct its business as a consequence of no access. For essential businesses the position is more complicated. The business may only need to operate from some of its premises (in order to deliver or perform the particular service) or may only be using part of the premises because of reduced numbers of staff working. A tenant operating an essential business may argue that it is entitled to a rent and outgoings reduction for the portion of the premises that it is not operating from (or is only partially operating from), which may arise because the tenant is only permitted to use premises to the extent necessary in connection with its ‘essential service’. In many cases we are seeing a pragmatic approach to the unique situation and rent holidays, abatements and deferrals being agreed, regardless of the terms of the lease and whether the tenant is entitled to an abatement. Many landlords and tenants have reached an agreement on abatements on a “without prejudice” basis, seemingly to allow either party to reconsider their position at a later date. In other cases, tenants have continued to pay rent on a without prejudice basis pending determination of what is fair. So far Government proposals have not provided compensatory support for commercial landlords and tenants, but have changed certain legal provisions which allow greater time for negotiations before landlords exercise their rights to cancel a lease for failure to pay rent. As of 27 April, landlords are required to give 30 working days’ notice before effecting cancellation of a lease for non-payment of rent. These changes have retrospective effect and apply to any notices issued from 25 March. These changes provide temporary relief to tenants and allow more time for negotiations and, failing that, some sort of formal dispute resolution process to ascertain fair rent during the time of the Alert Level 4 and Level 3. We are yet to see what further guidelines/changes the Government will implement. The Government has indicated, for instance, that it is looking to step in and force landlords to reduce the rent for these types of situations. Compromise There are three key considerations which apply equally to all tenants and landlords when looking to compromise or reach a resolution regarding rent: 1. The payment of rent is one of the fundamental obligations under a lease. The starting point is that tenants are required to pay rent in accordance with the agreement reached with the landlord and the terms of the lease. 2. Prevention of use and access does not automatically mean a reduction in rent. What is fair and reasonable will depend on the circumstances. 3. Altering rent (both reducing or increasing it) can only occur two ways: By negotiation and agreement between the parties, or in accordance with the agreed terms of the lease (i.e. CPI rent increases). Independent determination by an arbitrator. Regardless of whether the lease contains an abatement provision (such as the ADLS 6th edition), parties are looking to share the pain and negotiate in good faith. However, we are increasingly seeing that landlords and tenants are unable to reach an agreement. Rent Relief Disputes Where the parties cannot agree what is a fair abatement, rent will need to be determined. Almost all leases contain provisions which allow for the parties to refer disputes to arbitration. However, arbitration in its usual form can be costly and time consuming. Tenants and landlords should explore settlement options which focus on: 1. Quick resolution; 2. Minimal cost/resource; and 3. Preserving the relationship between landlord and tenant. Ultimately, landlords and tenants need to find ways to resolve their disputes which are proportionate to the sums involved. Such processes need to be undertaken with the recognition that the circumstances giving rise to a need for rent abatements are (hopefully) temporary. Holland Beckett Law has developed a speedy and cost effective procedure to provide tenants and landlords alike with the certainty required to resolve the dispute and maintain the long term landlord/tenant relationship. This procedure involves a dedicated panel of independent arbitrators, and aims to achieve a swift and fair resolution of commercial rent disputes. If you would like more information on our Rent Relief Dispute Procedure, please contact us. Written by James McDougallContribution from Rebecca Steens

Since the Christchurch earthquakes the Auckland District Law Society form of lease (ADLS Lease) has contained “No Access in Emergency” clauses (Emergency Clauses). Obviously, with New Zealand now in a lockdown situation, the Emergency Clauses have come under scrutiny. The issues to consider are: Does it apply while NZ is at COVID-19 Alert Levels 4 and 3? What happens to the rent and outgoings? Will this be covered by the indemnity insurance cover for loss of rents and outgoings? The Emergency Clauses The Emergency Clauses apply where the premises become partially or completely unusable for the purpose of the tenant’s business. Where this occurs, the clauses provide two responses: A rent abatement when the premises are unavailable for a short period of time; or A right of cancellation by either party when the premises will be unavailable for the period set out in the First Schedule to the ADLS Lease (No Access Period). The ADLS Lease provides a default period of 9 months and I would think most leases are set to this level. Rent Abatement Clause Clause 27.5 (the Rent Abatement Clause) deals with the first situation and is particularly relevant right now. I will only cover the impact of this clause. The Rent Abatement Clause is triggered when there is an “emergency” and the tenant is “unable to gain access to the premises to fully conduct the Tenant’s business”. That inability must be linked to “reasons of safety… or the need to prevent reduce or overcome any…harm or loss”. The clause provides several examples of measures to reduce harm or loss, including “restrictions on occupation of the premises by any competent authority”. If the Rent Abatement Clause is activated, then “a fair proportion of the rent and outgoings shall cease to be payable” for the period during which the tenant is unable to “gain access to the premises to fully conduct the Tenant’s business”. An “emergency” is defined in the lease as being a situation that “is a result of any event, whether natural or otherwise, including…plague, epidemic” that “causes or may cause loss of life. illness or in any way seriously endangers the safety of the public”. Government Response to Covid-19 The Government has three sets of powers for responding to health crises like the Covid-19 Pandemic. Under the Health Act 1956, the Medical Officer of Health (MOH) for each region can impose a wide range of prohibitions, including prohibiting the use of buildings, placing people in isolation or quarantine, prohibiting travel either into or inside New Zealand or requiring building owners and occupiers to take certain steps to render them safe. These powers can be exercised either under a state of emergency or an epidemic notice, or if the Health Minister authorises the powers to be used. Failure to comply with these directions is a criminal offence and carries a maximum penalty of six months’ imprisonment or a $4,000 fine. Under the Epidemic Preparedness Act 2006, when there has been a qualifying outbreak of disease, the Prime Minister may issue an Epidemic Notice. An Epidemic Notice lasts for up to three months and grants the Governor-General (acting on the advice of Cabinet) wide ranging powers to alter and suspend legislation, where this is reasonably necessary to allow the legislation to continue operating under the circumstances of the epidemic. It also brings into effect a number of planned variations already written into specific legislation. An Epidemic Preparedness (COVID-19) Notice has been issued and came into force on 25 March - https://gazette.govt.nz/notice/id/2020-go1368. This has been issued to cover the full three months. A state of emergency has now also been declared which supplements the existing powers, particularly by allowing rationing and requisitioning where needed. Covid-19 Alert System Using the powers granted under the Health Act, Cabinet has created a four-stage response system to deal with the current outbreak of Covid-19. NZ is currently at Alert Level 4.  It is anticipated we will move to Alert Level 3 from Tuesday 28 April. At Alert Level 4, almost all businesses are required to cease using their premises. Essential services are permitted to remain open, but others will not be able to continue working out of their offices and stores. Do the Emergency Clauses Apply? COVID-19 has triggered the Emergency Clauses. The following elements are all met: COVID-19 carries a risk of serious illness and endangers public health. As a result of NZ moving to Alert Level 4 and the issue of an Epidemic Notice, tenants in non-essential businesses are clearly unable to gain access to their premises to fully conduct their businesses. The inability to gain access is linked to the need to prevent, reduce or overcome harm or loss. COVID-19 has put us in an “emergency” situation, as it is an epidemic that has caused illness and, sadly, will cause further loss of life in NZ. The restrictions on occupation have been imposed by the Government. Accordingly, a tenant that operates a non-essential business may seek a rent reduction under the Rent Abatement Clause. At Alert Level 3 most, but not all, businesses will be able to open. They will need to take health measures to keep their workers safe. This will include appropriate physical distancing and working from home (if working from home is possible). Retail and hospitality businesses will only be able open for delivery and contactless pre-ordered pick up. Customers will not be able to enter stores. Businesses will not be able offer services which involve face-to-face contact or sustained close contact. Unfortunately, getting a haircut is still out of the question. In home services can be delivered if it is safe to do so (like tradespeople for repairs or installations). Do the Emergency Clauses Apply at Alert Level 3? COVID-19 has triggered the Emergency Clauses in many leases. The following elements may be met, dependent on the tenant’s business use: COVID-19 carries a risk of serious illness and endangers public health. As a result of NZ moving to Alert Level 3 and the issue of an Epidemic Notice, many tenants in non-essential businesses will be able to gain access to their premises, but not to fully conduct their businesses from the premises. The limitations on access are linked to the need to prevent, reduce or overcome harm or loss. COVID-19 has put us in an “emergency” situation, as it is an epidemic that has caused illness and may cause further loss of life in NZ. The restrictions on occupation have been imposed by the Government. Accordingly, a tenant that operates a non-essential business and that is impacted by the limitations on access may seek a rent reduction under the Rent Abatement Clause. This will particularly impact on office environments and hospitality businesses, to differing degrees. This will not apply to businesses that are able to fully operate from the premises again (essentially because they cannot otherwise work from home). This will be the case for many industrial operators I suspect. Importantly, under the current Alert Level 4 restrictions, the Government has formally taken the step of closing all non-essential premises. It is likely under Alert Level 3 that the Government will use its powers to order isolation of individuals rather than to close premises. It is arguable that this will not constitute a “loss of access” under the lease. On balance, I don’t think that this argument will prove to be the stronger - but it might provide some leverage for landlords in their discussions as to an appropriate abatement. Rent Abatement in Practice Once the Emergency Clauses are triggered, the question of their effect becomes important. The Rent Abatement Clause provides for a “fair proportion” of the rent and outgoings to cease until the tenant can operate from the premises. It does not specify how a fair proportion is to be calculated. To assess a fair proportion, you should consider the purpose of the clause. It is related to the occupancy of the premises for business purposes. The rent should be reduced with reference to the extent that the tenant is unable to conduct its business from the premises.  This is where the main difference between Alert Levels 3 and 4 will come in to focus. Having said that, surely it must be a fair proportion to both parties, not just to the tenant. It seems to me that the legal position is unlikely (although I guess possible) to ever be that the abatement should be 100%*.  This will almost certainly be the case once NZ moves to Alert Level 3. *It is arguable, for instance, that if a retail tenant is completely unable to conduct business from the premises, then the abatement should be 100%.  I personally do not consider that this would be the correct position to take. A DISCLAIMER: THE FOLLOWING PARAGRAPH IS MY PERSONAL OPINION ON THE “FAIR PROPORTION” ISSUE AND IS NOT LEGAL ADVICE AS SUCH. THIS MAY HELP YOU TO FORMULATE YOUR OWN COMMERCIAL APPROACH TO THIS UNPRECEDENTED MATTER. This will naturally require consideration of the different purposes for which a building is used. If I were to apply a range of 1 (no ability to conduct business from the premises) to 5 (complete ability to conduct business from the premises), I might make the following assessments: Alert Level 4 Level Business/Building Function  Proportion of rent and outgoings to cease 1 Retail/Hospitality 25-70% 2 Offices (tenant still able to operate remotely) 25-60% 3 Industrial/logistics (manufacturing/logistics and storage components) 15-50% 4 Warehousing 10-25% 5 Essential Business Alert Level 3 Level Business/Building Function  Proportion of rent and outgoings to cease 1 Retail/Hospitality - Contactless pre-order and pick up not feasible 25-70% 2 Retail – Contactless pre-order and pick up feasible 20-50% 2 Offices - Workers are still able to operate remotely but some will need to work at the office 10-25% 3 Industrial/logistics (manufacturing/logistics and storage components) 0-10% 4 Warehousing 0-10% 5 Essential Business In most cases of course, a fair proportion will be what the tenant and the landlord are able to agree between themselves. The key is to have this discussion early, agree terms and move on. As a last resort, the parties could leave the matter to an arbitrator to decide. There is substantial risk to both parties in leaving the matter to a third party to determine, and there is no guarantee that an arbitrator will take a commercially pragmatic approach. Other Leases This article has only dealt with the ADLS Lease (2012 editions). If the lease is an older ADLS form, bespoke or the Property Council Lease (where the abatement only applies in situations where the premises are inaccessible and the Landlord is otherwise covered under the loss of rents insurance policy) then my view is that the tenant is still contractually obligated to pay the rent. Such leases could be impacted by the law of frustration (where the situation is such as to fundamentally undermine the lease contract) and other common law arguments. Insurance As far as I am aware, all loss of rents insurance policies contain wording to the effect that they do not cover loss in connection with a Notifiable Infectious Disease under the Health Act 1956 or a notifiable disease under the Biosecurity Act 1993. COVID-19 falls within the exclusion so unfortunately there will be no relief forthcoming from insurers. “Assistance” for Tenants and Landlords The Government’s response to the call for relief for tenants and landlords has been particularly weak: Tenants (who, for instance, have not been able to trade and cannot meet their lease obligations) will have at least 30 working days (rather than 10 working days) notice before the landlord cancels the lease for non-payment of rent; and Landlords (who, for instance, are not receiving rent and cannot meet their mortgage obligations) will have at least 40 working days (rather than 20 working days) notice before the Bank forecloses on their property. In my experience, this will only delay the inevitable. I say this because: Notices are normally only issued when there is little hope of the default being rectified. Credit is going to be even further constrained in the short to medium term. Conclusion Ultimately, and notwithstanding the contractual rights and obligations of the parties, my view is that it is in the landlord’s interest to share at least some of the tenant’s pain. The goal should be to allow the tenant to remain solvent and to be in a position where it can continue business as soon as it can do so. If both parties take a pragmatic commercial position to determining an appropriate level of abatement, this should be achieved. Written by Simon Collett Contribution from Tim Conder

Some Initial ReflectionsOn 3 April 2020, Minister of Finance Grant Robertson announced a slate of proposed changes to the Companies Act 1993 (the Act) to protect companies affected by the Covid-19 related Lockdown (the Lockdown). These proposals, which will be the subject of new legislation to be passed once Parliament resumes sitting, are aimed at loosening procedural restrictions and providing companies who were previously successful better opportunities to trade out. The two most significant proposed changes in the new package are the introduction two new provisions to deal with companies that experience liquidity difficulties in the months immediately following the lockdown.  The first is a so-called “safe harbour” provision that will protect directors from claims of reckless trading if they attempt to trade out of liquidity issues following the Lockdown.  The second is a new “business debt hibernation” scheme proposed as an alternative for liquidation, to permit companies to continue trading through this period with the support of their creditors. Importantly, both new provisions only address solvency in terms of liquidity. They provide protection for companies that have cashflow difficulties and are unable to pay their debts when they fall due for a short period. For companies that accumulate new debt during the Lockdown and enter balance sheet insolvency, there are no additional protections. Also significantly, while both provisions encourage directors to trade out of difficulty, they require the cooperation of a company’s creditors to operate. Neither provision provides protection for creditors, making it likely that creditors will take a sceptical approach to companies trying to rely on the Governments inducement to trade out. Directors Duties GenerallyThe Act places four main duties on directors of companies: to act in good faith and in the best interests of the company (s 131); to act for a proper purpose (s 133); not to trade recklessly (s 135); and not to assume obligations unreasonably (s136).The key duties in terms of the recent proposal are the duties relating to reckless trading, which are focused on an objective standard of what a reasonable director would do. While courts are generally prepared to defer to the commercial judgment of a director in assessing these duties, the director must have acted reasonably and exercised proper judgment. Relying on expert advice can assist in proving that a decision was a reasonable one in some cases.The most common situation where claims for breaching these duties arise is where a company has traded while insolvent.  Where this happens, courts have regularly required directors to reimburse the company for losses that occurs after the date the Court considers that the company ought to have been liquidated. In some cases, the court may also impose damages for loss where the director failed to take a course of action that could have saved or prevented the loss that didn’t occur.Particularly where the company is either insolvent or nearly insolvent (whether in a balance sheet or cashflow sense) the director must apply sober judgment in deciding whether it can continue to trade. Both duties apply this same standard, with the difference being that one focuses on the overall course of trading (s135) and the other is aimed at individual (usually large) transactions the director agrees to assume (s136).Because of this, directors who consider trading out of trouble often expose themselves to significant risk. They are required to exercise caution in deciding whether to continue trading, and risk being required to personally pay for any loss suffered if the court subsequently determines they were wrong to do so. As such, this regime is a barrier to many companies considering to attempt such a course The Safe Harbour ProvisionThe Safe Harbour provision is intended to reduce the disincentive for directors deciding to trade out. It operates to protect directors from claims under ss135 and 136 on the basis that the company was unable to pay its debts when they fell due (a liquidity crisis) where three key criteria are met: the director must believe in good faith that the company will face a liquidity crisis in the next six months due to Covid-19; the company must have been able to pay its debts when they fell due on 31 December 2019; and the director must believe in good faith that it will be able to trade out and pay its debts as they fall due within 18 months (whether by compromising with creditors or improving its trading performance). While the current material available does not specify how the safe harbour will apply, it is likely it will be treated as a defence to claims under as 135 and 136 or an exception to those sections.In practice, what this proposed amendment does is introduces a subjective standard into s 135 and 136 of the Act.  If the language used by the Ministry of Finance in its release is to be believed, the applicable standard will now be whether a director believes in good faith that it will be able to trade out – as opposed to the present standard of whether it is reasonable.It is unclear how the courts will approach this change.  In our view, there are two main possibilities.  First, the courts may adopt the good faith approach that currently applies under s131 and 133.  Alternatively, the courts may seek to soften the language of good faith by adding a requirement that the director believes “on reasonable grounds” that the company could trade out – resulting in a test almost identical to that which applies at present.If they take the former approach, then this will have the effect of removing the objective standard of reasonableness for the time being.  This is a severe reversal from the present requirement that directors faced with a liquidity crisis apply “sober judgment” in assessing whether to continue trading, or whether the life of the company is at an end.  While it would make it easier for companies to keep trading, it would do so by placing creditors at greater risk.  This kind of change could make creditors more hesitant to let companies keep trading (since they know they will not recover any losses they suffer from the directors) and may have the unintended effect of making creditors more likely to push for liquidation. On the other hand, if the Court applies an objective standard then little will change.  As it stands, directors are able to attempt to trade out when companies are insolvent, provided they act reasonably.  This strikes a balance between the interests of creditors, who are entitled to protection from unwillingly funding companies to take risks with their funds and the need for directors to be able to take commercial risks.  It is likely that this kind of approach will continue.In our view, the most likely outcome of this reform is that courts will continue to apply an objective standard to reckless trading that closely resembles the standard in use currently.  The Act has now been in place for more than 25 years, and over that time, the courts have developed an extensive jurisprudence around the concepts of reasonableness and legitimate and illegitimate business risks.  While courts will almost certainly accept that directors of otherwise solvent companies are likely to have a reasonable basis for trading out, it will always depend on the circumstances.  Unfortunately, those who most need assistance to survive – those in industries that are affected more than usual by the Covid-19 response and those who were already near the line in terms of solvency – will receive less leeway when the inevitable occurs. Business Debt HibernationThe Safe Harbour provision is only effective if the company is able to continue trading. As such, the Government has recognised the need for a way to prevent creditors from using a liquidity crisis to simply force a company into liquidation. This is where the second major reform - Business Debt Hibernation (BDH) - comes in to play.BDH allows companies that are experiencing a liquidity crisis to seek approval from their creditors to “park” debts for a period of six months while they attempt to trade out of difficulty.  Where this occurs, no creditors will be able to enforce their debts during this time and new debts would not be subject to the voidable transaction regime – meaning suppliers would not be tempted to cease supply in order to avoid being forced to repay money if the company ultimately failed.  BSH will not be available to all companies.  The criteria for applying have not yet been released.  As with the Safe Harbour provision, these criteria will likely depend on whether the company appears well placed to trade out of trouble.  If the company qualifies, it may make a BDH proposal to its creditors, and if half of them (both in terms of individual creditors and total debt owed) agree, then the BDH protections would apply for a period of six months.  Companies would be able to buy themselves the protection of the scheme (referred to in the release as a “moratorium”) for one month simply by making the initial proposal.In the absence of clear criteria for when BDH will be available, it is difficult to analyse its likely impact or scope.  However, some initial points of concern can be identified.  First, the provision depends on the consent of creditors to implement.  These creditors, who will also be suffering the effects of the Covid-19 response, will likely be hesitant to agree to stand at the back of the queue for six months to allow a company to attempt to continue trading.  As such, many creditors will simply reject the possibility of BDH in any but the clearest cases.It is worth noting that even without BDH, liquidation by creditors is far from immediate.  The usual process can take several months, without the introduction of the BDH scheme.  Those creditors who agree to a BDH moratorium may ultimately face a delay in enforcement of nine months or more.  The impact of such a long delay on creditor’s recovery could be severe.The prohibition on enforcement must also be viewed in context.  Not every process that creditors use to require repayment are court-directed.  It is just as effective for many creditors to refuse supply until debts are paid.  Given that continued trading will be essential to a business succeeding at trading out, those creditors who are able to turn off the tap of supply will still be able to see their debts paid, while others will not be able to expect payment until the moratorium period ends.  This is very likely to lead to unequal treatment of creditors in practice. Balance Sheet IssuesA further challenge common to bon proposals is that they only address a liquidity crisis and provide no protection for those companies who, following the Lockdown, find themselves in a position of balance-sheet insolvency.  This is problematic, because the impact of the Lockdown will unquestionably impact on the balance sheets of many companies.  Most companies are faced with continued outgoings in the face of reduced or stopped revenues.  A balance sheet decline is almost inevitable, and this will be compounded in the case of those companies that need to rely on the Business Finance Guarantee programme to survive.Addressing balance sheet issues is more challenging than dealing with a liquidity crisis, but it is by no means impossible.  Through a return to productivity and careful financial management over the next 12 to 24 months, even companies that are insolvent in a balance sheet sense may return to financial health.  In our view, more targeted relief may be required to address this part of the equation, which is currently missing.The failure to address balance sheet insolvency will not be immediately obvious, but it may prove fatal to the effectiveness of the new provisions in the long run.  While it is liquidity that normally triggers involuntary insolvency, the protection provided by the Safe Harbour provision, in particular, will not apply to a company that is experiencing both balance sheet and cash flow insolvency.  As the impact of the Lockdown on the value of assets, especially intangible assets, will be difficult to assess for some time, companies may also not be able to determine yet whether they have crossed into balance sheet insolvency with the risks that entails.  This is important, as courts will often accept that a company was insolvent even at a point in time when the directors were unaware of it – introducing risks for those who continue to trade, even on the boundaries of insolvency.ConclusionsThe provisions that the Government has promised to introduce are intended to help mitigate the worst impact of the Lockdown on businesses, by providing them with an opportunity to trade out.  However, it is simply impossible to mothball an entire economy for a month (or longer if the Lockdown is extended or other alert restrictions applied) and moving the goalposts on a well-established set of protections for creditors will not be able to undo the impact that the Lockdown will have on many businesses.While the Government has correctly identified one of the major challenges that businesses will face, in terms of diminished cashflow, the proposed cure leaves many gaps and uncertainty.  Without greater work being done, it is our view that the impact of these new provisions is likely to be relatively limited.  The reality is that for most businesses that survive this period, it will be the ability of their directors to manage cashflow, to communicate effectively with creditors and to work creatively, that will ensure they are able to continue trading.  Care and proper advice during this period will be key.For directors, the most important question for the next six months will be whether they can continue trading.  The decision whether or not to trade out is always a difficult one and requires a careful and sober judgment.  In our experience, it is a decision that directors ought not to make alone.  Accountants, lawyers and insolvency professionals are invaluable to directors faced with determining whether a company can continue trading.  In our view, and despite the Government’s attempt to lower the bar to trading out, now is the time when companies will most need the assistance of their professional advisors in deciding whether to attempt it.For creditors, it will be important that they keep an eye on their debtors.  Where a company is able to trade out successfully, this will be in the best interests of creditors as well.  But there are risks in enabling a company to continue trading, and it can result in creditors returns being diminished.  As much as it is important for directors to communicate with their creditors, creditors can protect themselves to a greater degree if they are actively engaging with companies that owe them money from an early stage.  While some businesses will be wary at first of open conversations with their creditors, the only way that these new provisions (especially BDH) can work is if creditors have a seat at the table when considering what the future of a company may look like.Fundamentally, our advice to all clients considering these issues is to keep an open door – both to business partners and to expert advisers.  Holland Beckett Law has experience advising in all of these areas, and works collaboratively with a number of insolvency practitioners, with whom it can provide tailored advice for companies and directors considering what their post-Lockdown future will be.A longer version of this article has been provided to clients.  If you would like to receive a copy of this version, please contact Tim at tim.conder@hobec.co.nz

The commercial and economic disruption caused by COVID-19 is now being felt by all New Zealanders. The impact is likely to increase, both in New Zealand and around the world. With the New Zealand Government’s announcement of Alert Level 4, there are many challenges and unknowns ahead as we move into this unprecedented time. In this article we consider how COVID-19 might affect performance of contractual obligations or trigger specific contractual rights. Some businesses or individuals may find they are unable to meet their contractual obligations due to shortages of labour or materials, movement restrictions, or general business downturn. The reality for many is that, as a result of COVID-19, contractual obligations will be impossible to perform or will be fundamentally different from what was contemplated by the contracting parties. What if a party cannot meet its contractual obligations?Parties may be able to rely on: a ‘force majeure’ clause in the contract itself; and/or the legal doctrine of ‘frustration’. Force MajeureA force majeure clause operates to excuse a party from its contractual obligations if that party is unable to perform those obligations due to some specified event. The effect of a force majeure clause will depend on its wording, but it will generally not be enough to say that the event made it difficult, or more costly, or more time consuming for a party to carry out their obligations. The clause may allow for the contract to be cancelled or for performance to be suspended. It will be important that parties carefully consider the wording of the force majeure clause to determine whether it is triggered. Often the clause will list specific events which are covered, such as war or natural disasters. It is less common that the word ‘pandemic’ might be used. However, COVID-19 could be interpreted to fall within the scope of ‘disease’ or ‘government restrictions’, given the announcement of Alert Level 4 which triggers powers under emergency legislation to restrict the movement of people and the operation of businesses. Whether the party could have done something in order to mitigate the effects of the event will also be relevant. The duty upon a party to mitigate will vary according to the circumstances. Where a party wrongly relies on a force majeure clause, that party may be treated as having repudiated the contract and may be liable for damages or face the risk that the contract is cancelled. Force majeure clauses will need to be carefully considered so as to determine if the impacts of COVID-19 fall within the relevant clause.  FrustrationThe doctrine of ‘frustration’ can apply where, by no fault of either party, performance of the contract is impossible, illegal or radically different from what was contemplated by the parties when entering the contract. Frustration of contract may include circumstances where: the purpose of the contract no longer exists; performance of the contract is illegal due to a law change or government directive; a party dies or becomes incapacitated; or external events delay or obstruct performance of the contract. The inability of a party to complete its contractual obligations by a certain time may give rise to frustration, provided that time for completion is fundamental to the contract. If a contract is frustrated, the contract is at an end and the parties do not need to continue with their future obligations under it. The Contracts and Commercial Law Act 2017 allows parties in certain circumstances to recover money paid up to the date of frustration, or claim compensation for work completed under the contract up to the date it was frustrated. Parties should remain careful in asserting that a contract is frustrated. If a party incorrectly relies on frustration as a basis for non-performance they may be deemed to have wrongfully repudiated the contract and be liable for damages.  RecommendationsCOVID-19 has, and will continue to affect performance of contracts due to illness of staff, restrictions on the movement of people, government actions and the imposition of measures designed to protect those affected. We recommend that individuals and businesses locate and assess their existing contracts to better understand where they stand and what risks they are exposed to by way of non-performance or default. Contracting parties should be willing to communicate and negotiate to reach a practical resolution. Parties are better to communicate and tackle these issues now and avoid the potential for litigation. Parties currently negotiating contracts should consider whether COVID-19 may have an impact on either party’s ability to perform their obligations. Parties should consider whether to include a force majeure clause which makes specific reference to COVID-19. The parties will be unable to rely on frustration for COVID-19 related events because it is a known concern in current negotiations.

One of the major risks of being a director is the liability you face if the company fails. Thanks to a new decision from the High Court, this risk has just become a lot higher. When a company fails, directors often face a risk that they will be sued for having breached their director duties. Traditionally this has meant a claim by liquidators saying that the directors should have liquidated the company more quickly when problems arose. While directors are entitled to make a reasonable attempt to trade out of difficulty, Courts have repeatedly required directors in difficult circumstances to exercise “sober judgement” in deciding whether a company has any prospect of returning to solvency. Fundamentally, this approach has meant that directors must compare the impact of immediate liquidation with what will happen if they delay. Where directors are confident that they can improve a company’s financial outlook, they have been justified in continuing to trade even if the company does not ultimately return to the black. The decision of the High Court in Mainzeal Property and Construction Limited (In Liq) v Yan challenges this approach and creates a new risk for directors that they will be exposed to claims that they could have traded their company better even if liquidation was not a realistic option. Under the Companies Act 1993, directors owe a range of duties to the companies that they lead. These include duties to act in good faith and in the best interests of the company, and duties not to trade recklessly or to take on any obligations that the company cannot reasonably expect to meet. Underlying each of these different duties is a fundamental expectation that directors will act reasonably in carrying out their role. In practice, what this means is that Courts considering challenges against directors have not applied a strict level of scrutiny to their actions but instead have asked whether their actions can be justified in commercial terms. Directors are not expected to make the right decision every time but only to make decisions that are reasonable when measured against the circumstances in which they find themselves. This is of real importance to directors in carrying out their role. Directors need to be able to understand and assess what their duties mean and to ensure that they stay within them. The vast majority of directors who face legal claims have attempted to act appropriately and the law should assist directors in being able to carry out this task well. For this reason, an objective standard for measuring directors’ compliance with their duties is an important part of the law of companies in New Zealand. At least since 1993 when the present Companies Act was implemented, this objective standard has been provided by a direct comparison to a hypothetical earlier liquidation. By considering whether a director should have liquidated his or her company sooner, the Courts have given directors a standard against which to measure their own conduct. Directors have been entitled to ask: can I reasonably make the situation better for myself by continuing onwards? The decision in Mainzeal has thrown this objective standard into doubt. In that decision Justice Cooke of the High Court held that Mainzeal would have been worse off if its directors had liquidated the company sooner. From the period of time where financial trouble became obvious, to the actual date of liquidation, the directors significantly improved the company’s financial circumstances, probably saving the company’s creditors millions of dollars in the process. Nevertheless the Court was not satisfied that this meant that the directors had acted appropriately and instead asked the question whether there was a different course of action the directors could have taken to better protect the company. Justice Cooke considered that if the directors of Mainzeal had threatened to resign their roles then its Chinese parent company would have been much more likely to provide additional funding. His Honour considered that this could have averted the ultimate liquidity crisis that toppled the company. Accordingly he found that the directors had traded recklessly and were, at least partly, responsible for the company’s ultimate failure. It was for this reason that the Judge ordered the directors to pay a combined total of $36m of damages to the company’s liquidators. The Mainzeal decision introduces new risks for directors. This is not limited only to major companies with foreign parents, but to directors to all sorts of companies. The Court’s decision indicates that Judges may now look at how the directors have traded their company and assess whether there were better alternatives available. If the Court, in a hindsight exercise, considers that a better road existed, then the directors may be required to pay the difference between what the Court considers could have been achieved and what was ultimately the creditors’ loss in the liquidation. It has long been the case that directors of companies in difficult circumstances are required to take a sober judgement about whether to continue trading. This duty has now intensified. It is no longer enough for directors to consider whether liquidating a company is the best way out of trouble and reasonable directors may need to show that they have taken legal and accounting advice about their alternatives before making any decisions about how they try to trade out of trouble. This places directors in a more difficult position and may mean that some directors choose not to take on roles in more risky industries or that they expect a greater level of compensation for the roles that they do take on. Fundamentally, it will mean that in order to protect themselves, directors need to engage more with expert advisors and to take advantage of the protections that directors enjoy when they are acting on the basis of expert advice. The decision in Mainzeal is now going to the Court of Appeal and no doubt, that Court will have a lot to say about the new approach which the High Court has created. In the meantime, however, directors are now on notice that the standard they will be held to may be higher than what they had expected. Holland Beckett has a wide team of commercial and company law experts who are well equipped to advise companies in a range of industries who are encountering financial difficulties. Our team is able to give clear and pragmatic advice to directors about their own risks and about the pathways that are open to them to avoid personal liability in the event of a company failure. This Article is based off an article that was published in the New Zealand Law Journal in June 2019

Holland Beckett Law is proud to present the seminar \"Getting Ready for the Season\" in conjunction with professional rider, Lucy Olphert. We have a great line up organised for you, with: Sally Isaac Dressage rider and previous winner of the CDN Freestyle at the Horse of the Year show, Sally will discuss some of the core principles around fitness preparation, bringing your horse back into work and injury prevention. With the season fast approaching, this is a timely and valuable discussion for all levels of riders. Rachel Rosser Rachel is a senior lawyer for the Litigation team at Holland Beckett Law. Specialising in equine law, she will discuss valuable insights on equine insurance, buying and selling horses, health and safety and how you can best protect yourselves from these potentially difficult and costly situations - a valuable insight for all horse owners! Lucy Olphert Lucy is a World Cup showjumper based in Tauranga. A 7x New Zealand representative, she has successfully created her own Equestrian business. Her winning strategies on goal setting, developing strong mental skills and sponsorship/brand development speak for themselves. Come along and learn how you too can develop these strategies and become your strongest version. Lucy will also discuss the upcoming international competitions opportunities that she is coordinating for children, junior and amateur riders. Registration Entry is free, and with drinks and nibbles provided.  Spaces are limited. Where:    Holland Beckett Law, Level 3, 525 Cameron Road, Tauranga. When:     7pm Friday 14 September 2018 RSVP:      dani.weston@hobec.co.nz We look forward to seeing you there!

New Year, New Legislation The holiday period often provides business owners and managers the opportunity to reflect on their successes and upcoming challenges in the year ahead. The beginning of the year is also a great time to make sure that your business has the tools and foundation to continue to thrive. There were some important legislative changes last year and some new ones coming in 2018 that businesses need to be aware of to ensure success. Legislative Changes Towards the end of 2017 the Contract and Commercial Law Act 2017 came into force. The Act consolidates a number of commercial and business related statutes such as the Sale of Goods Act, Contracts (Privity) Act and Carriage of Goods Act. It applies to all commercial contracts entered into since 1 September 2017. The Act makes “minor amendments to clarify Parliament’s intent and reconcile inconsistencies” but does not make substantive changes to existing law. Its real purpose is to make it easier for business owners to interpret and understand commercial legislation, keeping it in one easy to find place, and reflects current modern language. On 1 January 2018 the Interest on Money Claims Act also came into force. It applies to any court or tribunal claim seeking monetary compensation. If businesses are conducting debt recovery proceedings themselves, or defending such claims, they need to ensure interest is claimed in accordance with the Act. Phase two of the Anti-money laundering legislation will also come into effect later this year. This will affect accountants, real-estate agents, conveyancers and lawyers, and eventually some businesses dealing with expensive goods as well as customers of these businesses. The regulations impose significant compliance and reporting obligations. Affected businesses need to ensure that they are aware of their obligations and have procedures in place to comply with the changes. The government has also signalled a raft of upcoming changes to employment law, which will likely be hastily introduced and impose additional obligations on businesses. Watch this space. What do businesses need to do? Businesses’ standard contracts, terms of trade and conditions of business are all likely to refer to legislation that no longer exists and is now covered by the Contract and Commercial Law Act. Unless reviewed annually, these documents are likely to be out of date. The introduction of these new acts is a good opportunity for businesses to take stock, review their suite of agreements and terms to ensure that they are fit for purpose, comply with current legislation and provide the appropriate protection. You should also consider whether it is necessary to update any internal policies and procedures to ensure that employees are following best practice and your business is complying with its obligations. Article written by James McDougall for Business Rotorua Now Magazine

Alarm Bells are Ringing for Sleeping Directors It has long been commonplace in New Zealand for owners of small businesses to have their husbands, wives or de facto partners registered as directors. Often this appointment is a mere gesture, with the spouse/partner director having little to no involvement in the business. However, these so-called “sleeping directors” can be at risk if the company encounters financial difficulties. Am I a “sleeping director”? The primary duties of a director are to (a) know what is happening with the company; and (b) to act in its best interests. This degree of knowledge required depends on the company and how it operates, but ultimately it is the director’s duty to satisfy themselves that the business is trading well. Even directors who are actively involved in one part of the business may not know the overall financial situation and can face the same risks as “sleeping directors” when the company later turns out to be doing less well than they believed. Why should I be concerned (for myself or for my spouse/partner)? Directors have a responsibility to the company (and to its shareholders and creditors) to ensure that the company remains solvent. If they trade recklessly or let the company take on obligations that it cannot pay, they can be personally liable. In the case of a liquidation, any money which has been paid to the directors may also need to be repaid. This can even happen when one of the directors is deliberately concealing information from the other directors. For example, in the FXHT Fund Managers Ltd liquidation, a sleeping director whose only real role in the business was that of an investor was held liable for money that his business partner had fraudulently taken from the Company. It is no excuse for a director to say that they relied on their other director(s) or that they did not play an active role in the business. If a person accepts appointment as a director then they need to keep an active eye on the business. At a minimum this means being familiar with the company’s accounts, its overall financial situation, and any obvious risks facing the business for the next financial year. This a major risk for those who are merely directors because the company is a “family” business and have no real day-to-day involvement. Health and Safety obligations Directors also have duties under the Health and Safety Act 2015. They are obliged to know what health and safety risks are involved with their business and what steps are taken to prevent those risks from causing harm. A sleeping director may be subject to conviction and penalties if they fail to ensure the health and safety of all those involved with their company. Conclusion The above is just a brief summary of some of the risks that sleeping directors, but if it applies to your company, then you should ensure that all directors are actively involved or consider reassessing who is a director in order to avoid a sleeping director nightmare. This article was written by Blair Shepherd for Rotorua Now Magazine

Many small companies – especially family-owned or “owner/operator” businesses – have the same directors and shareholders. In these companies, it is common practice for shareholders to have a “shareholder current account”, also referred to as “drawings”. The current account is a debt that can be claimed by the Company against the shareholders. While most shareholders do not view their drawings this way, when a liquidator takes over a company, shareholders may suddenly find themselves being pursued for an overdrawn current account. Calculating the Value? In practice, the value of the shareholder current account is the net balance of transactions between the Company and the shareholder. When a shareholder injects funds into the Company, this results in a credit in the shareholder’s favour. If the injection is greater than any previous drawings, the Company will owe money to the shareholder, meaning the current account is a liability of the Company. On the other hand, if the shareholder withdraws more money from the Company than he or she puts in, then there will be a debt in favour of the Company. This would be an asset of the Company (so long as the shareholder was able to repay it if required). It is not unusual for a company to convert all of a shareholder’s drawings into a salary at the end of the financial year. If done correctly, this can “wipe” any outstanding debt. However, directors need to be careful that doing so does not make the Company insolvent. In order to be valid, directors also need to comply with a number of bookkeeping requirements in the Companies Act. Where is the Current Account? If you operate a small company, the first suggestion is to check that your company’s current account features in your company’s annual accounts. When it does appear, it is normally listed as a non-current asset (or liability – depending on the balance). However, the current account may simply be included in the shareholders’ equity – meaning it is not always clear what the balance is at a particular point in time. This can cause problems on two levels. First, because the current account is an asset (or liability, depending on whether you have injected cash) of the Company, directors must consider it when making judgments about the Company’s solvency and its overall value as a business. Second, it means that a shareholder who does not have a clear understanding of the current account may find themselves being pursued for a surprisingly large debt if the Company is liquidated. The importance of good bookkeeping Current accounts are a useful way of keeping track of how shareholders are drawing money from a company and ensuring that any money is accounted for, but they can also create problems for shareholders if a company becomes insolvent. In order to protect themselves, directors need to make sure that they keep accurate records and that they are proactive in declaring salaries. Otherwise, the current account can become a major risk for the shareholders. This article was written by Blair Shepherd for Rotorua Now Magazine.

INTRODUCTION Leases are important — they are long-term, binding commitments. They may well be the largest investment that a tenant will make in its business. A well drafted lease can make the difference between a business succeeding or failing. For a landlord, a lease represents and protects a major asset and income stream. Although to a large extent leasing has now been standardised, each landlord and tenant is different and very few commercial leasing situations will neatly fit the standard forms currently available on the market. There is also a tendency to sign up to a standard form, without necessarily realising the effect of certain provisions in that form. While the standard form leases available provide an excellent base, it is important to carefully consider your circumstances (and the relevant premises) and adjust the lease accordingly. STANDARD LEASE FORMS The most common form of lease adopted by commercial landlords in New Zealand is the Auckland District Law Society (ADLS) Deed of Lease. The Property Council of New Zealand (formerly BOMA) also publishes a lease form, divided according to the category of the premises (office, retail or industrial). Generally it is considered: The ADLS form is the most reasonable as between landlord and tenant, but that The Property Council forms are more comprehensive, and the different office, retail, and industrial forms mean that they are tailored for the different types of commercial property. CRITICAL TERMS FOR ALL LEASES There are certain provisions where the \'default\' should never be taken as standard, but should be carefully considered depending on the relevant circumstances of landlord and tenant. These include: the lease term, when it begins and rights of renewal; the rent and how it is calculated, the frequency of rent reviews, and their process, and the calculation of rent reviews; who will maintain and repair the premises, and who will bear the cost of this and other outgoings;the condition of the building at the start of the lease, and what obligations the tenant has to return it to this condition at the end; what, if any, security is given under the lease; what fitout modifications will be made to the space, who will pay for them, and who will own them after the lease ends; and what naming and signage rights are granted to the tenant. The above ought to be considered no matter what type of property is being leased. SUMMARY Our standard leasing forms provide helpful starting points only. They require careful attention. If a lease is poorly drafted or thought out, the errors will become \"the gift that keeps on giving\".

Introduction The new Financial Markets Conduct Act (“Act”) has changed the way in which disclosure in the financial markets sector is made, and to whom. Disclosure requirements were previously scattered throughout legislation and case law and it was often difficult to work out which investors required disclosure. This article provides a brief overview of the changes around disclosure. These should make it easier to determine when disclosure is required and may be particularly helpful for small businesses seeking to raise capital, but minimise compliance costs. Key Changes Disclosure is required if an offer is a “regulated offer”. An offer is a regulated offer if one person to whom the offer is made requires disclosure. If everyone to whom an offer is made does not require disclosure, an offer is not a regulated offer. This means that for the same offer, disclosure may be required to some investors, but not others. If an offer is regulated, disclosure is made through a product disclosure statement (“PDS”) and an online registry. The form and content of the PDS is heavily prescribed by regulations but generally the PDS will contain a key summary, with further content sitting behind it. Continuous disclosure is required through an online registry. This should help keep compliance costs down. Previously, if disclosure was not made to an individual to whom disclosure should have been made, the offer was void. Now failure to make disclosure to one party does not void all of the offers made, just that individual one. Exclusions If you are a small business looking to raise capital you may not need to go to lengths of disclosure. There are a number of investors who are excluded from disclosure requirements. Generally, disclosure is not required where investors are: sophisticated enough to access relevant information; or have a sufficiently close relationship to the issuer to enable them to access the information. The broad exclusions are: Wholesale investors. Close business associates. Relatives. Small offers. Some of these exclusions are carried through from the existing legislation and are now defined more clearly. Some exclusions are new, designed to create more flexibility. The “wholesale investor” covers most of those people who were considered “habitual investors” with some additions. Wholesale investors now includes “eligible investors” which allows an investor to “self-certify” that they are exempt from requiring disclosure. The certification requirements differ slightly depending on the type of financial product, but generally a person needs to certify that they have sufficient experience to assess the merits of the offer, and that they understand the consequences. A lawyer, accountant or financial advisor needs to confirm the certification. Another new exclusion is “small offers” for equity or debt securities. Disclosure is not required where the following circumstances apply: The number of persons does not exceed 20 in any 12 month period; The amount raised does not exceed $2 million in any 12 month period; and The offer may only be accepted by a person who is “likely to be interested” in the offer OR who has an annual gross income of over $200,000 in the last two income years OR who are controlled by that person. Conclusion You should always obtain advice as to whether or not disclosure is required before making an offer. Please get in touch with us if you have any questions about disclosure and your obligations. We would be happy to provide assistance.