Loans to Charities for Projects: Complying with Legal Requirements

Most entities will be aware that if they issue debt securities (otherwise known as taking money by loans) they have obligations under the Financial Markets Conduct Act 2013 (the “FMCA”). Charities need to be aware that the same obligations apply to them if they issue debt securities.

Some charities might be in a position of issuing debt securities by having loans made to them. The FMCA defines a debt security as a right to be repaid money, or interest on money, which is deposited with, lent to, or otherwise owing by any person.

The FMC rules require charities to prepare a detailed PDS (Public Disclosure Statement) – unless they fall within an exemption. Common exemptions for a charity are:

Small offers, raising money from less than 20 people, in 12 months and it is less than $2 million; or
Wholesale Investors – getting the people who are loaning funds to certify they know what they are doing.

If charities use an exemption category they need to provide documents which clearly indicate that the entity is relying on an exemption and has appropriate disclaimers. They can also mix and match, for example, $2m from Small Offer exemption, and $2m from Wholesale Investors.

Examples of the wording to use are in this article. Although the article was written for start-ups and family and friends investing money, the same principles apply.

When it comes to actually preparing loan documents, we can assist with ensuring they are compliant with the FMCA.

If an exemption applies it will reduce the amount of information that needs to be supplied. However, at all times charities will need to monitor what is being provided to ensure that it is accurate and fairly represents the position. The key is to avoid any hint of misrepresentation of facts and information. Even presenting information which is true could be misleading if not disclosed in the right way. Information should be true and accurate.

—

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

For more guides for charities check out our free information and information hubs, like these:

Christchurch CBD

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
Level 1, 60 Cashel Street
Christchurch 8013, New Zealand

POSTAL ADDRESS:
PO Box 744
Christchurch, 8140, New Zealand

Christchurch

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
1 Rimu Street, Riccarton,
Christchurch 8041, New Zealand

POSTAL ADDRESS:
PO Box 8020, Riccarton,
Christchurch, 8440, New Zealand

Rolleston

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
Level 1, 80 Rolleston Drive,
Rolleston, 7614, New Zealand

POSTAL ADDRESS:
PO Box 8020, Riccarton,
Christchurch, 8440, New Zealand

Hokitika

PHONE: +64 3 755 8673
FAX: +64 3 755 8073

PHYSICAL ADDRESS:
127 – 137 Revell Street,
Hokitika 7810, New Zealand

POSTAL ADDRESS:
PO Box 44,
Hokitika 7842, New Zealand

Parry Field Charitable Foundation

Parry Field charitable members of NZ LAw, Global Cross Legal and SCLA