People create or participate in funds for diverse reasons. Our focus in this article is on those who want to invest and the options that are open to them. We have written a separate article about entrepreneurs who want to set up a fund to support their new business or project over here.

A family might set up an education fund for their children’s education. A couple might establish or participate in an established retirement fund so that they receive income on their retirement. People can choose to establish funds themselves or invest into existing managed funds.

A person might invest money into a mutual fund, also known as a managed fund, managed by fund managers. A benefit of such funds is that investors can access a wider range of investments that they would be able to if investing as an individual. These can be passive, meaning they follow the market automatically, for example following the S&P or NZX Top 50 companies. Active managed funds, as the name suggests, involve a manager actively watching the market to identify opportunities for better returns and taking the opportunities. There is typically higher risk and higher fees attached to active manged funds.

Investors seeking low-risk investment might choose to invest in government bond funds. The investment supports government speeding and obligations. The flip side of low-risk is also typically lower yield on the investment.

Other investors (often high-net-worth individuals) might choose to invest in hedge funds. These aim to maximise returns, but also expose investors to greater risk by using strategies such as derivates and short selling.

Many investment funds invest in publicly listed assets; private equity is the term applied when investors’ money is pooled together and invested into private companies. Private equity investors often involve more than just funding. Some private equity funds purchase stakes in private companies so that the investors effectively become partners with the private company owners with a view to maximising its success.

An increasingly popular type of investment fund are those offering investors more than a purely financial return. Impact investment funds use investor funds to support endeavours with social and environmental purposes. Investors receive a financial return as well as knowing they have contributed to other important societal causes. Find out more about impacting investing.

What do you need to know before investing in or founding a fund?

There is no one-size-fits all when it comes to funds, with different options providing advantages and disadvantages. Whether you are considering investing in or founding a fund, consider the following questions first to help choose the approach that best suits your circumstances:

What is the purpose of the fund?
How many people will be involved?
Do you want to manage the funds or have someone manage them for you?
What type of return do you want; purely financial, or financial + social?
Do you want to derive income or capital gains from the fund?
When and how often do you want to access any returns from the fund?
What is your risk appetite?

When creating a fund, the founder may want to ensure that the purpose it is being set up for is recognised and continues. We sometimes work to ensure this by setting up special share types or setting up “Kaitiaki” entities to hold some of the ownership and be involved in key decisions. We describe this in more detail in this paper on Steward Ownership.

We have helped many people who have questions about funds and are happy to discuss further. Feel free to contact us on 03 348 8480 or by email to Steven Moe – stevenmoe@parryfield.com or Kris Morrison – krismorrison@parryfield.com Please note that this is not a substitute for legal advice.

What is a fund?

In essence, a fund is a pool of money set aside for a particular purpose. Typically, multiple investors will introduce money into a fund for a common purpose.

People create or participate in funds for diverse reasons. Our focus in this article is on those who are creating funds for the purpose of kick starting an entrepreneurial idea and giving it life. There are other contexts where a fund may be relevant that we will save for another day – for example, a family might set up an education fund for their children’s education. A couple might establish or participate in an established retirement fund so that they receive income on their retirement. We have written another article on those contexts, over here.

So how can funds be set up to be used to back a new idea / business?

Investment funds are pools of money set aside by people seeking a return on their investment. The investors’ funds provide equity that can be used by others and then redeemed according to the terms of the fund. The targeted return might be purely financial, or financial + societal or environmental or cultural. Increasingly such a broader conception of investment funds result in the term “Impact Investing” which we have written about separately here.

What structure might be used?

You might be able to get investors involved via debt – that is, they provide secured lending to you to undertake the project. Another option is via equity which is where investors have an ongoing ownership stake.

Typically a project that needs funding will be structured so that there is financial return for investors and this is often done with one of the following methods:

Limited Partnerships – in this model for a fund there are those with money who invest but have little say in the project (limited partners) and there is an entity which guides the project (the general partner). This type of legal vehicle is useful when there is a distinct one off project, such as a housing development. There are often tax reasons why investors prefer this option as well. We go into more detail on this option here. An LP might also make loans to another entity which undertakes the project (so a combination of debt/equity structures).
Companies – this is a traditional vehicle used to have investment and sees the money flow into the entity from shareholders who will then get return from the dividends that get issued when it is profitable. There will be directors of the company who make the key decisions for the project / business.
Unincorporated Joint Ventures – another legal vehicle we see used from time to time is to have different parties involved in a joint venture which is set up for a specific project or purpose. While this is an option in terms of setting up a fund we would typically see that being overseen by an LP or company, mentioned earlier.

Other options may be worth considering, and we talk about different structures in this article here.

Ensuring you comply with fundraising rules

Whichever structure is chosen compliance with the rules set by the Financial Markets Conduct Act is critical – it sets out who you can solicit investment from. For example, if you only ask for investment from wealthy people (who are ‘wholesale investors’ as defined in the legislation) then you do not have as many compliance requirements in terms of the information provided to them. Depending on what the fund will do there may be other compliance which is needed, for example if financial services will be provided.

If you want to know more about this area, we suggest looking over our Capital Raising Guide here.

Please note that this is not a substitute for legal advice. We’d be delighted to discuss your situation with you, so feel free to contact us on 03 348 8480 or by email to Steven Moe – stevenmoe@parryfield.com or Kris Morrison – krismorrison@parryfield.com

Welcome to the White Paper that you can download here: “The Decentralised Revolution: Understanding the potential of Blockchain, DeFi, Crypto, DAOs, NFTs and the Metaverse to drive innovation, creativity and new paradigms“.

Sparked by the Reserve Bank of New Zealand issues papers about the future of money it uses that as a launching point to take a higher level perspective of what the future might look like. The paper is divided as follows:

Introduction
Part I: Getting Definitions Right
Part II: So what are we really talking about?
Part III: What is the Potential?
Conclusion: What should we be talking about?

Download it here.

Or the audio of this is here:

If you have thoughts feel free to email me steven@theseeds.nz

Steven Moe

Business can be complicated but it doesn’t have to be. We have helped thousands of clients and know about the key legal areas that will affect you and have just released our fully revised and updated “Doing Business in New Zealand” free handbook. You can download it here.

New Zealand consistently ranks as one of the most business-friendly nations in the world. Given this appealing status and the interest we receive both from local and international investors, as well as form businesses and entrepreneurs, we produced the “Doing Business in New Zealand” handbook a few years ago and now have fully updated it. It is intended to introduce and provide information for those who may be unfamiliar with how business is done here. The handbook provides introduction on business structures, investment rules, employment, disputes, property, intellectual property, immigration, privacy and social enterprise, just to name a few examples.

If you have further enquires please contact Steven Moe at stevenmoe@parryfield.com or on 021 761 292 or Kris Morrison at krismorrison@parryfield.com.

Be sure to check out our other free guides too, such as Startups: Legal Toolkit and Social Enterprises in New Zealand: A Legal Handbook. We also provide free templates for resolutions, Non Disclosure Agreements and other resources on our site as well as many articles on key topics you should know about.

In part one and two of our articles on buying and selling a business we looked at both the important issues and what the agreement for sale and purchase should cover. In part three, we will consider the impact of Covid-19 and how it has affected the buying and selling process and further points that need to be considered during these unprecedented times. Whether you are considering selling or purchasing a business, or you have just started the process, the following should be taken into consideration:

Due Diligence

In part one, we explored the importance of due diligence and key questions that should be asked. The effects of Covid-19 should not alter your approach to carrying out due diligence, in fact it may be that a more rigorous approach is taken by buyers to understand the implications Covid-19 has had on the business and how it would fare if another situation like this were to happen again. When carrying out due diligence, both seller and purchaser should be mindful that more time may be required to undertake and complete the process due to the restrictions in place, as the ability to obtain information such as important documentation or carrying out physical inspections may not be possible right away.

Material Adverse Change Clauses

As we are in the midst of the unknown, agreements between buyer and seller will be subject to greater scrutiny and negotiation. The inclusion of material adverse change (MAC) clauses in an agreement is likely to be of particular interest, especially to a buyer. A MAC clause is used to reduce risk and uncertainty for buyers during the period between the agreement and the date the deal closes. Such clauses give the right for the buyer to walk away from a deal. For a seller, taking the current climate into consideration the inclusion of such a clause should be drafted carefully, thinking about what is considered to be a change and looking to the future and the potential of a similar situation occurring again.

Finance

As a buyer, if you are obtaining finance from a third party such as bank, it may take longer and become more difficult. In these uncertain times, banks may be reluctant to lend or may seek additional requirements are satisfied in order to obtain approval. Therefore, it important that the sale and purchase documentation covers the risks that are associated with lending during this time. For example, the seller may want to include a break fee, if finance is unable to be obtained by the buyer. Where a buyer may want the ability to walk away from the deal and have a financing out condition. It will be up the parties to balance the risk and reach an agreement that they are both comfortable with.

Warranties

In this current climate, sellers may be reluctant to agree to warranties about the state of the business, as the long term effects of Covid-19 on a business may not be known for some time. While for buyers it may be that they look at additional situation-specific warranties in relation to this pandemic. Warranties will be subject to robust negations even more so than before, therefore again, it will come down to the parties being able to find the right balance in terms risk.

Other Conditions

The uncertainty for many businesses during this time may see the inclusion of other conditions in a sale and purchase agreement. Such conditions may relate to maintaining current suppliers or current employees.

Conclusion

As the restrictions ease, many are still trying to navigate their way through the unknown. It is difficult to know the long term implications of Covid-19 and effects that it will have had on the businesses that survived the lockdown period. Therefore, it will be important for those looking to buy a business to ensure they have done their ‘homework’. While sellers will need to be upfront and ensure they are covered if a situation like this were to ever occur again.

We often help both buyers or sellers of businesses and in this unique context would be happy to talk about your situation to make sure the agreements work well.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com should you require assistance.

What should the agreement cover?

In the first part on buying or selling a business here we saw there were some big picture things you need to think about when buying a business. This part will look at what the agreement for sale and purchase should cover and some key things that need to be thought through. While written from the point of view of a Purchaser, it will also raise the same issues that a Seller will need to think through.

Assuming the decision is to purchase the business (rather than the shares of the company – this point was touched on above) then a commonly used template agreement in New Zealand is produced by the Auckland District Law Society. While it provides a base and a process it can also be adapted to reflect the situation. In terms of process what usually happens is the agreement gets signed and it is subject to conditions – examples of the way that it can be customised are:

Documents to be supplied: We commonly add in many additional terms which relate to the due diligence discussed above and what records will be provided. This usually involves a careful discussion with the client to determine what they expect to see and then being clear about what they have. If you ask for a licence that the seller should have and they cannot provide it, then obviously a red flag goes up.

Conditions: These could include the purchaser arranging finance for the purchase by a certain date, being satisfied with the results of the due diligence, having the lease (if there is one) assigned to the purchaser, obtaining consents or licenses needed. Again, this will vary depending on the business so there is no standard wording that can just be pasted in.

Warranties: It is common to include warranties – these are essentially statements by the Seller about the state of the business. For example, a warranty might state that there is no litigation that the company is a party to. Often these will be subject to robust negotiations – for example, the Seller may want this to say “as far as I am aware” (a knowledge qualifier), or refer to a monetary value such as there being no disputes above “x” dollars (a monetary threshold qualifier).

Restraints: It is common to include restraints on the seller of the business – particularly if it were, for example, a catering business or there was potential that they start something new that competes. Restraints need to be reasonable and usually will involve a certain time period such as one year and there will be a geographic area which is specified. Again, this can be a point of rigorous negotiations.

Intellectual property: Goodwill and reputation often make up a big part of the value of the business which is being purchased so it is important to be clear about what that includes – for example, names (are they trademarked?), website, Facebook pages, client lists, patents or other registrations.

Contracts: As part of the due diligence it is important to look at the really key contracts for the business and focus on whether they have change of control provisions and/or the ability to novate or assign to a purchaser. It might be that there will be issues with the purchaser taking on contracts so that is important to find out as quickly as possible.

Tax and accounting: We always advise involving an accountant to assist with these aspects and confirming with them the tax position – for example, that the transfer will be free of GST. Most of the time both entities will be registered for GST and no GST will be charged but it is far better to get this clear from the start than needing to have a last minute panic.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com should you require assistance.

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.

Please note that this is not a substitute for legal advice and you should speak to your lawyer about your specific situation. 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).

The purpose of the Credit Contracts and Consumer Finance Act 2003 (“CCCFA”) is to protect the interests of borrowers by placing obligations on creditors to be responsible lenders. It does this by providing general rules of credit contracts and by setting out disclosure requirements for consumer credit contracts. This article discusses these rules and requirements to help you understand your obligations as a lender, or your rights as a borrower.

Credit Contracts vs. Consumer Credit Contracts:

The CCCFA defines both general credit contracts and consumer credit contracts. A credit contract is defined in section 7 as a contract under which credit is or may be provided. On the other hand, a consumer credit contract is a loan taken out by a natural person who is going to use the funds for wholly or predominantly (more than 50% household or domestic use (this for example could be a mortgage for a house, but it does not include a loan for investment purposes). There must also be interest charges or credit fees and the creditor must carry on a business of providing credit or make practice of entering into credit contracts.
A consumer credit contract carries with it additional disclosure obligations that are imposed on the lender to ensure that the interests of the borrower are adequately protected.

A loan might fit under the class of a consumer credit contract, but it will definitely constitute a credit contract. It is generally presumed that where a party claims that a credit contract is a consumer credit contract, it will be just that. However, as set out in section 14 of the CCCFA, the borrower can make a declaration before entering into the contract stating that the credit is going to be used for business/investment purposes and that it is therefore not a consumer credit contract.

Responsibility of lenders:

The responsibilities of lenders are set out in section 9C of the CCCFA. These are not binding on the lender but it is strongly advised that they are complied with as they can be used as evidence to prove that the lender was a responsible one. Where applicable to the particular contract, the lender must at all times:

a. Exercise the care, diligence and skill of a responsible lender.

b. The lender must make reasonable inquiries in relation to the borrower before they enter into the agreement. In particular, they need to be satisfied that the credit provided will meet the borrower’s requirements, and that the borrower will not be subject to substantial hardship when they make payments under the agreement.

c. Assist the borrower in reaching an informed decision as to whether or not to enter into the agreement and to be reasonably aware of the full implications of entering into the agreement. This includes ensuring that any advertising is not likely to mislead and that the terms of the agreement are expressed to the borrower in a clear, concise and intelligible manner. The same goes for information provided after the contract is entered into, and any subsequent dealings, insurance contracts, and guarantees.

d. Treat the borrower and their property reasonably and in an ethical manner.

e. Ensure that the agreement is not oppressive.

f. Meet lender’s legal obligations under various other statutes including the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.

The main thing is that lenders ensure that the credit contract is not harsh or oppressive, and that the borrowers are aware of any implications associated with the contract.

What should a credit contract (for example, a loan agreement) include to ensure compliance with the CCCFA?

What needs to be done in order to comply with the CCCFA largely depends on the nature of the particular credit contract. Ultimately though, the CCCFA is seeking to ensure that the borrower is properly protected and that the lender has been a responsible lender and has made sure that the borrower is fully informed as to the nature of the agreement and the implications of entering into it. Consumer credit contracts require an initial disclosure statement as well as continuing disclosure statements to be made at least every six months (where applicable).

Initial Disclosure Statements

A consumer credit contract needs to make key information available in a clear and concise manner to the borrower such as interest rates, default fees and the borrower’s right to relief or cancellation. It is essential that the implications of entering into a credit contract are made known to the customer.

Before a contract is entered into, the following information (in summary) must be disclosed to the consumer (where applicable to the contract), pursuant to schedule 1 of the CCCFA:

a. Full name and address of creditor;
b. Initial unpaid balance;
c. Subsequent advance;
d. Total advances;
e. Credit limit;
f. Annual interest rate;
g. Method of charging interest;
h. Total interest charges;
i. Interest free period;
j. Credit fees and charges;
k. Payments required;
l. Fully prepayment;
m. Security interest;
n. Disabling devices;
o. Default interest charges and default fees;
p. Debtor’s right to cancel;
q. Debtor’s right to apply for relief on grounds of unforeseen hardship;
r. Continuing disclosure statements;
s. Consent to electronic communications;
t. Dispute resolution and Registration under Financial Service Providers (Registration and Dispute Resolution) Act 2008.

This information needs to be disclosed in a way that is clear, concise and intelligible.

Continuing Disclosure Statements

Continuing disclosure statements must also be made pursuant to section 19 of the Act, insofar as they apply to the contract. These are summarised as follows:

a. The opening and closing dates of the period covered by the statement; and
b. The opening and closing unpaid balances; and
c. The date, amount, and a description of each advance during the statement period; and
d. The date and amount of each interest charge debited to the debtor’s account during the statement period; and
e. The date and amount paid by the debtor to the creditor, or credited to the debtor, during the statement period; and
f. The date, amount and a description of each fee or charge debited the debtor’s account during the statement period; and
g. The amount and the time for payment of the next payment that must be made by the debtor under the contract; and
h. The annual interest rate or rates during the statement period (expressed as a percentage or percentages); and
i. In the case of a credit card contract, a prescribed minimum repayment warning and other prescribed information in connection with payments under a credit card contract.

A continuing disclosure statement may not be required in certain situations, for example where interest charges or credit fees are not charged. The full list of exemptions is set out in section 21 of the CCCFA.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. If you have any questions arising out of the above, please feel free to get in touch. You can contact Kris Morrison – krismorrison@parryfield.com or Steven Moe – stevenmoe@parryfield.com or give us a ring on 03 348 8480

When setting up a company, there are lots of new roles to get your head around. Whether you are a shareholder yourself, or a director in a company, it is important to understand what is expected from the role.

Generally, the constitution of a company determines the rules for how the company is to run. The Companies Act 1993 (“the Act”) often sets out that a company can only do certain things if its constitution allows it. In New Zealand however, a company is not required to have a constitution. Although it is very useful to have, it is not a legal requirement. In the absence of one, the Act sets out the rights, duties and obligations of shareholders, amongst other matters.

Shareholders’ Powers

Although shareholders are not responsible for, and don’t participate in, the day-to-day management of the company, the Act holds that there are certain powers that only shareholders of a company can exercise. These include:

Adopting, altering or revoking a constitution (section 32);
Altering shareholder rights (section 119);
Approving a major financial transaction (section 129);
Appointing and removing directors (sections 153 and 156);
Approving an amalgamation (section 221); and
Putting the company into liquidation (section 241).

While the appointing and removing of directors is usually done by an ordinary shareholders’ resolution (simple majority vote), the other powers require a shareholders’ resolution to be passed by a majority of 75% (or higher if required by the company’s constitution) of those shareholders entitled to vote, and voting on the decision.

Under section 109 of the Act, shareholders may also question and pass a resolution relating to the management of the company. However unless the constitution says otherwise, the resolution is not binding on the board.

Limitations

Shareholders can bring an action against a director for a breach of duty owed to them, but not all directors’ duties are owed to shareholders. Section 169(2) makes it clear that a shareholder cannot bring an action against a director for any loss in the value of their shares by reason only of the loss being suffered by the company.

Reporting Requirements

Under section 178, a shareholder may, at any time, make a written request to a company for information held by the company. The company then has 10 working days from receiving the request to:

provide the information; or
agree to provide the information within a specific period; or
agree to provide the information within a specified period if the shareholder pays a reasonable charge to the company to meet the cost of providing the information; or
refuse to provide the information specifying the reasons for refusal.

The company may refuse if:

disclosure would or would be likely to prejudice the commercial position of the company; or
disclosure would or would be likely to prejudice the commercial position of any other person, whether or not that person supplied the information to the company; or
the request for the information is frivolous or vexatious.

Shareholders’ Exit Strategy

Unlike a director, a shareholder cannot just be removed from a company by the other shareholders If problems between shareholders arise, the Companies Act allows a shareholder to apply to the Court to seek orders against the company or other shareholders – for example for the liquidation of the Company. However, this is where it can often be helpful to have a Shareholders’ Agreement which adds to the ordinary rights and responsibilities of the shareholders under the Companies Act. The agreement can set out who can buy their shares, how the shares will be valued, and any restrictions a shareholder may face once leaving, like a restraint of trade. Again, this Agreement isn’t legally required, but it brings clearer rules that are agreed upon by the shareholders.

Conclusion

Without a constitution, there are laws in place to govern what a shareholder can and can’t do. However if you have a company with more than one shareholder, you may want to look into getting a constitution and/or shareholders agreement. They can provide greater guidance on matters already in the Act, but can also allow shareholders greater involvement in how the business itself is run.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Kris Morrison krismorrison@parryfield.com or Steven Moe stevenmoe@parryfield.com at Parry Field Lawyers (348-8480)

Have you ever wondered what happens when you go bankrupt? This article looks at the general process and effect of bankruptcy in New Zealand as well as the effect on a student loan.

The general process and effect of bankruptcy

The process of bankruptcy in New Zealand is set out in the Insolvency Act 2006 (‘the Act’). The Act also provides for an additional formal alternative to bankruptcy, known as the “No Asset Procedure”.

The fact a person is living overseas does not automatically preclude them from being able to be made bankrupt under New Zealand law.

Bankruptcy

There are two ways a person can be adjudicated bankrupt – on the application of a creditor or the debtor can file for adjudication himself or herself.

In terms of the latter, if the combined debts of a debtor amount to $1,000 or more, he or she can apply to be adjudicated bankrupt. There are certain steps which need to be followed which are set out in the Act.

Once the court makes the order of adjudication, the debtor’s bankruptcy commences. It usually lasts three years but normally remains on a person’s credit record for up to 7 years.

The appointed Assignee will advertise the order or adjudication in the Gazette, on the Insolvency and Trustee Service and in the local newspaper.

The general effect of bankruptcy includes:

(a) Once the debtor has been adjudicated bankrupt, most of the bankrupt’s property vests in the Official Assignee, whether in or outside New Zealand, and the bankrupt’s rights in the property are extinguished. The powers that the bankrupt could have exercised in, over, or in respect of any property (whether in or outside New Zealand) for the bankrupt’s own benefit vest in the Assignee. The Official Assignee can therefore seize and sell the bankrupt’s property.

(b) The debtor may retain certain assets, such as tools of trade and necessary household furniture. However, the bankrupt can only retain these assets up to a maximum value. The maximum value for these assets is fixed in the Assignee’s discretion. The bankrupt may also retain a motor vehicle, the value of which must not exceed $6,000. In addition, property held in trust is not affected by the bankruptcy.

(c) The bankrupt must inform the Assignee about his or her property and provide various financial records, including disclosing any property acquired during the bankruptcy, such as a prize or an inheritance.

(d) The assignee can investigate past financial transactions and can retrieve gifts made within a certain timeframe.

(e) Unsecured creditors (secured debt is excluded from bankruptcy) are precluded from continuing to personally pursue the bankrupt for any debt included in the bankruptcy or to add penalties/interest to the debt. All proceedings to recover any debt provable in the bankruptcy are halted.

(f) Unsecured creditors can however prove their claims against the debtor, and the Official Assignee will distribute the bankrupt’s assets among them based on these claims (if there are sufficient funds to do so) in order of a set priority.

(g) The Official Assignee will also decide whether the bankrupt needs to make regular repayments to help repay their creditors.

(h) Creditors that are not based in NZ will be sent a report if they are listed in the bankruptcy. A bankrupt can include that debt in their bankruptcy. A creditor may prove for any debt due to him or her from the bankrupt, no matter whether the debt is governed by New Zealand law or foreign law. A foreigner proving for a foreign debt stands in the same position as a New Zealand creditor proving for a New Zealand debt.

(i) The bankrupt will need the Official Assignee’s permission to, inter alia:

1. take part in the management or control of any business, to be self-employed, or to be employed by a relative or a relative’s business; and

2. travel overseas (the bankrupt can return to New Zealand but if they want to leave again they will need to apply for permission).

(j) The bankrupt also needs to advise the Official Assignee if they change their name, address, employment, terms of employment or income/expenditure.

(k) The public register (of bankruptcies) can be searched from overseas. This may therefore affect a bankrupt’s credit rating outside of NZ.

No assets procedure

To be eligible for the No Asset procedure a person must have debt between $1,000 and $47,000, no realisable assets (excluding cash up to $1000, motor vehicle up to $6000, tools of trade and personal and household effects) and for whatever reason have no way to pay any of their debts.

It has the effect of preventing unsecured creditors from taking steps to enforce debts against the affected person that are included in the procedure. It does not however apply to student loans.

It lasts for 12 months although remains on one’s credit record for longer (it currently remains on the insolvency register for up to 4 years). It does not have as many restrictions as bankruptcy but it does impact one’s credit rating.

The effect of bankruptcy on a student loan

When a person becomes bankrupt, their student loan is written off by the Inland Revenue Department.

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, please contact Kris Morrison at Parry Field Lawyers (348-8480) krismorrison@parryfield.com