Business - Parry Field Lawyers

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

New Zealand has passed a law called the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“the AML/CFT law” for short). The purpose of the law reflects New Zealand’s commitment to the international initiative to counter the impact that criminal activity has on people and economies within the global community.

Recent changes to the AML/CFT Act mean that from 1 July 2018 lawyers must comply with its requirements. Lawyers must do a number of things to help combat money laundering and terrorist financing, and to help Police bring the criminals who do it to justice. The AML/CFT law does this because the services law firms and other professionals offer may be attractive to those involved in criminal activity.

The law says that law firms and other professionals must assess the risk they may face from the actions of money launderers and people who finance terrorism and must identify potentially suspicious activity.

To make that assessment, lawyers must obtain and verify information from prospective and existing clients about a range of things. This is part of what the AML/CFT law calls “customer due diligence”.

Customer Due Diligence Requirements

Customer due diligence requires a law firm to undertake certain background checks before providing services to clients or customers. Lawyers must take reasonable steps to make sure the information they receive from clients is correct, and so they need to ask for documents that show this.
We will need to obtain and verify certain information from you to meet these legal requirements. This information includes:

your full name; and
your date of birth; and
your address.

To confirm these details, documents such as your driver’s licence or your birth certificate, and documents that show your address – such as a current bank statement – will be required.
If you are seeing us about company or trust business, we will need information about the company or trust including the people associated with it (such as directors and shareholders, trustees and beneficiaries).

We may also need to ask you for further information. We will need to ask you about the nature and purpose of the proposed work you are asking us to do for you. Information confirming the source of funds for a transaction may also be necessary to meet the legal requirements.

If you cannot provide the Required Information

If we are not able to obtain the required information from you, it is likely we will not be able to act for you. Because the law applies to everyone, we need to ask for the information even if you have been a client of ours for a long time.

Before we start working for you, we will let you know what information we need, and what documents you need to show us and let us photocopy.

Please contact the lawyer who will be undertaking your work, if you have any queries or concerns.

The European Union (EU) will soon have new rules that are likely to affect the privacy policies of businesses around the world. They relate to the collection of data from citizens of EU countries, and so can affect businesses even as far away as New Zealand. The EU General Data Protection Regulation (known as the GDPR – more info here) has now come into force as of 25 May 2018.

There are three key ways that it could affect your business which you should be thinking through now.

1. Assessing to what extent it will affect you

To answer this you need to think through questions like this:

do you market to and target EU residents via website? Just having it accessible to them may not be enough – do you actively target EU residents to help those in the EU order tours or trips via your website such as offering the website in languages of the EU (beyond English)?
what “personal” data do you collect about users/customers e.g. names, gender, dates of birth, phone, credit card information, addresses, emails etc.
do you transfer data to the EU for example to any agents who act on your behalf there or do you have an “EU representative” or any physical presence at all?
does anyone else store your data on servers offshore or is it all in New Zealand?

2. Reviewing your documents

In light of the answers above, the key one to review is your privacy policy and it is important to check what it says and if it needs updating to reflect best practice. In addition, it is good to look at any consent forms (or places clients click) to check that they are widely enough drafted to give consent to use of their information.

When looking at your privacy policy some key questions to ask are:
What exactly is being collected?
Which entity is collecting the data?
What is the basis for receiving and for processing the data?
Whether or not the data will be shared with third parties?
How long will the data be stored for?
How is the information collected going to be used?
What rights does the person who submitted the information have to e.g. access it – and how?
What the process for a complaint is?

3. Documenting how you comply

This is both an internal record but also could be used if you were ever asked to show how you are complying. It would document the above two points clearly to explain how compliance with the new rules is ensured.

You may want to also designate a person or group to lead the effort within the business. A “Data Protection Officer” could help lead the way in this regard. They may want to prepare a “Data Protection Policy” which can also be used to educate the businesses’ senior decision makers about the GDPR’s new risk-based compliance approach, and the potential effects of non-compliance.

We are able to assist companies with a review of their privacy policies in light of the changes in the EU. While it may seem amazing that a jurisdiction so far away could impact us this is likely to be an increasing trend as we move into even more of a global economy where countries and regions look to protect the data of their citizens. This focus is highlighted by reports of the improper use of data by companies harvesting that information to use in elections. If your answers to any of the questions above indicate a link with the EU then now is the time to take action.

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

Consequential loss is a loss that arises as a result of a breach of contract. In contracts, parties often exclude liability for consequential loss which is provided for in an exclusion clause.

If you are entering into negotiations for a contract, it is important that you understand what consequential loss is, when damages can be claimed for consequential loss, and how to effectively exclude liability.

A question that arises when dealing with consequential loss is how far you can actually go in claiming damages for a consequential loss? Where do you draw the line?

Say, for example, that Mrs Smith has purchased a freezer for her catering business from Mr Jones, which she has filled with ice cream. This ice cream is for a stall that she has been running at the local fair for a few years now, and is a favourite for many fair-goers. Unfortunately, the freezer broke the day before the fair causing all of the ice cream to melt and meaning that Mrs Smith cannot serve ice cream at her ice cream stall and would therefore not make any profit. The lack of ice cream at the stall meant that there were a lot of grumpy children, and grumpy children meant grumpy parents which resulted in a lot of backlash on the fair.

The following year, the fair suffered a 50% reduction in attendance as a direct result of the grumpy children and the lack of ice cream, and the organisers then had to cancel the fair in subsequent years and claimed the amounts they lost from poor Mrs Smith.

Mrs Smith now wants to sue Mr Jones in damages for the loss of profit and the amounts claimed by the fair organisers, which were losses resulting from the breaking of the freezer. But how far can Mrs Jones actually go in claiming these damages? Let’s look at some cases and see what they say.

Hadley v Baxendale

In an 1854 English Court of Exchequer decision Hadley v Baxendale, Alderson B famously established the remoteness test, which is a two-limb approach where the losses must be:

Considered to have arisen naturally (according to the usual course of things); or
Reasonably considered to have been in the contemplation of the parties at the time when they made the contract as a probable result of the breach of it.

Alderson B said that in order for a party to successfully claim damages on the grounds of consequential loss, the loss must fall into either of those two categories.

McElroy Milne v Commercial Electronics

In 1992 in New Zealand, Cooke P said this test no longer applied in modern law, and he established a multi-factorial discretionary approach in which a range of factors are to be taken into consideration, including foreseeability.

Transfield Shipping v Mercator Shipping (The Achilleas)

This is more recent English House of Lords decision concerning the late return of a ship. In this case, the judges established that while Hadley v Baxendale is generally a good approach, there are certain circumstances where it may not necessarily apply.

These judgments create confusion in determining what actually constitutes a consequential loss and where to draw the line. Generally speaking, however, the loss must have been in the contemplation of the parties for it to amount to a consequential loss.

A way forward: What should the clause say?

In our view there are three ways forward:

No exclusion of consequential loss – this means that the parties are leaving it up to the interpretation of the Courts;
Include a general consequential loss clause; or
Incorporate a bespoke clause for the specific contract.

Where possible, we recommend a general exclusion of consequential loss with some examples of specific situations (essentially a bit of both 2 and 3 above).

Other options available:

Remember that a contract is ultimately a give and take from each side and another way that a party can limit liability in a contract is by putting a total cap on their liability.

Another option is that a party could limit liability by stating a time period in which the other party can bring a claim. A small company negotiating with a large multinational will have less scope and a template agreement is much more difficult to get changes made to it.

Ultimately, whichever route is taken depends on the preference of the parties, and their negotiations will also play a role in determining what liability is excluded.

Every situation is unique and how much Mrs Smith could claim for will depend on what the contract said and the circumstances of the situation. Whatever your scenario, we have a dedicated commercial team at Parry Field Lawyers who can give you personalised advice on all aspects of your business ventures. This article is also based on a more detailed analysis of the cases mentioned above – contact us if you would like a free copy of that.

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

If you are in start-up mode then you have plenty to think about – so when it comes to setting up your Company you may be wondering what is essential and what is not? In this article we talk about a Constitution and explain what it is and the role it can play for your Company.

To set up a Company the key things you need are a Shareholder and Director (needs to be NZ resident or a director in an Australian company). A Constitution is not legally essential in order to set up a Company but they are very common. This is because they can alter the ‘default’ position under the Companies Act. Without a Constitution the Companies Act provisions apply to your new venture. That may be fine in some simple situations where there is only one shareholder and director but in the usual scenario of multiple people involved it can pay to be specific and customise how you want the rules to apply.

It is worth remembering that because a Constitution is a public document it also allows for transparency in case someone wants to look it up on the Companies Office website (as opposed to a Shareholders’ Agreement which is a private document). More on the Shareholders’ Agreement and what that is another time.

So turning to what a Constitution would typically cover, they deal with how the Company will run in relation to matters such as:

• Setting out clearly the purpose of the Company;
• Information regarding the Shares such as how they are issued and transferred and whether there are any restrictions on selling or transferring shares;
• About distributions and when dividends will be paid and the process;
• Regarding Directors such as the number of directors, how they are appointed and how they resign or are removed;
• Meetings and what will make up quorums of the Board or Shareholder meetings; and
• What happens if the Company is wound up and ceases to trade.

While it may seem like having a Constitution is not necessary if you will be the sole Director and sole Shareholder it is important to think long term – how about in 2 years when you want to bring in an investor? It is likely that having a framework to show that covers off the key points about how the Company operates will be helpful. We would be happy to talk through some of the issues involved as we deal with start-ups most days of the week.

Recently we prepared a guide called “The Start-ups Legal Toolkit” which is a free ebook – contact us if you would like a copy. We also have resources on our “Innovate” website with templates and articles and guides there.

Contacts: Steven Moe – stevenmoe@parryfield.com and Kris Morrison – krismorrison@parryfield.com

If you are in start-up mode then you have plenty to think about – so when it comes to setting up your Company you may be wondering what is essential and what is not? In this article we talk about a Constitution and explain what it is and the role it can play for your Company.

To set up a Company the key things you need are a Shareholder and Director (needs to be NZ resident or a director in an Australian company). A Constitution is not legally essential in order to set up a Company but they are very common. This is because they can alter the ‘default’ position under the Companies Act. Without a Constitution the Companies Act provisions apply to your new venture. That may be fine in some simple situations where there is only one shareholder and director but in the usual scenario of multiple people involved it can pay to be specific and customise how you want the rules to apply.

It is worth remembering that because a Constitution is a public document it also allows for transparency in case someone wants to look it up on the Companies Office website (as opposed to a Shareholders’ Agreement which is a private document). More on the Shareholders’ Agreement and what that is another time.

So turning to what a Constitution would typically cover, they deal with how the Company will run in relation to matters such as:

Setting out clearly the purpose of the Company;

Information regarding the Shares such as how they are issued and transferred and whether there are any restrictions on selling or transferring shares;

About distributions and when dividends will be paid and the process;

Regarding Directors such as the number of directors, how they are appointed and how they resign or are removed;
Permit insurance to be taken out for the Directors;
Meetings and what will make up quorums of the Board or Shareholder meetings; and

What happens if the Company is wound up and ceases to trade.

While it may seem like having a Constitution is not necessary if you will be the sole Director and sole Shareholder it is important to think long term – how about in 2 years when you want to bring in an investor? It is likely that having a framework to show that covers off the key points about how the Company operates will be helpful. We would be happy to talk through some of the issues involved as we deal with start-ups most days of the week. Recently we prepared a guide called “The Start-ups Legal Toolkit” which is a free ebook – contact us if you would like a copy. We also have resources on our “Innovate” website with templates and articles and guides there.

Contacts:

Steven Moe – stevenmoe@parryfield.com and Kris Morrison – krismorrison@parryfield.com

The IRD has just issued some new guidance on cyrptocurrency here (end of March, 2018). It is interesting to think about traditional Government and how it responds to something new like blockchain and its currently most well known child, cryptocurrency. The key takeaways are the following points they make which for the first time make clear the regulatory environment that they are wanting people to be operating within (these are direct quotes from their Q&A statement):

cryptocurrency is property, not currency.
Cryptocurrency received as payment for goods or services is business income, which is taxable.
This is seen as a barter transaction and you’ll need to calculate the value of the cryptocurrency in New Zealand Dollars (NZD) at the time it’s received.
For some ‘alt coins’ (cryptocurrency other than Bitcoin) it may be necessary to convert into US dollars, or any other fiat currency, and then convert into NZD.
Rates can vary significantly between different exchanges and currencies. You must use a consistent exchange and conversion approach.
Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from selling it are taxable.
For income tax purposes, cryptocurrencies also have similar characteristics to gold bullion.

The IRD had issued some previous guidance before but some of the points here had not been clear. This guidance indicates that in New Zealand they want to be capturing the value created from the ownership of any cryptocurrency. Doing that may involve some hurdles to calculate what those values actually will be in New Zealand dollars to report on (eg on a sale calculate Alt coin value -> USD value -> NZD value -> pay tax on that).

The other interesting aspect is if you are receiving payment for goods and services that is to be treated as taxable business income. What are the flow on impacts of such a regulatory environment in terms of impact on small players who are planning to use a cryptocurrency for small scale projects and as a way to transfer value for someone providing a service, or someone selling some goods. On an initial reflection about this it means, for example, if I grow organic vegetables in my back garden and receive cryptocurrency in exchange for them from a third party that when I sell them like that then that cryptocurrency is business income that I need to pay tax on. It adds a layer of complexity perhaps once a regulatory body like the IRD gets involved in what could have been a seamless exchange of cryptocurrency for the exchange of goods or services. It will be important to keep an eye out and watch how this all develops.

Here are some reflections on reading “View from the Top: An inside look at how people in power see and shape the World”. The book was based on 550 interviews over 10 years with CEOs and business leaders and the author had been in Christchurch recently. I did not attend any meetings but a friend loaned me the book so had a read if it.

What stood out to me was the purposeful approach those interviewed took in their lives. They did not sit back and wait for the right situation to present itself – they were proactive and up skilled and met the right people then embraced opportunities. How often do we, by contrast, expect good things to just happen?

Another point which stuck out was that the people often knew the value of EQ and having a diverse network of support and wide range of interests – being generalists rather than too specialist.

The final key thing for me was the use of the word “catalyst” – that the best leaders also draw the best out of others as well. Hand in glove with this was the fact that they all recognised someone had helped them along the way and so they too looked to help the next generations coming up.

The conclusion had a few other key points that included:

– act personally, but think institutionally

– maximise opportunities, but leave something behind

– great leaders sacrifice

I would like to have seen a bit more on the shadow side of being so driven – there was some discussion on how leaders made time for family but I got the sense there was a lot more material there. Should someone working a 100 hour week and making millions be applauded when their children don’t know them?

I would recommend the book as a high level overview of some key things to consider if you are thinking about your own life and the different leadership roles you may have.

Our Senior Associate Steven Moe was recently quoted in this blog by Active Associate:

Chatbots are the latest AI advancement law firms should look at

By: Anatoly Khorozov

Artificial Intelligence has grown a lot over the past few decades, and chatbots are now among the most popular applications of the AI technology. This is a perfect opportunity for law firms to take advantage of such solutions. In 2018, chatbots are becoming more popular and starting to change the organisational structure of how law firms operate.

Whenever someone has basic questions for a law firm, they can now get immediate answers from the chatbots that are set up to reply to their questions at any time.

Innovative law firms are using chatbots as a way to help generate new leads and to establish better customer support and relationships. Working off already available content provided by a law firm, the chatbot answers basic questions (without providing legal advice!) in a timely and convenient way, and help the firm engage potential customers and enhance the experience of existing customers.

These chatbots are not supposed to be robo-lawyers but rather virtual assistants “looking after” prospective and current customers, taking care of mundane trivial tasks and reducing reliance on people. Meanwhile, lawyers can devote their time to more important and business critical tasks that only humans can do. This reduces unbillable time and increases the overall profitability of a law firm.

When legal virtual assistants are providing support to people, it establishes and reinforces trust between potential and existing customers and the law firm. This helps generate more paying customers for the law firm.

Thanks to the chatbot technology, law firms no longer need to hire chat agents to answer people’s questions. It doesn’t even matter that the chatbot is automated and is relying on content that is given to them by writers who work for the law firm. The chatbot uses Natural Language Understanding (NLU), an AI technology, to work out the nature of the user’s message and matches that to the relevant content they are pre-programmed with. This is how the chatbot is able to come up with an immediate answer.

“The fact is that chatbots push conversion rates and generate interest in communicating with a law firm in a new way – our chatbot Lisa is a crucial part of our marketing strategy,” says Steven Moe, a Christchurch-based lawyer with Parry Field Lawyers.

A lead is not converted into a customer until they have actually communicated with a human lawyer of the firm. This is important because chatbots will never be able to replace the empathy and compassion that comes from talking with another human. Moe notes, “It’s vitally important for any law firm that wants to create a chatbot to find a healthy balance between technology-driven interactions that result in clients with losing the personal touch of the human interaction.”

Chatbots are great at providing basic information and helping potential customers set up meetings with lawyers in a way that is convenient and efficient for both parties. Obviously, chatbots must work hand in hand with other ways people contact law firms, for example by email or phone. A well designed and implemented chatbot solutions allow a user to contact a firm in a way that is most suitable for the occasion.

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)