Business - Parry Field Lawyers

We went to a seminar today put on by UCE at Greenhouse in Christchurch on the Future of Innovation. Here is a short summary of what Bill Reichert from Garage Technology Ventures said about the top things learned over his career in Silicon Valley.

Great insights – what can we learn to improve the Start-up ecosystem here in Christchurch?

Top 10 lessons from Silicon Valley

Focus on innovation (compared to old mind set of a focus on invention) – few in Silicon Valley built their business on the technology they invented,
Build an unbalanced team (compared to building balanced team) – get different perspectives in organisation and diversity of opinion eg optimist, pessimist, realist. Disagreement is OK.
Win through collaboration (compared to win through competition) – work with others don’t try to crush competitors.
Celebrate innovators (compared to celebrate celebrities) – key to good ecosystem is to celebrate innovation so unique culture.
Failure is a necessity (compared to failure not being an option) – need to try more and embrace failure.
Assume increasing abundance (compared to assume increasing scarcity) – design for more abundant environment eg cheaper Nokia phone vs build expensive iPhone: mindset shift
Global open innovation (compared to protecting internal innovation) – need to look externally for ideas and innovation not just within.
Government gets out of the way (compared to Government driving innovation) – policy infrastructure needs to promote innovation.
Everybody innovates and everyone copies (compared to where US innovates and the World copies) – easier to share information and trends.
People trump technology (compared to technology drives innovation) – users need to love product so you have to have more than just a cool technology.

Bonus: focus on creating value (compared to focus on making money) – hard to make it through tough times if only focus on money. Need to have other purpose or reason – how will your company add value?

There are a lot of great insights there and we hope they will be useful for your business or start-up!

There was an interesting interview on the weekend NBR business show with agritech futurist Dr Rosie Bosworth.

She had a warning about New Zealand being complacent regarding the food industry. In particular, that there could be disruption from new technology in synthetic food. She thinks that if it is ignored then this could impact New Zealand in the future and the economy could suffer if it is reliant on traditional food production like it is now.

This is a link to an earlier article she wrote on this topic:

Her conclusion is worth repeating here: “Yes, it will be painful to watch the sun setting over one of our treasured economic mainstays forming the very essence of our rural – even cultural identity. But what will be more painful for New Zealand is if we allow denial of the rapidly changing technologically led agricultural and food paradigm, and our nostalgia for pasture-based farming to paralyze our future economic progress. Despite the many palpable warning signs, it’s time to start thinking seriously about Plan B for New Zealand’s road ahead. Otherwise becoming the Detroit of Agriculture could fast become New Zealand’s nightmarish reality.”

Will be interesting to watch this space in the coming years!

Approval is needed where an “overseas person” acquires sensitive New Zealand assets. This article describes the key points about the process to be aware of in advance.

From our experience in obtaining OIO approval we have drawn together the following points which answer the key questions an investor has about the process and steps required.

Who is the OIO?

The Overseas Investment Act 2005 (OIA) is administered and enforced by the Overseas Investment Office (OIO) which processes the applications made. It is based in Wellington and its team is growing quickly as it deals with more applications and enforcement.

When is consent needed?

Consent is required for an “overseas person”. In basic terms that means a person who is not an NZ citizen or a person ordinarily resident in NZ. However, it is worth discussing individual circumstances as it may be complicated to work out if a person/entity qualifies.

What about related parties back overseas?

Even if the entity making the purchase is not an “overseas person” they may be an “associate” of an overseas person. If, for example, someone overseas is controlling their actions or funding the purchase. If so, then approval will still be needed.

What level of control are you talking about?

This is a very wide definition and can be specific or general, indirect or direct and whether actually legally enforceable or not. It is trying to capture the individual that is acting for someone else who would need approval if they were the one that applied.

So what is a “sensitive” New Zealand asset?

This can be complicated to determine but generally includes:

certain types of land such as non-urban land of 5 hectares or more (that is, most farms);
acquiring 25% or more ownership or controlling interest in an entity which has businesses assets worth more than $100 million (exceptions apply for Australians and some others that increase that threshold); and
fishing quotas.

I am only interested in buying land – is it sensitive?

Determining if land is sensitive requires special analysis because, for example, it may include land that adjoins a reserve or public park or includes foreshore or seabed. So it may not be as simple as looking at the legal title description because you also need to look at what type of land there is surrounding it. Examples include land over 0.4 hectares that includes or adjoins reserves or historic or heritage areas, land on specified islands or if it is part of the foreshore or seabed.

If I need to apply then what do I need to show to get approval?

If you are an overseas person then when you make an application you will need to satisfy:

Investor Test (good character, have business experience, be financially committed to that investment); and
Benefit to New Zealand Test.

How do I show Benefit to New Zealand?

There are 21 criteria that the OIO will look at (eg will there be creation of new jobs). The OIO is also interested in understanding the ‘counterfactual’ – ie, what would happen if you didn’t make the investment (would someone else buy it, would they invest or not invest further money in it etc).

What if I am moving to New Zealand permanently, does that affect things?

Yes – in that situation you may not have to satisfy the Benefit to New Zealand test.

How long will all this take?

The OIO will categorise the application into one of three types and they will aim to respond within 30 – 70 working days, depending on the category of application. However, there is no statutory timeframe for the decision to be made so it could take less or more time, depending on the situation.

The OIO may also ask questions of the applicant which can delay the process so it is really important to get the application right when it is first submitted. Last year 22% of applications were initially rejected as they lacked information or were of poor quality.

In our experience the OIO process does take time to comply with but it is fairly straightforward. If you have questions about any of the topics mentioned above then we would be happy to discuss your situation with you.

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 Steven Moe at Parry Field Lawyers (348-8480) stevenmoe@parryfield.com

There was an interesting little piece in the NBR the other day: “Silicon Valley doesn’t care if you’re a Kiwi”. The person interviewed in Silicon Valley (Edith Yeung) said that basically the people over there are so multinational and most likely immigrants so they are not about where you are from it is all about the quality of the idea. A couple of the key quotes:

“If you tell me you have an Uber-like company for a particular market or another food delivery company, it’s likely we would not invest. Not because it’s not a good business, but because it’s going to be the 20thor 30th version of the same thing, A lot of entrepreneurs show me their product and they’re excited. But it’s really not about the product because if the founder is good, I’ll assume the product is good. The key thing is the person understands how the market works, along with the overall competition and their exact place in the world.”

I thought one of the more interesting and challenging other quotes was: “A great chef doesn’t always make a great restaurant owner”.

A few good points to pick up on there and apply to our own unique contexts – for us that is as we both deal with our clients in this area and also as we explore an idea for a new business ourselves.

Muhammad Yunus was in Christchurch this afternoon and spoke to several hundred people. He is from Bangladesh and received the Nobel Peace Prize in 2006 for his work in microfinance and microcredit. He founded Grameen Bank (http://www.grameen.com/) which focuses on loans being given to people in villages who are too poor to receive traditional bank loans.

He told us the idea began from wanting to help local people to avoid loan sharks and he thought – “why not loan the money myself”? So he was solving an immediate problem back when he began in the 1970s. He told us that he studied how banks operate and then he purposefully tried to do the opposite. For example, banks usually required collateral for the loans they make but Grameen Bank do not. Now there are 2,600 branches throughout Bangladesh with 9 million borrowers.

He also talked about social business and the idea that this could help to solve problems while still making money. He compared this with pure charity where the money has a “one time use” as it is used and then gone compared to a social business which is sustainable. In this context he talked about how profit might not be the only incentive for people to set up a business and that there could be other incentives – such as making people happy. It would have been interesting to gain more insights about what form of social business might work best in a New Zealand context.

He finished by commenting on the fact that the top 1% of the population owns 99% of the world’s resources and that the wealthiest 8 people in the world own more than 50%. This concentration of wealth into ever fewer hands is what he sees as a great danger and there need to be new ways to combat this. HIs main theme was to work to try and reverse the way the system currently runs and what motivates it to try and address this.

The session ended with some questions although I felt at the very end like there were a lot of unanswered questions and details that would be fascinating to find out more about and explore. I was also left wondering how the ideas, which seem to have worked well in rural impoverished Bangladesh, might apply in relatively wealthy/middle class New Zealand.

It was great to hear the challenges from a Nobel Peace Prize Winner and wonderful that the event could be hosted in Christchurch – well done to the SingularityU Christchurch (which led this) and the other partner organisations: Akina Foundation, Ministry of Awesome, OHU, Te Putahi, XCHC and CCC.

Was able to attend some of the Living Economies Expo held in Lyttelton. They had an interesting line up of speakers and topics for the three day event. Information about it can be accessed here.

Because 31 March was financial year end I was in the office most of the day trying to get a major business sale completed but that’s the way things go sometimes! However I was able to get out for the panel discussion and have dinner.

The model for the event itself is worth commenting on as it was pitched as a “co-created event” – one example of that was we were asked to bring our own plates and cutlery. Volunteers ran it and the amount they paid to attend could reflect the contribution they had made in non-monetary terms. This is an interesting model in an era of corporate events and made the entire thing feel very “grass roots” – in a good way. It also fit in very well with some of the concepts discussed and being looked at by those attending such as alternative currencies that complement money (eg the Lyttelton Time Bank).

There was a wide range of ages and stages represented and it was really good to see the exchange of ideas taking place across generations. The pitch for it was: “Imagine a country which respects the living planet; whose people enjoy fair land tenure, good housing, good health, wholesome food, a rewarding livelihood, free education, a compassionate justice system, and an adequate income: a country with an inclusive democracy grounded in vibrant communities. This could be Aotearoa New Zealand – together, we can make this vision a reality.”

The panel discussion featured Nicole Foss, Phil Stevens, Raf Manji and Daryl Taylor on “Policies that encourage and facilitate” (bios are on the website here) – it was an interesting discussion about many topics including the future and need to develop systems and ways of operating that are an alternative to the “standard way” that things are done now. As an example, over dinner I chatted with some people who were involved in savings pools where many people deposit money and it can then be accessed by others for different purposes (rather than needing to go to a traditional bank and obtain a loan).

I enjoyed attending and learning about some of the thinking that is going on in this area.

Clean Water Package Controversy

The government recently announced its Clean Water Package. The release has caused considerable controversy, largely around the proposed target of 90% of rivers and lakes being ‘swimmable’ by 2040 and, in particular, the E.coli guidelines for swimmable rivers being 540 E.coli per 100mls.

The Green Party and Labour Party were vociferous in their criticism of the government’s announcement largely because the amount of E.coli that can be present in swimmable water has doubled.As well, Forest and Bird advised the Minister for the Environment, Dr Nick Smith and the Minister for Primary Industries, Nathan Guy that it was withdrawing from the Land and Water Forum. Forest and Bird is a very influential pressure group in this arena; it took legal action in relation to the proposed Ruataniwha Dam and that matter is still being litigated.

The Land and Water Forum brings together groups of stakeholders such as industry groups, electricity generators, environmental and recreational bodies, iwi, scientists and other organisations with a stake in fresh water and land management. The purpose of the forum is to try to develop a common direction for fresh water management and provide advice to the government on this issue. There are 67 non-government participants, and 13 central and local government partners that include local authorities and various government departments.
The issue of fresh water standards for waterways is highly political and is likely to remain this way in the foreseeable future.

Where to from here for farmers?

Where does this government announcement leave farmers? Is their position any different from that set out in our article in the Autumn 2016 issue of Rural eSpeaking which covered the Resource Legislation Amendment Bill 2015 which, when (or if), enacted will give the government power to prescribe regulations to fence waterways?
In answer to the questions posed above, the release of the Clean Water Package doesn’t change the position of farmers at all. Sheep and cattle have been identified as major contributors to the level of E.coli in rivers and streams, and any attempt to control levels of that bacteria will involve keeping animals out of those waterways as far as possible.

The government’s tinkering with the definition of ‘swimmable’ will have little effect on the need to keep animals as far as possible away from our streams and rivers.
As much as anything, the current furore over the government’s package shows that the issue remains highly political – particularly with 2017 being an election year. There are well-funded and high-powered pressure groups involved; farmers cannot expect any relaxation in the fencing proposals that are currently on the table.
Interestingly enough shortly after the Clean Water Package was announced, the Environmental Defence Society released a report entitled ‘Last Line of Defence: Compliance, monitoring and enforcement of New Zealand’s environmental law.’

Local authority compliance

One of the areas that the report examined was resourcing, as well as the technical capacity, for local authorities’ compliance functions. While the report noted that regional authorities have been demonstrating increasing technical capacity for their compliance function, there is still a concern that there is political influence on decision-making, including the allocation of resources.
Clearly, monitoring compliance with the fencing of rivers and streams is going to impose a considerable burden upon our regional and unitary authorities.
In the meantime, however, we will keep you informed on the debate around the Clean Water Package.

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

This morning I attended a “critical issues” update at the Canterbury Employers Chamber of Commerce today where the Christchurch Mayor spoke. Lianne Dalziel had a number of observations that she shared about where things were at with the Canterbury rebuild 6 years after the Christchurch earthquake and just a few days after the Port Hills Fires.

She identified the chance to “reimagine Christchurch” at this time. She referred to this video by the Christchurch airport which can be accessed here: https://www.youtube.com/watch?v=LqoTxbIANQ0 and noted that the themes there were that this was a region to “grow, connect, find balance”. She wanted to build on that so Christchurch became known as a “City of Opportunity”.

She talked about the need to ensure the city was connected with the wider region while the Canterbury region had better access to the city. She mentioned the word “resilience” and how this was an important theme for Christchurch and would be emphasised going forward. This had been shown once again by the Port Hills fires.

She concluded by noting that Christchurch was founded in 1856 by royal charter but as one of the oldest cities it had the chance to actually become one of the newest cities in New Zealand through the rebuild. She welcomed the Singularity University that had taken place a few months ago as a challenge for the future. How would innovation impact the future of the city as technology improved things – particularly with the growth of AI. It will definitely be interesting to see how the Canterbury rebuild can integrate some of those new approaches which will be coming in the future and will impact society and how we live in a city – from the perspective of transport, housing, environment, retail and businesses.

You have a great idea. On your own you cannot make it happen. When you bring in employees to help make the idea work one of the ways to incentivise them (particularly in the lean years at the start) can be to offer them some shareholding stake. This post will point out three key topics that we think you should think through in advance.

What if things turn to custard?: Things are rosy at the start of a new venture and it can be tempting to think that everything will work out. A few months or years later it may not be the same situation and someone who was brought in for a specific task as an employee may want out. Or you may want them out. If they exit as an employee then should they remain a shareholder?
How can you deal with this?: It is best to think this through objectively at the start and provide for a clear mechanism in a shareholders’ agreement. That way there will not be confusion and disagreements later on. We would typically see that a shareholders’ agreement provide for one of the following scenarios:

Good leaver: Depending on how long they have been involved with the venture, it may be appropriate for the employee to simply end their employment and retain their shareholding. Situations may just have changed (health issues, partner with job somewhere else etc) but there is often no desire for them to also be forced to give up their shareholding when they stop being an employee.

Underachieving employee: It is possible to build in a description of what individual shareholders who are to be employees will be expected to do in the business. That way there are some criteria which can be used to determine if they are underachieving. If they are, then there can be a mechanism to require them to sell their shares back to the Company or to the other Shareholders. This means they will not be involved in the business either as employee or shareholder going forward.

Bad leaver: This is a situation worse than an underachieving employee and can occur where a person has become disillusioned with their situation. In this scenario it may be appropriate to build in the ability to repurchase the shares of the bad leaver but also build in a discount for the share price that is paid.
Why is all this so important?: The culture of your new start-up will be critical for it being a success. One of the most common issues for a start-up can be how you deal with a situation where there is a disgruntled employee. Without a clear mechanism in place it can be extremely difficult to come to an agreement on the way forward and whether they stay or go, remain as a shareholder or not. That is why thinking this through in advance is so critical. As the saying goes, “hope for the best, prepare for the worst.”

We hope this guidance is of use and will trigger some thoughts for you about this important issue.

Business owners in Christchurch largely failed to take advantage of their business interruption cover. Here are some tips from our experience with those who did well.

Things to do:

Take photos of everything, before the clean-up if possible.
Get a copy of your business interruption policy schedule and the full wording document (if you don’t have them your insurance broker may do. If in doubt call the insurance company who will provide the full policy wording.)
Understand the cover that your particular BI policy provides. Your broker or your lawyer will help if they have had previous BI insurance experience (if not then get an advisor with experience). Most BI policies will pay for all claims preparation costs including legal and accounting advice. Good advice will make a very sizeable difference to your claim.
Business interruption cover usually only lasts 6-12 months starting from the date of the damage. Plan to make ALL the business adjustments you can within that period. That way the insurer will pay.
Possible policy responses may include re-establishing the business elsewhere, or changing the focus of the business.
Many BI policies cover staff wages and increased costs of business.
You can often obtain an interim payment from the insurer if you can clearly show a loss covered by the policy. A decent payment at this time allows more options and better decision making.

Don’t:

Decide to muddle through and think about it later. If you do that, your cover will expire and you may get nothing.
Make large changes to your business at your own cost without understanding what your BI cover provides for. BI cover is frequently more than expected.
Make decisions based on advice from someone who has not read your full policy wording.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. Please contact Paul Cowey at Parry Field Lawyers, paulcowey@parryfield.com (03 348 8480)