You may have seen the term Portfolio Investment Entity or PIE used in the local newspapers and wondered what it was all about.  In this article we explain the reason for the provisions, and what they to do.

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Is a GST Domestic Reverse Charge a Good Idea?

GST is a hazardous tax, not only for taxpayers, but also for the Government. Unlike income tax, the Government has a commitment to refunding GST, and this part of the GST mechanism leaves the tax open to manipulation. The hazard is greatest where the assets sold are largest.  The domestic reverse charge mechanism will to an extent reduce the risk the Government faces from being ripped off through the GST system.

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In the recent Court of Appeal decision Commissioner of Inland Revenue v Penny and Hooper [2010] NZCA 231 (4 June 2010) it was held that Mr Penny and Mr Hooper entered into a tax avoidance agreement when structuring their affairs in such a way as to avoid paying tax at 39% on the majority of their income.  The surgeons have now decided to appeal the case, but if not successful it will have significant implications for a broad sector of the New Zealand public. Read more

What are the transitional rules for the GST rate increase if I account for GST on a payments basis?

What are the transitional rules for moving to the 15% GST rate in New Zealand from 1 October 2010 if you account for GST on a payments basis? The transition rules applying to those on a payments basis are arguably the most complex part of the change to the GST rate. This article helps explain these specific aspects of the transitional rules.

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When purchasing a property, it pays to investigate the history of the buildings on the land. If there are no records of building consents having been issued by the council, then at best the buildings may have been constructed without council approval and may not comply with the building code. At worst, they may be dangerous for use and occupation.

Background To The Building Consent Process

The Building Act 2004 (“the Act”) governs all building works in New Zealand. It states that such work must comply with the building code. The code is made up of regulations which prescribe the functional requirements for buildings and the performance criteria they must meet for their intended use.

Before undertaking building work, the owner of the property must obtain approval from a building consent authority. Usually, the building consent authority is the local council. Council approval for building work is known as a “building consent”.

During construction and once construction is complete, the council will inspect the work to ensure compliance with the conditions of the building consent and the building code. If the council approves the work, then it issues a code compliance certificate. It is an offence to carry out any work requiring a building consent if the work is not in accordance with the terms of the building consent. Also, subject to some exceptions, until such time as a code compliance certificate has been issued, it is an offence to occupy the building.

What Happens When Building Work Has Been Done Without A Building Consent?

Building consents cannot be issued retrospectively. However, if the work has been completed and a building consent was required but not obtained, then an application to the council for a “certificate of acceptance” may be made. This involves the council inspecting the work to determine if it complies with the building code. If it does, then it may issue a certificate of acceptance. However, such a certificate cannot be issued if the building work was carried out prior to 1992 as the building code was not in existence prior to that date.

It is not uncommon to come across properties where the buildings on the land have been constructed with a building permit or consent but the work has either never been completed, or if it has, the council has not approved it. If the work was carried out prior to 1 January 1993 and provided that the building is not “dangerous” or “unsanitary” as defined in the Act, then the council cannot take any action to require the owner to complete the work in accordance with the original building permit.

Make Sure Your Contract is Conditional on Approval of a LIM Report

The best way to check that there are no unauthorised buildings on a property is to obtain a Land Information Memorandum (known as a “LIM report”) before you buy it. This includes a summary of all records held by the council in relation to the property including details of building permits, consents, code compliance certificates and certificates of acceptance. To protect your position, any sale and purchase agreement you sign should be subject to approval of a LIM report for the property.

It is worth remembering that although the absence of permits or consents may not pose a problem while you live in the property, it may well become a problem once you decide to sell it. For that reason, a LIM report is money well spent. It could save you a great deal more at a later date.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

New Zealand’s Building Act 2004 (“Act”) impacts on vendors selling properties on which building work has been undertaken. Purchasers now often request evidence of compliance with the Act.  Parry Field Lawyers provide legal advice on a range of property matters including buying and selling property.

 

Building Code

One of the fundamental principles of the Act is that all building works must comply with the building code.  Compliance with the building code is mandatory regardless of whether or not a building consent is required for the work.  Even for minor building projects, householders need to check whether or not the building code is relevant and if it is, must ensure that the building work complies with the requirements of the code.

Evidence of Compliance

The most common way a building owner may provide evidence that work complies with the building code is by obtaining and being able to provide the purchaser with a Code Compliance Certificate (“CCC”). A CCC is issued where a building consent is applied for before building work is commenced. The CCC effectively provides that the consent authority is satisfied on reasonable grounds that the building work complies with the building consent. It is the building consent that is crucial in ensuring that the performance standards set out in the building code are met by the finished building product.

A building consent will lapse if work does not commence within 12 months of the date of issue. However, it appears that commencement of work within the first 12 months after the building consent is issued preserves the consent indefinitely.

Certificate of Acceptance

Sometimes a purchaser will ascertain that building work for which a building consent and CCC should have been issued, has not been completed in accordance with those requirements. The Act provides that in that situation a building consent authority can issue a certificate of acceptance.

A certificate of acceptance certifies, to the best of the building consent authority’s knowledge and on reasonable grounds, that, as far as it could ascertain, the building work complies with the building code.

Obviously this certificate conveys a far lower degree of quality assurance than a building consent or CCC. It replaces what was previously referred to as a “safe and sanitary” letter which followed an inspection by the Council certifying to the effect that the building was deemed to be neither unsafe nor unsanitary.

Building Warrant of Fitness

Another matter which may require consideration when purchasing a commercial building is whether or not a building warrant of fitness is required and is up to date. If a building contains systems or services that require ongoing maintenance in order to function at the level demanded by the building code, a compliance schedule must be established in regard to those systems to ensure that maintenance is routinely carried out. The compliance schedule sets out the inspection, maintenance and reporting procedures required to ensure that those systems meet performance standards. The building warrant of fitness confirms that the inspection, maintenance and reporting procedures set out in the schedule have been complied with for the foregoing 12 months. Accordingly, building owners bear responsibility for engaging an independent qualified person (IQP) to carry out an inspection and must display a copy of the building warrant of fitness in a public area of the respective building.  There are significant fines for a building owner who fails to obtain a compliance schedule or to display a current building warrant of fitness.

 

 

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

Changes to New Zealand’s Companies Act in 2007 brought in a new procedure for insolvent companies called voluntary administration.  If your business is struggling, the voluntary administration process might be of assistance.

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Most businesses in New Zealand are small, closely held companies. Often, their directors and shareholders are the same and they also work for the business. This means the lines between acting as director, shareholder, or manager get very blurred.

The Companies Act 1993 imposes a number of obligations on shareholders to ensure that directors/shareholders act appropriately in their different roles.Parry Field Lawyers provide legal advice on a range of commercial matters including company management and the rights and obligations of shareholders.

 

Shareholders hold the power behind the throne

The directors of a company make the day to day decisions.  Section 104 of the Companies Act 1993 (Act) restricts shareholder power, and the exercising of it, to the annual meetings and special meetings of shareholders (or a resolution in place of an actual meeting, which is often the preferred option).  It must be remembered that a director may be linked to another entity which is a shareholder in the company, such as where a director is trustee and/or beneficiary of a family trust, holding shares in the company. In that situation, the role of independent trustees in those trusts becomes important in ensuring that the interests of the shareholders are met and that the shareholders do not simply rubber stamp the directors wishes.

Shareholder power

The Act prescribes that certain powers must be exercised only by the shareholders of a company. These powers include adopting, altering or revoking a constitution (s32), approval in alternation of shareholder rights (s117), approving a major financial transaction (s129), appointing directors (s153), removing directors (s156), approving an amalgamation (s221) and putting the company into liquidation (s241).  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.

Sometimes all or nothing

There are instances where unanimous resolutions from shareholders may circumvent the requirements of the Act.  Under s107 of the Act shareholders acting unanimously may authorise a dividend, approve a discount scheme, allow a company to acquire or redeem its own shares, provide financial assistance to purchase its own shares and sign off on benefits, guarantees, remuneration packages and the like for the company’s directors.  These unanimous resolutions however, do not override the requirement for the solvency test to be met by the company, and for the related directors solvency certificate under s108.

Role at meetings

Annual meetings are the most usual ones for shareholders to turn their minds to.  Business carried out in such a meeting may be limited to receiving and adopting financial reports, election of directors, appointment of auditors, any other business requiring a special resolution and general business.

Special meetings can be called at any time to discuss a specific resolution provided the calling procedure has been adhered to.

In signing a resolution in lieu of a meeting each shareholder must ensure that all the requirements are included in the resolution and all matters to be resolved are clearly stated – if there is any doubt seek clarification, have it rectified or have the actual meeting.

 

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 get in touch. 

 

If you are a director of a small or medium sized company, you may be faced with the question of determining what is a reasonable and acceptable level of remuneration for yourself as a director. Parry Field Lawyers provide legal advice for managing your company including payment of directors’ fees.

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