Financing - Parry Field Lawyers

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.

The Government recently introduced a one-off loan for businesses and organisations impacted by Covid-19. Applications must be made by 12 June 2020 through myIR.

Eligible applications can receive $10,000 plus $1,800 per full-time employee with a maximum loan amount of $100,000.
Once approved, most applications will receive the funds within 5 working days.
Applicants will have 5 years to pay off the loan with an annual interest rate of 3%.
The loan will be interest free if paid off within 1 year.
Repayments are not compulsory for the first 2 years.
You can choose to borrow the maximum amount or a small portion.

These loans are also accessible for NFP, Charity, NGO entities who meet the criteria. IRD recently attended a hui organised by one of our Partners, Steven Moe, and in the video here they explain how the system works and run through slides describing it. The relevant parts are:

00:00 Introduction from Steven Moe

02:14: Stewart Donaldson from IRD overview of what they are involved in currently

05:25: Rata Kamau from IRD with an overview of the Small Business Loan Scheme

20:40: Rata and Stewart answering questions.

Those thinking of applying should obtain financial advice to determine whether this is appropriate for their situation.

Click the following link to start your application.

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 should you require assistance.

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.

Global economic uncertainty as a result of COVID-19 will impact house purchases. On 30 April 2020, the Reserve Bank of New Zealand (RBNZ) announced the removal of mortgage loan-to-value ratio (LVR) restrictions for 12 months. The decision was made to ensure LVR restrictions did not have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the economic downturn caused by the COVID-19 pandemic. In this article we discuss what the changes are and the likely impact they will have.

LVR: What Does It Mean?

LVR is the amount of loan compared to the value of your property. For example, if the property is worth $500,000 and you have a deposit of $100,000, the LVR will be 80 percent meaning the loan cannot be higher than $400,000. LVR restrictions were introduced by the RBNZ in October 2013, as it was concerned about the rate at which house prices were increasing and the potential risk that it posed to the financial system and the broader economy. These restrictions required banks to restrict new residential mortgage lending at LVRs over 80 percent and allowing no more than 20 percent of its total new lending in this category. This placed restrictions on New Zealand banks and the amount of low deposit lending they could do.

If you were thinking about purchasing a home and had a deposit of less than 20 percent of the home’s value, your home loan application would have been affected by the LVR restrictions. Your application would have had to go through a number of assessments by the bank in order to determine whether it could lend you money or not. If successful, borrowers would face an additional fee called a low equity margin. This resulted in a percentage added to your interest rate that remained there until your loan reduced to the 80 percent threshold. These restrictions certainly did not make it easy for first home buyers and many felt they had been locked out of the property market. However, such restrictions clearly did not deter them. In December 2019 the amount advanced on mortgages was $6.5 billion, with $1.2 billion being advanced to first home buyers, giving this group its highest share since August 2014 (at 18.5%).

Removing LVR

The announcement from the RBNZ to remove LVR restrictions was a strategic one to bolster the economy and increase demand for property as New Zealand comes out of lockdown, with this decision to be revaluated in 12 months. The removal of restrictions on the amount of money that can be lent to high-LVR borrowers will not only have an impact on new home buyers, but also investment property buyers and those who are already current homeowners.

First Home Buyers

If you have been looking at buying your first home for some time but have been put off by the LVR restrictions, the announcement may have come as a breath of fresh air to you. While it is likely that low equity margin rates may still be applicable, as long as you are credit worthy with income and meet the bank’s lending criteria, you could very well be on your way to buying your first home. The removal of LVRs will not only mean it will now be easier for you to obtain lending, it will also mean that you will now have the opportunity to ‘shop around’ and choose a bank that best suits your circumstances. Up until now, you may only have been able to get a pre-approval from your current bank, as most banks have been reluctant to give pre-approvals to non-bank clients in case their existing clients could not be approved. This should no longer be the case and an opportunity is there to be taken advantage of.

Investment Property Buyers

Due to the higher risks associated with these types of loans, the current policy classifies investor loans as high-LVR if they are more than 70 percent of the property’s value. These high-LVR loans could make up no more than 5 percent of a bank’s total new lending in this category. It is likely that this percentage will increase over time, but given the period of uncertainty we are in, it is hard to gauge when this will occur and what the removal of LVR restrictions will truly look like for investment property buyers.

Current Homeowners

The impact on current homeowners is minimal. However, this may make it easier to apply for home loan top ups, especially if you were already close to the 80 percent threshold. It may also mean if you have suffered a loss of income or your property value has decreased to mean your mortgage is now over 80 percent, it may not be as dire for you or the bank as it was before.

Conclusion

The announcement from the RBNZ to remove LVR restrictions was certainly welcomed, especially as the implications of Covid-19 from a financial point of view continue to be negatively felt throughout the country. It will certainly be interesting to see what occurs over the next 12 months as the impact of Covid-19 becomes clearer and whether LVR restrictions will be reinstated.

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 you in your journey. Please feel free to contact Judith Bullin at judithbullin@parryfield.com or Paul Owens at paulowens@parryfield.com should you require assistance.

The Government has announced several urgent insolvency and corporate law changes in response to the COVID-19 Pandemic, in an attempt to keep solvent businesses afloat during this turbulent economic period. These include:

permitting electronic signatures where necessary;
giving entities unable to comply with their constitutional obligations because of the pandemic temporary relief;
giving the Registrar of Companies authority to extend deadlines imposed by legislation
amending sections 135 (“reckless trading”) & 136 (“duty to relation to incurring obligations”) of the Companies Act 1993 to afford directors greater comfort when making difficult decisions regarding their ability to continue to trade;
bringing forward changes to the voidable transactions regime; and
introducing the business debt hibernation scheme.

Once enacted, the Government has confirmed their application will be given retrospective effect from 3 April 2020.

Changes to Directors’ Duties

In light of concerns directors may prematurely place companies into liquidation for fear of personal liability incurred should they continue to trade or to take on new obligations, two significant amendments have been made to sections 135 & 136 of the Companies Act 1993.

Section 135 places an obligation on directors to abstain from agreeing, causing or allowing for a company to be operated in a manner likely to create a substantial risk of serious loss to the company’s creditors.
Section 136 places an obligation on directors to abstain from taking on a new obligation if they do not believe, on reasonable grounds, that the company will be able to fulfil its obligations under the arrangement.

Under the announcement, directors who continue to trade (including the taking on of new obligations), will be afforded a “safe harbour” period from potential claims providing these criteria are met:

the directors consider, in good faith, that the company is or will likely face significant liquidity problems in the next six months due to the pandemic;
the company was able to pay its debts as they fell due on 31 December 2019; and
the directors consider in good faith that it is more likely than not the company will be able to pay its debts as they fall due within 18 months (for example, utilising the business debt hibernation scheme to get the business back on track).

This “safe harbour” is to be enacted for (initially) a six month period. Notably, directors must continue to act prudently and in good faith in their dealings with creditors, as all other directors’ duties continue to apply including the duty to act in good faith and in the best interests of the company under s 131.

How the change to section 136 will be drafted will be of great interest to directors of companies currently under pressure as a result of the lockdown. The requirement that director(s) be satisfied that “…the company will be able to pay its debts as they fall due within 18 months” may be challenging for directors, who will have to show they has maintained appropriate financial records consistent with the size and nature of the company, that their assumptions are reasonable and (where appropriate)the directors have acted on advice. Contracts with longer-term obligations such as leases may not fall within the safe harbour period so directors need to be prudent when accessing longer-term obligations, whether existing or new.

With this in mind, it is important to keep accurate and up-to-date financial information. This includes reasonable budgets and forecasts for the next 18 months. This will allow directors to reach an informed decision on the company’s likelihood of being able to meet its debts as they would fall due in 18 months.

Changes to sections 135 & 136 come at a time when directors are increasingly concerned about their civil liability when dealing with third parties while their business is struggling. Often this results in directors prematurely resigning and appointing an external administrator. This is in part due to the recent High Court decision in Mainzeal Property and Construction Limited v Yan discussed here under which the directors of Mainzeal Property Limited were collectively ordered to pay NZ$36 million for a breach of section 135.

In December 2019, the Companies (Safe Harbour for Insolvent Trading) Amendment Bill was proposed with a view to alleviating directors’ concerns regarding their liability when deciding to continue trading, notwithstanding the company being insolvent. This Bill reduces directors’ civil liability when a company is (or will become) insolvent and its directors undertake new debts in an attempt to improve the company’s position. It remains unclear what extent the amendments mentioned hereinabove will reflect contents of this Bill.

Changes to the Voidable Transaction Regime

According to the current voidable transaction regime, a liquidator can “claw-back” payments made from the debtor company to its creditors two years before its liquidation. It has been proposed to shorten the two year vulnerability period to six months when the debtor company and the creditor are unrelated parties. Originally, this change was contained in the Insolvency Law Reform Bill, however the Government has included it amongst the recent changes because of the increase of liquidations predicted.

Business Debt Hibernation

The Business Debt Hibernation Scheme (“the Scheme”) is to be introduced to the Companies Act 1993 to supplement the relief measures that already exist between creditors and businesses. Debt hibernation effectively allows businesses to place their existing debts into “hibernation” until they are able to start trading again.

With the rationale of enhancing a company’s ability to stay afloat in the face of the pandemic, the scheme aims to:

increase discussions between creditors and directors;
enable directors to keep control of their companies rather than appointing an external administrator;
encourage continued trading between the company and its creditors by providing certainty to both parties; and
be simple and flexible.

Companies wanting to participate in the Scheme will have to meet certain criteria. This has not been announced in full, but it is expected to include:

the business would have been solvent had the Pandemic not occurred;
it would be in the best interests of the business (including its ability to pay creditors) for the business to enter debt hibernation;
the creditors of the business will need to be notified of the company’s intention to enter into the Scheme;
once the company notifies its creditors of their intention to enter into the Scheme a one-month moratorium will take effect immediately while creditors cast their votes;
consent must be obtained by at least 50% of creditors;
if the business obtains the consent of 50% of creditors, the Scheme becomes binding on all creditors, except employees, and there will be a moratorium on the enforcement of debts for a six month period once the proposal is passed; and
further payments made by the company to third party creditors during the Scheme will be excluded from the voidable transactions regime – this affords third party creditors with greater protection that, in the event of the company’s insolvency, the advance will not be clawed back.

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 Peter van Rij at petervanrij@parryfield.com or Tim Rankin at timrankin@parryfield.com

Some of the hardest hit by the current Covid-19 crisis are small and medium sized businesses. The Government has confirmed that they can now apply to their bank for a loan under the Business Finance Guarantee Scheme (the Scheme), set up by the Government in an effort to protect jobs and support the economy during the Covid-19 pandemic.

The Scheme works alongside the Wage Subsidy Scheme which is already available to businesses. The Scheme’s purpose is to help businesses with cash flow and operating expenses in the aftermath of the Covid-19 pandemic.

Not all businesses are eligible for the scheme, however if you are a business with an annual revenue of between $250,000.00 and $80 million you can apply to your bank for a loan of up to $500,000.00 for up to three years. The bank will determine your eligibility and determine the amount available to borrow. Applications under the Scheme are now open and are available until 30 September 2020, or until all available funds, being $6.25 billion, have been exhausted.

Applications under the Scheme can be made through your bank’s website and a standard lending process will be followed through the bank’s credit assessment process to determine eligibility. In addition, banks will take into consideration your circumstances due to the Covid-19 pandemic. The interest rate and other terms of the loan will be determined by the bank under their normal lending criteria. Of course a basic question needs to be asked – does your business need more debt or can it survive without taking that on?

This is important to think through because all this really means is that the process is similar to getting a normal loan from the bank – the difference being the Government has agreed to guarantee 80% of the risk in relation to each loan with the remaining 20% to be guaranteed by the bank. If a business defaults on their loan under the Scheme, banks will follow normal enforcement procedures and it is likely that as a part of the loan process and terms the bank will have obtained personal guarantees (usually from company directors) or other security (for example a General Security Agreement over the assets of the Company) that they can enforce before relying on the Government guarantee of the loan. The guarantee provided by the Government is essentially a protection for banks who might not otherwise provide loans to companies and not as a protection for the businesses who are the ones that actually take out the loans.

For more information regarding this scheme you can refer to your bank’s website. Participating banks are ANZ, ASB, BNZ, Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB and Westpac. If you’d like to talk through your current position and options then you can always contact us.

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 you in your journey. Please feel free to contact Luke Hayward at lukehayward@parryfield.com or Emma Piercey (nee Garlick) at emmapiercey@parryfield.com.

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