In New Zealand, directors may become liable for reckless trading (agreeing or causing or allowing the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors) per the Companies Act, earlier than the point of unavoidable insolvency.

Interestingly, the Supreme Court of the United Kingdom ruled for the first time in October 2022 on what triggers the directors’ duty to have regard for creditors’ interests ahead of shareholders interests (that is the company). The case is BTI 2014 LLC v Sequana SA and others.

The appellants argued that the directors of an insolvent company should be liable to creditors for the amount of the dividend it had paid almost ten years before. Importantly, the company was neither insolvent nor on the verge of insolvency at the time of the dividend.

The appeal was dismissed based on the common law rule in the case, West Mercia. The rule effectively means that the fiduciary duty of directors to act in good faith in the interests of a company is widened when insolvency is imminent. It is only when insolvent liquidation or administration is unavoidable that the shareholders cease to have any interest in the company, and creditors’ interests become paramount.

The United Kingdom court rejected the idea that this can occur earlier, for example, when there is a ‘real and not remote risk’ of insolvency, per some Australian authorities.

In Sequana Lord Briggs’s comments that shareholder interests should remain more important than creditors up to this tipping point are persuasive, after all, liquidation may not happen and insolvency may be temporary.

Conclusion

Currently the United Kingdom view of when director obligations to creditors are triggered differs from New Zealand and Australia, being when insolvent liquidation or administration are unavoidable. The case is relevant because New Zealand courts often consider the outcomes of cases in other common law jurisdictions, such as the United Kingdom and Australia. The findings of this case may or may not influence New Zealand law in the future.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation.

Please feel free to contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com should you require assistance.

 

Establishing a Corporate Foundation can improve the impact and focus of a business’s philanthropic activities.  We have helped companies set up foundations which advance charitable purposes which are aligned with their business initiatives.  In fact, here at Parry Field, we have set up our own charitable foundation as well.

In this article we will be going over some of the key things which we think it is important for you to know about this topic.  The easiest way is of course just to have a conversation and we do that on a no charge basis, just to answer questions and work out if we could help or not.

So what is a Corporate Foundation?

  • A corporate foundation is a Charities Services registered charity (typically in the form of a charitable trust) established by a business to further the business’s charitable activities. For more on charities see our legal book here
  • Although the business and the foundation are separate legal entities, and there are considerations to ensure there are no conflicts of interest, they usually have close ties and the business typically provides financial support and other resources to the foundation
  • The business typically benefits from an enhanced reputation from its close ties with a registered charity as well as tax-credits for its donations to the foundation. Its customers or others in its ecosystem may also provide donations to the Foundation and possibly receive tax credits for them
  • An example in New Zealand would be the Vodafone Foundation

So why might you consider setting up a Foundation?

  • Increases credibility of business’s charitable activities
  • May increase employee engagement in business’s philanthropic efforts
  • Foundation’s registration with Charities Services provides public reassurance that its activities are for public good
  • May provide significant tax advantages for the business, such as:
    • Business can tax-effectively fund other organisations that may not be registered charities, but are doing charitable work
    • Business can use the foundation to store charitable funds during good profit years without the need to distribute it all immediately
    • Foundation can make its grants repayable but the business can’t do that tax-effectively
  • Drawbacks of a Corporate Foundation
    • Increased burden of administration from managing two separate entities – note that they are separate – there will be conflicts if you treat them as the same.
    • Risk of fracture in relationship between the foundation and the business, for the reason that they are different entities and the business does not ‘control’ the foundation.
  • Alternatives
    • Business can set-up an account with a donor advised fund but this comes with fees and less legal and practical control
    • Business can set-up an internal CSR division to manage philanthropic efforts, but possibly less credibility and reputational benefit
    • Business can partner directly with the charities it would like to support, but less flexibility for tax-advantageous donations
  • Conflict of Interests
    • Although a business and its corporate foundation may work closely in practice, it is imperative that the corporate foundation have an effective strategy for managing conflict of interests. This is particularly true if the business has the right to appoint and remove the corporate foundation’s trustees
    • Trustees of the corporate foundation have a legal duty to act in the best interest of their charitable trust, and Charities Services has provided some guidance on how trustees can manage conflicts of interests here
  • Key Points to Consider in setting up a Corporate Foundation
    • What is the charitable purpose of the foundation? Should it have a broad purpose for future flexibility? Or should it have a more narrow purpose to focus the charitable efforts?
    • Legal structure of the corporate foundation – we typically see charitable trust as the legal vehicle of choice, but other options such as an incorporated society or a limited liability company are also viable alternatives, each with its own advantages and disadvantages
    • Relationship between the business and the foundation, such as funding obligations, rights to appoint and remove officers/trustees and access to the business’s resources
    • Terms of the licence of the business’s brand to the foundation
    • Registration of the foundation with Charities Services followed by granting of tax-donee status by the IRD
    • As a registered charity the foundation will need to file annual returns
    • The foundation’s policies – including investment, grant distribution, conflict of interests, privacy/data protection, etc…

We know there is a lot to consider and are happy to have a conversation at no charge with you on the options.

Parry Field Lawyers is pleased to release the second edition of our popular Start-up Legal Toolkit which is downloadable for free

The book covers a range of topics including:

  • structure options and how to set up a company;
  • fundraising;
  • specific guidance on social enterprise and for purpose groups;
  • liability and ongoing duties; and
  • employment issues.

For the free guide, click here.

Marian Johnson from the Ministry of Awesome says:  “Even early-stage entrepreneurs need to think carefully about the legal foundations for their business. This guide is a great way to get your head sorted so you can move on with confidence and do what you do best.”

Our other guides that you may be interest in:

Capital Raising Guide

Guide to the Incorporated Societies Act 2022

Doing Business in New Zealand

Charities in New Zealand

Social Enterprises in New Zealand Handbook

Churches Handbook

 

Kia ora, some key points to draw to your attention:

1. More than 120 have already signed up for a one off call this Friday at noon to discuss the Charities Amendment Bill – Sue Barker will join me to update people.  We are concerned as there is only very limited time to submit so want to educate people about key points and what may change (submissions due by November 10th!).  Sign ups are here.  Feel free to fwd this on.

2. On last Impact Call Cheryl Spain joined sharing on The Gift Trust – insights into alternative ways of giving, fundholding and how they operate – now episode 326 of seeds podcast and you can listen here.  Thanks Cheryl for joining – next impact call will be Friday 21st as I think we will want to discuss again the Charities Bill sooner than end of month – and I am at an EHF event on the Friday 28th.

3. Below are some interesting articles and links and upcoming events and other things.

  • What if the trees had a say?: Wrote an article with two others for the IOD on governance and nature: Read the article  “This opinion piece from Dr Elizabeth Macpherson & Dr David J Jefferson from the University of Canterbury and Steven Moe MInstD, presents four implications of the extension of legal person-hood to living ecosystems.”
  • Could Socrates have saved Kodak?  https://www.boardintelligence.com/blog/could-socrates-have-saved-kodak thanks for the tag Craig Fisher.  Some good questions at the end.  “It is possible to learn how to ask better questions, both as individuals and as a business, and by doing so build a culture of open-minded inquiry that will help you react and adapt at pace.”

 

  • Have you seen the Match website?  https://match.org.nz/  “Match | Te Puna Taurite (MTPT) helps both those seeking and distributing philanthropic and grant funding. The vision of Match | Te Puna Taurite is a more equitable, accessible and collaborative funding system. It aims to connect those with funds to those that seek them.”

 

 

  • We are holding a free session on “Real Founders’ Stories” and the true issues they face next Wednesday with three amazing people – Elise Hilliam a founder of MenuAid, Sarah Grant a founder of Magic Beans and Nathan Taylor a founder of Partly – info and sign ups are here https://events.humanitix.com/real-founders-stories  We want to remove the glamour to talk about the real issues founders’ face.

 

 

 

 

  • A shout out to Community Foundations of NZ – have you checked out what they do facilitating ways of giving regionally?  Smart giving to local charities. https://communityfoundations.org.nz/

 

  • For those in Christchurch this may interest:

 

“I would like to invite you to drinks and nibbles and a chance to talk about the biggest issue facing the world right now – transforming our economic system to one that works for people and the planet.  The Wellbeing Economy Alliance (WEAll) is the leading global collaboration that brings together organisations, individuals and governments to transform the economic system into one that prioritises shared wellbeing and delivers on five core needs: dignity, purpose, nature, fairness and participation.  Some of the WEAll Aotearoa NZ Hub team are gathering in Ōtautahi Christchurch for the Economic Development NZ Conference, and would like to host an informal get-together at Lulu’s Bar and Eatery, near the Town Hall for people interested in the topic of wellbeing economics and economic transformation.  Please see the details below and feel free to bring along anyone that you think might be interested, but please RSVP by email so we can order enough nibbles.

What: WEAll Aotearoa meet & greet

When: 5:30-7pm, Wednesday 12 October 

Where: Lulu’s Bar and Eatery

Address: 31 Victoria Street, Christchurch Central City

Please RSVP for numbers: gareth@weall.org

If you can’t make it but would love to find out more about our work plan please get in touch with our Country Lead Gareth Hughes on gareth@weall.org“

 

A couple quotes to finish off:

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” — Steve Jobs

“Stay away from those people who try to disparage your ambitions. Small minds will always do that, but great minds will give you a feeling that you can become great too.” — Mark Twain

Nga mihi

Steven

Kia ora All,

Great to have so many join the last impact call and hear from Vic Crockford all about Community Housing Aotearoa and from Rose Challies all about the Terrra Nova Foundation – you can access the audio as an episode of seeds now here on spotify or in other podcast apps.  Next call on Friday 30 September at noon.

I’m right now at the Fundraising Institute of New Zealand FINZ conference in Wellington with about 400 others for three full days and realise some of you might be interested, so have written a short article outlining what I’ve learned – have a read of it here – a chance to download quickly what is going on in another area of the impact sector right now – hope it helps and feel free to forward this on or share (it’s a linkedin post here).  Fun taking a masterclass with my team member Aislinn Molloy about the best legal structures for impact and hybrid and dual structure.

 

We have just put out a guide about Incorporated Societies – let me know if you would like a copy.  Also a guide on business structures here as I get asked so much about what is best here and one on what wholesale investors are here.

Have a great rest of the week and weekend!  After some days away from home am looking forward to some time with family – I am reading a book of short stories by Ted Chiang called “Exhalation” – info here – and enjoying that.

See you

Steven

Christchurch CBD

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
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Christchurch 8013, New Zealand

POSTAL ADDRESS:
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Christchurch, 8140, New Zealand

Christchurch

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

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Christchurch 8041, New Zealand

POSTAL ADDRESS:
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Christchurch, 8440, New Zealand

Rolleston

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
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Rolleston, 7614, New Zealand

POSTAL ADDRESS:
PO Box 8020, Riccarton,
Christchurch, 8440, New Zealand

Hokitika

PHONE: +64 3 755 8673
FAX: +64 3 755 8073

PHYSICAL ADDRESS:
26 Weld Street,
Hokitika 7810, New Zealand

POSTAL ADDRESS:
PO Box 44,
Hokitika 7842, New Zealand

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