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New Zealand’s Companies Act 1993 and common law impose duties and liabilities on the directors of a company.

Who is a director?
Many of the following duties are not limited to those actually on the board of directors. A director can also include “shadow directors” who instruct the directors how to act, and persons who exercise powers of the board by delegation.

Who are duties owed to?
In general, these duties are owed directly to the company, giving it (and not individual shareholders or creditors) the right to sue a director for breach of duty. However, there do exist a number of provisions by which shareholders and creditors may pursue directors – these will be examined at the end of this article.

Duty to Act in Good Faith and in the Best Interests of the Company (s131)

Good Faith
Good faith implies acting with a proper motive – without any malice or dishonesty. It also means avoiding acts which promote a director’s own interests at the expense of the company’s (historically termed “conflicts of interest”).

Acting in the best interests of the company
This is a subjective test – that is, directors must only act in what they perceive to be the best interests of the company – not what an “ordinary” or “reasonable” director might do. This gives directors a certain amount of discretion to use their own business judgment, without fear of every decision being open to scrutiny. Although, the Courts may find section 131 has been breached when a director does not take into account the company’s interests before acting.

Exceptions to best interests rule
If the company is a joint venture company or a wholly (i.e. 100%) owned subsidiary of a parent company, a director may act in the best interests of his or her appointing shareholder or parent company – even if this is not in the company’s best interests. This recognises that these are unique entities – whose operation depends on directors having liberty to carry out the wishes of their (often conflicting) shareholders.

Strait-jacketed?
Given the duty to avoid conflicts of interest, can directors have any interest in a transaction or use any information gained by virtue of their position? The short answer is “yes” – provided they are willing to jump through the fairly arduous hoops of disclosure imposed by the 1993 Act – these will be discussed shortly.

Our advice:
Don’t get too comfortable with the notion that as long as you believe a decision is in the best interests of the company, you’ll be fine. If your decision is one which any director with any appreciation of fiduciary responsibilities would see as being inconceivable, it is likely a Court would view this as a breach of section 131 – despite its subjective appearance. There is also an independent duty on directors to exercise reasonable care and skill – read on ….

Duty to Exercise Powers for a Proper Purpose (s133)

At its simplest, this duty could be said to cover the situation where a director strays beyond the limitations intended for their office and acts out of an ulterior motive. Unfortunately, it seems impossible to define in advance exactly what situations fall within this definition. It may be that it is not until a Court reviews the exercise of a power that it can be determined whether or not that power was exercised for a proper purpose. Often the Courts consider whether section 131 has been breached and then rely on that rationale to determine that the director has also breached section 133. Some examples from case law include where a director has acted for personal purposes, has withdrawn funds to the company and Inland Revenue’s detriment, or has engaged in a Ponzi scheme.

Our advice:
Be aware that this duty is not related to the duty to act in good faith – that is, a director could act in what he or she thought was the best interests of the company, but still be acting for an improper purpose. A clear example of this would be the directors issuing shares solely for the purpose of diluting a particular (and probably troublesome) shareholder’s shareholding. While this may be in the best interests of the company as a whole (and even applauded by the other shareholders), it will nevertheless be an improper motive for issuing shares.

Duty to Comply with Companies Act 1993 and Company Constitution (s134)

It is obvious that by not complying with the Act or the Company Constitution, a director would be acting outside of his or her mandate.

But wait, there’s more …

However, this duty may be more onerous than it first appears. The Act imposes numerous responsibilities on directors, of which failure to discharge may result in criminal liability (discussed later). For example, under section 87(1), a share register must be maintained by the company. Failure to do this would mean that the Act is not being complied with and, for a director, would be a breach of the section 134 duty. This breach will be actionable by the company as against the director, which means that not only does so simple an omission as failure to maintain a share register constitute a criminal offence, it exposes directors to potential civil liability for breach of section 134.

And more …?
Our advice: Make sure you are also aware of obligations under other statutes, such as the Privacy Act, Health & Safety in Employment Act and Resource Management Act… – because if you cause the company to act in contravention of any statute, this would almost certainly amount to acting for an improper purpose or not acting in the best interests of the company.

Reckless Trading (s135)

Don’t be so reckless …

A director must not agree to, cause or allow 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. This duty is aimed at preventing conduct by the directors which could jeopardise the company’s solvency. It is not designed to curtail the directors’ ability to take risks – as long as the company is able to bear the loss from complete failure.

Objective Test
Unlike the best interests duty, the directors’ personal opinion as to the company’s ability to continue trading is irrelevant. Instead, a Court is likely to ask: “Was there something in the financial position of the company which would have alerted an ordinary prudent director to the real possibility that continuing to carry on the business of the company would cause serious loss to the creditors?”

Arise from your slumber
The situation of a director who “allows” reckless trading may include the “sleeping director” who has little or no actual knowledge of the company business, but is content to abdicate his or her responsibilities to more active members of the board. This can be especially relevant where spouses are each directors of a company, but only one works in the business.

Our advice:
Make sure you have a sound knowledge of goings on no matter what your level of involvement in the company. If you miss a board meeting, make sure you find out what happened from another director – even obtain a copy of the minutes to ensure no major decision was made – which you might have “allowed” by your absence.

Duty in relation to Obligations (s136)

A director must not agree to the company incurring an obligation unless he or she believes on reasonable grounds when the obligation is incurred that the company will be able to perform the obligation when required to do so.

This will apply to such transactions as the company giving a guarantee.

Cramping their style?

It has been suggested that this duty will prevent directors taking commercial risks. However, as long as the directors’ decision is based on reasonable inquiries, research or information, it is less likely to be scrutinised later.

Our advice: When making a decision of this kind, the board should leave a “paper trail” – detailing not only their decision, but also their reasons. Better still, obtain professional advice. This will go toward showing that you acted on “reasonable grounds”. Also, do your homework early on – note the test is applied “at the time the obligation is incurred” – that is, when the transaction is entered into.

Director’s Duty of Care & Skill (s137)

The Test

Directors are required, when exercising powers or performing duties, to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances, taking into account:

the nature of the company;
the nature of the decision;
the position of the director; and
the nature of responsibilities undertaken by him/her.

Therefore, it seems each director is judged on his or her role in each decision made. If a director is appointed to a specific task, he or she may be liable if they do not bring the required skills to that task. However, it appears that a director is not ordinarily supposed to have special skills – so there may be differing levels of skill and care expected from executive and non-executive directors (but note that any difference between these directors applies to this duty only).

Don’t go down these roads …

Examples of the Courts finding directors to have breached this duty include:

where they acted before becoming fully acquainted with the company’s affairs.
where loans were made to a company connected to a director with no possible benefit to the company.
where cheques were signed in blank and the conduct of the business left entirely to another director.
where directors unquestionably trusted (subsequently dishonest) employees with the management of the company.

A Higher Standard?

Many people believe that this duty places a greater burden and more stringent standard of care on directors than was previously the case. At the very least, it would seem that shareholders’ greater awareness of a statutory duty of care on directors will lead to higher expectations and increased vigilance of directors’ actions.

Our advice: It is vital to understand that it is no longer acceptable to sit back and let others run the show. It is clearly established that even directors who are scarcely involved in management of the company can still be held liable when financial difficulties arise. Evaluate your position as a director – are you familiar with the ins and outs of the business? Do you read (and understand) the financial accounts? Do you attend board meetings? Do you have a hand in business decision-making? If the answer to these is generally “No”, it may well be that you shouldn’t be a director at all!

Use of Information and Advice (s138)

Relief from Omniscience?

In today’s commercial environment, directors cannot be expected to know everything about their company, or possess all the skills necessary for business decision making (although based on the foregoing, you could be forgiven for thinking otherwise!) Section 138 provides a (limited) form of relief for directors. It entitles directors, in the course of decision making, to rely upon reports, statements and financial data, as well as professional/expert advice given to them by:

an employee of the company who is believed by the director (reasonably) to be reliable and competent in the matters concerned – this could be another director.
a professional adviser/expert on matters within their competence.
another director or committee of directors regarding a specific area of designated authority.

There is a catch: In doing so, directors must act in good faith, make proper inquiry where the circumstances indicate a need for this, and have no knowledge that their reliance on the information is unreasonable.

Our advice: Again, documentation of decisions is the key – whenever you rely on someone else’s advice, record that fact. And don’t just blindly rely on others – as a director, you should be capable of reaching a reasonably informed opinion of the company’s financial capacity. If there are grounds for suspicion arising from another’s advice – act appropriately.

Director’s Interests (ss139-144)

Traditionally, if a director had an interest in a contract made with the company, he or she had to account to the company for any profits they might make (unless the company’s Articles or shareholders permitted otherwise). This was seen as a unduly harsh rule, and has now given way to a more permissive – but also more controlled – regime under the disclosure provisions of the Companies Act 1993.

Cards on the Table
Where a director has (or may obtain) a direct or indirect financial benefit in a transaction, he or she must disclose their interest in the transaction as soon as they become aware of it.

Disclosure is made by way of entry in the “interests register”, which must be kept by the Company. Disclosure is also required to be made to the board.

Avoidance by the Company
A transaction in which a director is interested may be avoided by the company any time within three months after the transaction is disclosed to the shareholders (whether by annual report or otherwise) – unless it is proved that the transaction is for fair value.

Our advice: Err on the side of excess when it comes to disclosure. While failure to disclose an interest in the register doesn’t affect the transaction’s validity, it could open you up to a $10,000 fine or an action from shareholders for breach of duty.

Also, disclose interests to the shareholders early – don’t leave it until the annual report – this could be months away and extend the timeframe in which the transaction can be overturned by the company.

Use of Company Information (s.145)

Pssst! …… (Don’t) Pass it on!
As with director’s interests, directors have traditionally been prohibited from using company property (including confidential information and trade secrets) for their own purposes. However, once again this blanket prohibition seems to have been abandoned in favour of regulating the use of information by directors.

Section 145 of the Act provides that a director who possesses confidential information must not disclose that information to any person, nor make use of it or act on it, subject to the following exceptions:

If disclosure is made solely for company purposes.
If disclosure is required by law.
If:

(a) The director has entered particulars of the disclosure in the interests register; and

(b) the board has authorised the director to make disclosure; and

· If disclosure is made by a nominee director to his or her appointer, provided this is not prohibited by the Board.

What is confidential information? It could be anything, but definitely includes trade secrets, technical know-how, lists of customers, internal financial reports, feasibility studies, and specific information concerning ongoing transactions between the company and its clients.

It is important to note that the section does not directly cover the use of company information by a former director. Here, the company would probably need to rely on the common law relating to breach of confidence.

Our advice: While section 145 would seem to provide reasonable protection, if your company’s operation is such that directors are often privy to large amounts of confidential information and/or have outside interests in similar spheres, it may be prudent to have the directors sign a confidentiality/restraint of trade agreement which expressly binds them during and beyond their term of office.

Further Liability

While the above synopsis sets out the primary duties a director must uphold (which, in essence, place the quality and integrity of their decisions under the spotlight), liability for breach of these duties is by no means the only way a director can be called to account. What follows is a whistle-stop tour (or steeple-chase) of further provisions contained in the Companies Act 1993 which could cause a director to stumble:

A director owes duties directly to shareholders to supervise the share register, disclose interests in contracts with the company (as discussed above), and disclose any interest they have in share dealings. A breach of these duties entitles a shareholder to bring a personal action against a director (s169).
A shareholder could also bring an action to either restrain a director from acting in a manner which breaches the Act or the company constitution (s164), or to force them to act in accordance with these (s170).
Directors may be personally liable if a distribution is made to shareholders when the company is insolvent – to the extent that the distribution is not able to be recovered from the shareholders (s56).
Directors may be personally liable to liquidators or creditors for the debts of the company if they participate in the management of a company when they have been disqualified (by the Court or the Registrar) from doing so (ss384,386).
Directors may be liable to the company if they receive an unauthorised payment or have unauthorised insurance effected – to the extent they are unable to prove these are fair to the company (ss161,162).
If, on the liquidation of the company, it appears to the Court that a director has misapplied company money or property, or has been guilty of negligence, default or breach of trust, he or she may be liable to repay or restore the money or property, or contribute an amount to the assets of the company by way of compensation (s301).
Note that a creditor is entitled to apply for an order under this section and could allege breach of any duty as grounds for an order that money or property be paid directly to the creditor. If a company is in liquidation and the failure by the company to keep proper accounting records has contributed to its inability to pay its debts or impedes an orderly liquidation, a Court can order that any directors or former directors are personally responsible for all or any part of the debts of the company – unless they can show they took reasonable steps to ensure compliance (s300).
Criminal Liability: There are over 100 sections of the Act a breach of which can constitute a criminal offence. In almost all of these sections, criminal liability is imposed on the directors personally, in addition to the company (there do exist limited defences relating to reasonableness on the part of directors). Penalties can be up to $10,000 depending on the offence. Far more serious, dishonesty offences can carry up to 5 years imprisonment or a fine of $200,000 (ss373,374).
Liability in tort: A director can be liable for a tort (for example, negligence) committed primarily by the company, but through their agency – if they have assumed personal responsibility for their actions.
A directors who trades shares using inside information is liable to account to the buyer to the extent that the shares are sold for more or less than their fair value (s149).
Directors should also be aware of both the company’s and their own obligations under any other legislation – which also have the potential to fix personal liability on directors. These include, but are not limited to the Financial Reporting Act, Fair Trading Act, Health & Safety in Employment Act, Resource Management Act, Commerce Act, Privacy Act, Human Rights Act, and Building Act.

Conclusions

It will hopefully be apparent by now that the significance and potential consequences of these duties and liabilities are not to be sneezed at. Unfortunately, it seems that at present directors are either largely ignorant of these standards or do not take them sufficiently seriously. Perhaps more unfortunate is that it is usually not until a company fails that the extent of these duties becomes relevant – when a director’s decision is reviewed by the Court.

It is imperative to get things right at the time each decision is made. If you have any doubt as to the wisdom of any decision or act either of your own or your fellow directors, seek legal advice.

Because the implications of these duties are potentially severe, companies are increasingly availing themselves of the indemnity and insurance provisions of the 1993 Act as part of a risk management strategy designed to avoid personal liability on the part of directors.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Commercial matter, please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com

Do the Privacy Bill’s proposed changes mean that your business needs to change its privacy policies? This article looks at the upcoming changes to the Privacy Act and what it means for your business. In the 21^st Century, there is a growing concern that personal information is being mishandled by businesses and public authorities. This has led to the Privacy Bill introducing stronger measures in order to protect our personal data.

What changes does the Privacy Bill propose?

Currently, the Privacy Act 1993 governs how agencies handle personal data. However, Parliament is looking to update New Zealand’s privacy laws through the Privacy Bill, which is likely to become law in 2020. Three key changes the Bill introduces are:

a business must report any serious privacy breaches to both the Office of the Privacy Commissioner and all people affected by the breach;
a business cannot destroy requested personal data in order to avoid disclosing it;
a New Zealand business using a foreign service provider must ensure personal information is kept secure and complies with New Zealand’s privacy laws.

What is a serious privacy breach under the Privacy Bill?

One of the most significant changes is the requirement to report a serious privacy breach. If the Bill is enacted, businesses will have to report a privacy breach where it is reasonable to believe it has caused or is likely to cause serious harm to an individual. Factors such as the nature of the personal information and the nature of the harm are used to determine whether a privacy breach is likely to cause serious harm.

How can your business prepare for the potential changes in New Zealand privacy law?

There are several steps your business can take to ensure its privacy policies are compliant. These include:

inform staff of the relevant changes;
set up processes for when customers request their information;
ensure all personal information is held safely;
ask your foreign service provider if/how they are meeting New Zealand privacy laws;
appoint a privacy officer. This is a current requirement of the Privacy Act 1993;
review and update your privacy statement.

The Office of the Privacy Commissioner provides useful guidance for businesses, including educational resources (here).

If you have any questions about this topic, please contact us and we would be happy to discuss further.

The much-anticipated final report of the Tax Working Group (TWG) was released on 21 February and, unsurprisingly, recommended the introduction of a broad-based, realised capital gains tax regime. The Final Report is substantial at two volumes and 206 pages, 94 of which are dedicated to a discussion on a capital gains tax (CGT) regime.

Whilst there are some changes from the Interim Report released last September, the recommendations are substantially the same as those contained in that report. Interestingly, only eight out of eleven of the TWG members support the introduction of a comprehensive CGT regime.

As always, the devil is in the detail and it will take some time for the entire 206 pages to be digested. However, a summary of the recommendations is as follows:

What will be taxed?

The following assets (included assets) would be subject to CGT: all forms of land except the family home, shares, intangible property, and business assets. The TWG recommends excluding personal use assets such as cars, boats, jewellery, fine art, collectibles, and other household durables.
Only gains arising after “valuation day” would be taxed.
Taxpayers would have up to five years to determine the market value of assets as at valuation day. If a valuation is not obtained, a “default rule” would apply. According to prominent Wellington property investor, Troy Bowker, that could impose a $4.5billion compliance cost on affected taxpayers (450,000 small businesses incurring on average $10,000 in valuation costs). The TWG specifically recommend against adopting the Australian approach of only taxing assets acquired after the date of introduction.

When will it be taxed?

CGT would apply on a realised basis only but would be subject to a number of concessions/exclusions referred to as “rollover relief”.
Rollover relief would apply to all inherited assets, assets donated/gifted to donee organisations (charitable entities), certain involuntary events where the proceeds are invested in a similar replacement asset e.g. an insurance event/natural disaster, a business restructure where there is no change in ownership in substance, small business rollover where proceeds from included assets are reinvested in a replacement business.
In terms of gifted assets, rollover relief would apply where the gift is to the person’s spouse, de facto or civil union partner but otherwise would not qualify for relief.
CGT will be imposed at the person’s marginal tax rate. The TWG does not recommend an adjustment for inflation or that the tax rate should be discounted (as currently the case in Australia).
The cost of an asset including capital improvement can be deducted against sale proceeds to arrive at the taxable capital gain. However, holding costs such as interest or rates will not be claimable against personal use assets.
Capital losses should be capable of set-off against both ordinary and capital income i.e. they should not be ring-fenced and claimable against only against capital gains. However, there are several exceptions proposed to this rule – the most notable being that capital losses from personal use assets cannot be claimed against either ordinary income or capital income. Others include losses generated from associated person transactions, where rollover relief is available but the taxpayer chooses not to apply them, losses arising on assets held on valuation date.

Transitional Rules

A number of transitional rules for assets held on valuation date are also proposed including:

Flexible and default valuation rules for valuation date assets should be mandated by Inland Revenue.
A median rule for assets held on valuation date whereby the “cost” to be deducted from proceeds to determine the capital gain amount will be the middle value of actual cost (including improvements), valuation date value (including improvements), and sale price. The intention is to stop artificially high valuations being adopted at valuation date.
Transitional rules are also recommended for immigration/emigration, and where an asset changes use from private to a CGT asset and vice versa.

Who is taxed?

Consistent with our existing tax regime, a New Zealand tax resident will be subject to CGT on worldwide assets. Non-residents will be subject to CGT only on New Zealand-sourced capital gains.

Company Matters

There is some discussion dedicated to the potential for double taxation and double deductions for gains and losses in the corporate context. For example, a company sells an asset and derives a capital gain on which it is taxed. A shareholder then decides to sell their shares before that capital gain has been distributed. Inherent in the value of the shares is the capital gain derived by the company. This potentially leads to the same gain effectively being taxed twice i.e the company is taxed on realisation and the shareholder is taxed again on the same underlying gain via the increased share value.

The TWG concludes the market will take care of this issue in terms of widely-held entities and in relation to closely held entities, these issues can be managed by distributing said gains before the share sale.

Imputation continuity rules

Of particular interest is the suggestion that the continuity rules for imputation credits be removed (these rules currently require the same shareholders to hold at least 66% of the shares in a company in order to carry forward imputation credits).

Liquidation

The TWG acknowledges that the rules dealing with distributions from a company on wind-up will need to be modified to ensure pre-CGT gains are not subject to tax on final distribution.

Foreign shares

The current regime dealing with interests in foreign investment funds (FIF) is to be retained with some possible refinement to the ability for individuals and trust taxpayers to switch between the fair dividend rate and comparative value methods. However, CGT will be imposed on foreign shares which are not currently subject to the FIF regime. This includes holdings of less than 10% in Australian resident listed companies, greater than 10% holdings in Australian resident companies, and a foreign share portfolio with a cost of less than $50,000.

There is also some discussion around portfolio investment entities including KiwiSaver funds. At a very general level, the proposal is that these entities will also be subject to CGT on investments not dealt with under the FIF regime.

The Dissenting Views in the TWG

Robin Oliver, Joanne Hodge and Kirk Hope all disagree with the TWG’s recommendation to introduce a comprehensive CGT regime. Their collective view is that the costs of introducing a CGT regime as proposed by the TWG would clearly outweigh the benefits. Such a regime would impose efficiency, compliance and administrative costs that would not be outweighed by the revenue collected. They also have concerns over the timetable to introduce the rules.

They suggest an incremental extension of the tax base over time i.e. extending the tax base on an asset-by-asset basis. In their view, an extension to the taxation of residential rental properties is the most obvious starting point.

Closing Comments

A lot will be said over the coming months about the proposed regime and, if the government is to get it across the line, we may find some areas are watered down, especially the applicable tax rate.

There is also one obvious recommendation that the TWG has overlooked entirely and it is this: we recommend Jacinda wanders down the hallway and has a quiet word with Winston to determine whether he is in support of a broad-based CGT regime. If not, the Interim and Final Reports will make for useful doorstops but that’s about all. A quick discussion could save us all a great deal of time and effort debating this issue, not to mention millions of dollars of taxpayer funds drafting legislation and undertaking the consultation process.

Used by permission, Copyright of NZ Law Limited, 2019

The short answer is, it depends. Key factors include what the employment agreement says about varying the agreement, how significant the proposed change is, why there is a need for the change, whether the change is to the employee’s benefit or not and whether the employer and employee agree.

This article considers the situation where the employment agreement states, as is common, “This agreement may be varied by written agreement between the employer and employee”, the change proposed is more than inconsequential and is not to the employee’s benefit.

Good Faith

The starting position is that the employer and the employee are required, when bargaining for a variation to an employment agreement, to “deal with each other in good faith”. At a minimum that means being “responsive and communicative” towards each other and “active and constructive in continuing a productive relationship.”

In short, in the situation outlined above, employers should tell employees well in advance of the proposed change, the reasons for it, and the possible consequences if the change does not go ahead. A possible consequence may, depending on the circumstances, be that the employee’s employment is in jeopardy. However, that should only be raised if that is a genuine possibility, rather than as a threat.

Employees should be given an opportunity to give feedback on the proposal, including any concerns or alternative suggestions. Employers should maintain an open mind to suggestions made and be willing to vary their proposal if feasible.

Employees should also be told, prior to giving feedback, that they are entitled to get independent advice on the proposal and given sufficient time to get that advice, if they so choose.

If an employee’s employment may be in jeopardy if the change does not proceed, then employees should also be given an opportunity to have a support person or representative with them when they give their feedback.

Employees should not simply reject proposed changes out of hand and refuse to discuss them with the employer. They should engage with their employer and be prepared to discuss concerns and put forward alternatives, with a view to trying to reach resolution if possible.

What should happen if agreement is reached?

If agreement is reached, the terms of the existing agreement should be followed in recording that variation. For example, it should be recorded in writing, signed by both parties, and attached to the agreement.

If the change is solely to the advantage of the employer, an employer should also consider offering the employee some sort of “consideration” (i.e. benefit) in exchange, in order to ensure that the change is binding. This could be a one off payment or a pay increase or some other benefit.

While it is not clear legally that consideration is always required where the parties agree to a change, it is prudent to do so to limit the risk of a future dispute.

What if agreement can’t be reached?

This can be a difficult one. On one hand, the law recognises, as a general proposition, an employer’s prerogative to manage or organise its business. On the other hand, that is not an unconstrained right and the terms of the employee’s employment agreement cannot be ignored.

Consequently, where the proposed change effects an express term of the employee’s employment agreement (e.g. their hours of work) and the agreement states that any variation will be by mutual consent, it will be more difficult for an employer to unilaterally effect a change justifiably, particularly a substantial one.

Nonetheless, in some circumstances, a unilateral change may be permitted, where, objectively, that change is “fair and reasonable” and reasonably implemented. Whether any such change meets that test has been said by the Courts to involve “questions of fact and degree”, i.e. how significant is the change and why and how is it being introduced. Consequently, the individual facts of each case will be critical in assessing whether a change is likely to be upheld or not.

Either way, as with changes by agreement, where the change is solely for the benefit of the employer, the employer should offer some benefit in exchange for the proposed change. This also increases the chances of agreement being reached.

Drafting new employment agreements – a take home message for employers

If you are an employer, we recommend that new employment agreements include scope for changes to be made by the employer where business needs justify it. While employers will still need to follow a fair process, in the event of disagreement, more flexible agreement terms potentially provide greater flexibility in implementing change.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Employment matters, please contact Lois Flanagan or Hannah Carey at Parry Field Lawyers (348-8480), loisflanagan@parryfield.com or hannahcarey@parryfield.com.

At the start of last year, we were gearing up for the introduction of the General Data Protection Regulations (GDPR). The GDPR is the widest reaching, most stringent set of data protection laws the international platform has seen to date. Nine months later, we are starting to see its impact.

The consequences for non-compliance have been varied. Under the GDPR, the highest sanctions can see a fine of up to €20 million, or 4% of global annual turnover, whichever is higher. A new report by international firm DLA Piper counted just below 60,000 GDPR data breaches reported since its introduction. Despite these numbers, less than 100 fines have been issued by regulators. The DLA Piper researchers attributed this low response with regulators still finding their feet in their heightened supervision roles. Google has been given the highest fine so far at €50 million. At the lower end, an Austrian betting shop was fined €4,800 plus legal costs when their security camera trained on the entrance also captured the footpath outside. It was held in breach of the GDPR as monitoring of public space is not allowed.

Despite being EU legislation, the GDPR can still impact businesses in New Zealand. You will likely need to comply with the GDPR if you:
– have a branch or subsidiary in the EU;
– monitor the behaviour of EU residents (e.g. monitor how many EU customers visit your website); or
– sell goods or services to people who live in the EU.

While there are yet to be any fines outside the EU, NZ companies should not take a relaxed approach to GDPR compliance. As the Regulators establish themselves, we may see more attention turned towards businesses outside the EU.

We would encourage you to get in contact with us if your company doesn’t have a privacy policy or if you’re worried your current policy won’t meet the requirements. Parry Field Lawyers has created a privacy policy template which is GDPR compliant.

Even if you don’t deal with EU customers, it is important to have a robust privacy policy in place. Contact Steven Moe at StevenMoe@ParryField.com or Aislinn Molloy at AislinnMolloy@ParryField.com to see how we can help.

How can you ensure that people have the freedom to share their concerns at meetings without being worried about the consequences of recording them in the minutes? This is an issue which plagues various groups.

The Privacy Act 1993 applies to any agency. This is defined as a person or body of persons that collects, uses or stores personal information. Examples of this include businesses, organisations, church groups or societies. If you are a private organisation (i.e. not a government body), the Official Information Act does not apply and you will have a lower threshold of disclosing information.

Information is considered to be personal when it is about an identifiable individual. It does not have to be private or sensitive to meet this threshold.

When personal information is stored by an agency, the person it relates to has the right to access this information. This may include:

Any references to them in the minutes of a meeting;
Communication between the person and the agency;
Decisions made in relation to the person;
Any complaint the person has made or a complaint about that person.

A request to access this information may be refused if:

the information would disclose a trade secret;
the information would be likely to unreasonably prejudice the commercial position of the agency or person;
disclosure would involve personal information about other people. An individual may only request access to information relating to themselves under the Privacy Act. This may mean that all other references to other people are taken out of the document before it is given to the requester;
disclosure would result in an unjustifiable breach of another person’s privacy.

If you are an agency concerned with not disclosing sensitive information about someone, you should consider:

censuring the names if disclosure was recorded. As personal information has to be identifiable, removing the names would avoid this;

Under the Financial Services Providers (Registration and Dispute Resolution) Act 2008, everyone who provides, or offers to provide, a financial service in New Zealand or from New Zealand to other countries must register as an FSP. Importantly, before you offer your financial services you must be registered.

There is a simple straightforward application process for registration. This can be found online on the website of the Ministry of Business, Innovation and Employment.

Firstly, the application process depends on what kind of FSP you are. There are three different types depending on your business and the services you will provide – an individual; an entity already registered via the Companies Office; or another entity or body.

Applying as an individual:

There is basic information which you will have to include the application such as your full legal name, date of birth, residential and contact address, your business address and any trading names you use.

Applying as a business already on a Companies Office register:

You will have to provide your company or entity’s name, the Companies Office number or its New Zealand Business Number. If you do not know what this is, you can search for it via the Companies Register. Furthermore, include any trading names you use, your business and contact address and the basic details on your directors and other controlling owners and managers.

Applying as another entity or body:

The basic information you will have to provide is about your business, such as its legal and trading names, the country of origin, the business and communication address and also an email address. You will also have to provide the basic details on your directors and other controlling owners and managers.

For all applications:

Firstly, in completing this process, whatever kind of FSP you are, you will have to provide information about your business and the services it will provide. In the form you fill out online there are a list of services. You would select all the ones that you intend to provide upon registration. This is something that needs to be kept up to date as well. The services that you need to declare can be found under section 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Secondly, every individual FSP and those people in charge will have to undergo a criminal history check.

If you are applying to the Financial Markets Authority (FMA), at the same time, to be an Authorised Financial Advisor (AFA), there is additional information to prepare. (https://fsp-register.companiesoffice.govt.nz/help-centre/applying-to-provide-licensed-services/applying-to-be-an-afa/)

When registering as a FSP there are transaction fees to pay:

○ Application fee, incl. GST: $345
○ Criminal history check fee per person, incl. GST: $40.25
○ FMA levy, incl. GST: $529
○ TOTAL: $914.25

Furthermore, after you register you have to pay fees once you’ve completed your annual confirmation:

○ The Companies Office Fee, incl. GST: $75

Alongside this, you will pay levies to the Financial Markets Authority (FMA).

○ The amount of levies you pay depends on your class of service provider and the services you provide.
○ Levies are listed under Schedule 2 of the Financial Markets Authority (Levies) Regulations 2012.

This online process is efficient and easy and should not take up too much of your time.

Should you need any assistance with this, or with any other Commercial matters, please contact Kris Morrison or Steven Moe at Parry Field Lawyers (+64 3 348 8480).

Key things to know when registering and maintaining a trade mark in New Zealand

A trade mark protects distinguishing names and logos, making it one of the most important business assets you can own. As the number of enterprises in New Zealand now exceeds over half a million and counting, it is more important than ever to protect your business’s hard earned reputation. One of the best ways to do this can be by registering a trade mark.

Parry Field has previously published an article on this matter. This article seeks to add to this previous publication, by providing links to several further discussions on some of the more complex and often confusing aspects of trade mark registration. Parry Field Lawyers provide legal advice on a range of commercial matters including protecting your intellectual property.

No offence! Ensuring your Trade Mark is not likely to Offend Māori and other Community Groups

What is a Search and Preliminary Advice Report? Do I Need One?

Could you be more specific? Working out your Trade Mark’s Specification

Broadening your Horizons? How to register your Trade Mark Internationally

Applying for a trade mark with IPONZ will only protect your company mark in New Zealand. If you are considering protecting your trade mark in other countries, you can use an international trade mark filing system called the Madrid Protocol. This system can use your original New Zealand application as a base to apply for your trade mark in as many as 119 participating countries.

This application is called a ‘New Zealand Office of Origin’ trade mark and requires only one application, one set of fees, one designated place to update and maintain your application and one global renewal date. As a preliminary step, it might pay to see whether a trade mark the same as, or similar to yours has already been registered in other countries. You can search the International Trade Mark Register here.

While registering your trade mark in a number of different countries might be relatively straightforward, it is by no means cheap. In fact, registering your mark in all of the 119 Madrid Protocol participating countries will cost a little over $40,000. For this reason, it pays to be selective when deciding in which countries you will pursue your application – some registrations can cost a lot more than others. For example, applying for a trade mark in Turkey will cost just over $100, but a trade mark application in Uzbekistan will cost you almost $2,300. You can access a full breakdown of the relevant costs in each country here.

It may also pay to investigate any special requirements a country you intend to register your trade mark in might have. For example, registration in the United States of America requires the additional signing of a Declaration of Intention, while registration in the European Union requires the applicant to designate a second language (French, German, Italian or Spanish) in which contesting parties can challenge your application.

You can find out more about these specific requirements, as well as how to apply for an international ‘New Zealand Office of Origin’ trade mark more generally here.

Should you need any assistance with these, or with any other Commercial matters, please contact Kris Morrison or Steven Moe at Parry Field Lawyers (+64 3 348 8480).

For a more general overview of registering a trade mark, please see our original article here.

To properly classify and protect your trade mark, IPONZ requires each trade mark to be registered within one or multiple goods or services specifications. You must also currently trade, or hold an honest intention to trade in each of the categories you specify. New Zealand uses the World Intellectual Property Office’s ‘Nice Classification’, which contains 45 classes of goods and services.

Of these 45 classes, classes 1 to 34 categorise goods, while classes 35 to 45 categorise services. For example, class 25 includes clothing, footwear and headgear, while class 37 includes construction and repair services. Within these 45 classes, goods and services specified range from abacuses to zip fasteners, art hire to zoological garden services.

With so many categorised types of goods and services, you may find it helpful to use this search database to see what class/classes your good or service falls within. Alternatively, you can find an alphabetically ordered list of all of the ‘Nice Classification’ classes here.

Properly classifying your trade mark is important both before and after you trade mark is registered. To process your application, the class/classes you have applied in will help determine whether the trade mark has distinctive character or is confusingly similar to any already existing trade marks.

Upon successful registration, the specification of the trade mark will also determine the trade mark owner’s rights where they might need to take legal action against an infringing mark by another company. Where the infringing mark is in the same class as specified by the existing trademark, the owner will have a greater claim against that infringement.

For example in a recent High Court case, the court rejected an application for the trade mark ‘Shacman’ in class 12 (commercial vehicles). The court reasoned that the infringing trade mark was likely to deceive or be confused with an already existing trade mark; ‘Man’. Highly influential in this decision was the fact that the already existing trade mark was also registered in class 12.

Therefore, while taking extra care to ensure you register your trade mark in the right class/classes might seem pedantic, it will better protect your intellectual property from infringing trade mark applications in the future.