Edmonds Judd

Your Own Business

Postscript

Fair Pay Agreements Bill

The Fair Pay Agreements Bill was introduced earlier this year; it proposes a framework for collective bargaining of fair pay agreements. The Select Committee is working its way through submissions and will report back to the House in early October.

 

The government believes the current situation of an employer and employee being free to negotiate the terms of employment without being subject to fair pay obligations (provided employment law minimum entitlements are met) marginalises some employees. The draft legislation would introduce a regime where an agreement is established across an entire industry or occupation for mandatory minimum employment terms (such as wages or hours of work).

 

It is fair to say, no pun intended, that the proposed legislation has not been met with open arms by employers. Unions, however, have greeted the provisions in this Bill much more positively. We will let you know the status of this legislation in the next edition of Fineprint.

 

Scams: be vigilant

Scams affect us all – in our bank accounts, credit cards, over the phone, social media, via email or simply being sent a ‘strange’ communication offering you some ‘benefit.’

 

If you are contacted unexpectedly – always hesitate and consider that a communication from someone you don’t know could be a scam. Never, ever click on a link that you don’t know. Keep an eye on your credit card statement; unsavoury characters can hack your credit card details and ‘phish’ your money in the blink of an eye.

 

For help and information on scams, go to www.consumerprotection.govt.nz and click on the Scamwatch button. Netsafe New Zealand is also very helpful, go to www.netsafe.org.nz.

 

New whistleblowing legislation now in force

The new Protected Disclosures (Protection of Whistleblowers) Act 2022 came into force on 1 July.

 

The government says this new legislation provides clearer protection for people to speak up about wrongdoing, while protecting the whistleblowers themselves. It ensures confidentiality around who has made the disclosure, immunity from disciplinary action for making the disclosure and protection from retaliation through the Employment Relations Act 2000 and the Human Rights Act 1993.

 

If your business hasn’t already done so, we recommend you urgently review your whistleblowing policies and procedures so they comply with this new legislation. If you would like some help with this, please be in touch.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Guest editorial by Miles Workman, Senior Economist, ANZ

In another of our occasional Fineprint guest editorials, we introduce the ANZs Senior Economist, Miles Workman, who has written on the state of New Zealands economy. It would be fair to say the economic outlook in the short-to-medium term is not massively rosy, but there is, however, some solace in that the Reserve Bank wants to contain inflation as much as possible.

Global and domestic inflation risks remain intense, but front-loaded official cash rate (OCR) hikes by the Reserve Bank of New Zealand (RBNZ) are mitigating against the risk that inflation continues to go the wrong way.

Many other central banks across the globe are now underway with their tightening cycle too and making all the right noises. ANZ Research fully expects them to tame inflation in time. The question is, how much tightening will it take and how much economic pain will it require?

War, high inflation, acute capacity constraints, falling house prices and weak consumer and business confidence all suggest downside risks to economic activity. But Covid-volatility is making it hard to separate the noise from the signal.

Provided New Zealand manages to avoid lockdowns in 2022, GDP data should settle down over the second half of the year (Q3 GDP data is released in December 2022).

That means Kiwis need to continue to look beyond GDP for a steer on economic momentum. And there are plenty of indicators suggesting underlying momentum is slipping.

Despite the very low unemployment rate, ANZ’s Consumer Confidence survey shows confidence is softer than during the 2008-09 recession, which is not a time retailers remember fondly.

While building consents are at high levels, ANZ Research’s Business Outlook suggests residential construction is poised to slow. Building cost inflation, construction delays and difficulty achieving presales as house sales and prices fall could very well see some of these consented projects scrapped. Anecdotally, that’s happening already.

There are other reasons to think tougher times lie ahead:

  • While New Zealanders are now free to travel abroad, international tourism isn’t expected to start picking up meaningfully until the 2022-23 summer – so tourist operators could have to navigate through a tough winter.
  • Conditions for key exporters are tough. Key export commodity prices are now slipping with global consumers less willing, or able, to pay top dollar for our produce. Soaring fertiliser prices along with difficulties in getting product to market and finding workers are also weighing on agricultural production.
  • Households are going backwards financially as inflation outpaces income growth. While ANZ Research expects growth in real (CPI-adjusted) hourly earnings will be positive by the end of the year, it’s a mixed blessing for the RBNZ that is, quite rightly, concerned about the possibility of a wage-price spiral developing.

All up, the drivers of economic momentum are particularly complex right now.

Overall, 2022 (which still has some Covid-related volatility to work through) should see GDP growth come in a little below trend (2.2% over the year to December), slipping further in 2023 (2.0%) and 2024 (1.7%). Risks to growth are to the downside.

Inflation will ease; it’s just a question of how high rates need to go (and for how long)

At around 7% year on year, CPI inflation is running at a 30-year high. While there are some significant inflation pressures stemming from global developments, domestic inflation is the primary concern for the RBNZ.

Non-tradables inflation (aka domestic inflation) is running closer to 6% year on year. This is the sticky kind of inflation that tends to be difficult to tame, and right now it’s far too high to be consistent with the RBNZ’s inflation target.

ANZ Research expects OCR hikes, supported by the general monetary tightening underway globally, will successfully take the heat out of inflation in time.

Given current inflation and capacity stretch, ANZ Research expects the RBNZ to deliver more out-sized (50 basis point) hikes in the near term, before pivoting to 25 basis point hikes from October, taking the OCR to a peak of 3.5% in November 2022.

It’s a fine balance for the RBNZ as it weighs up the risk of oversteering (engineering a hard landing for housing, economic activity and inflation) against ensuring inflation pressures don’t spiral out of control.

All up, the rebalancing act the RBNZ and other central banks are currently performing is riddled with risks and uncertainties. But the one thing we can be sure of is that they will be successful in taming inflation, it’s just a question of how high (and for how long) rates need to go.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Another option in insolvency

When a company is struggling to pay its bills, ‘insolvency’ and ‘reckless trading’ are frightening words that may be thrown around the table. On 3 April 2020, as the first wave of Covid lockdowns hit, the government introduced a brief ‘safe harbour’ regime. Its purpose was to protect directors of New Zealand companies from being held liable for trying to stay afloat and it permitted a company to trade whilst technically insolvent. This protection was removed on 30 September 2020. In this article we discuss an alternative to liquidation or receivership. Using the ‘creditor compromise’ regime can return better outcomes for both the company and its creditors.

When is a company ’insolvent’?

A company is considered insolvent when it cannot pay all debts as they fall due or the total debts of the company are greater than its total assets. The company could be recklessly trading if the directors allow the business to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors. Allowing a company to trade when it is insolvent can put the directors at risk of being held personally liable for reckless trading. The directors could also be personally liable if they allow the company to incur an obligation unless they reasonably believe the company will be able to perform that obligation when required. The consequences of reckless trading or breaching those director obligations can be significant. In the well-publicised and ongoing Mainzeal case, directors were found personally liable for $36 million after allowing the company to trade recklessly.[1]

Options for an insolvent company

When directors of a company establish that it is no longer solvent, few choices are available. The two most common options are liquidation and receivership. Either option can be voluntary (the company elects to go through the process to ensure compliance with the Companies Act 1993) or involuntary (a creditor or group of creditors may force the company into the process).

Receiverships and liquidations have very detailed processes and procedures, and need skilled independent advisors, including lawyers, accountants and insolvency professionals, to guide the company through the process and liaise with creditors.

There is, however, another choice that may be appropriate for a company facing insolvency.

What is a creditor compromise?

Creditor compromise is a lesser-known option that is available when a company cannot meet its debts. The company proposes an alternative (the ‘compromise’) to all creditors, such as forgiveness of part of the debt or extended timeframes for repayment, and then calls for all creditors to vote on the compromise. If passed, all the creditors are bound to that compromise, and cannot put the company into liquidation or receivership.

It is important when entering into a creditor compromise that the directors are confident the company can commit to the terms of the compromise; failing to meet the terms could lead to significant consequences for the company and its directors, including personal liability for reckless trading.

A creditor compromise can be preferable for a company and its directors for many reasons. No public notice is required, and the terms of the compromise are often kept private therefore reducing reputational damage to the company.

Aside from those obvious advantages, a creditor compromise also allows the directors to retain control over the company and its assets, the compromise is binding on all creditors, and it can provide a means for the company to slowly return to solvent trading. For the creditor, the compromise often allows them to receive more in the long run than they would have received under a liquidation.

The process

A creditor compromise follows this process:

  1. Directors drive the process: A creditor compromise plan is usually driven by the directors. They identify that the company is insolvent, or at risk of being deemed insolvent, and look for a ‘compromise’ that will allow the company to manage its debts.
  2. Appoint independent manager: The directors appoint a professional to manage the process and develop the creditor compromise plan. It can be an accountant, lawyer, or insolvency professional (or often, a combination) who are experienced in navigating solvency issues.
  3. Identify classes of creditors: A critical, and most often litigated, step, is the classification of all creditors into appropriate classes by the independent manager. This usually starts with secured creditors, followed by unsecured creditors. The grouping of creditors into ‘classes’ is not a straightforward process, and it is crucial to get this right to ensure the creditor compromise is binding.The manager must understand features of each creditor such as their dependency on the debt, size of the debt, size of the creditor, the financial strength of each creditor and more.As this step can lead to court action, incorrectly classifying the company’s creditors can lead to the entire compromise arrangement being overturned by the court and the company being placed into liquidation.[2]
  4. Present the creditor compromise plan for key creditor agreement: Whilst not a legislative step, once a preferred plan has been outlined most companies find it prudent to engage with their key creditors at this stage to ensure there is agreement to the plan. If key creditors aren’t satisfied the plan will give them a better result than liquidation or receivership, the creditor compromise is unlikely to succeed and there is no point progressing further. Sometimes key points of the agreement are negotiated at this point before a final version is circulated to all creditors.
  5. Formally notify all creditors: Once the creditor compromise plan is finalised, the key information is circulated to all the company’s creditors. It must include specific information including naming the acting parties, events that have led to the compromise situation, the compromise proposal itself, an assessment of what the creditors would receive in a liquidation (to allow them to compare their options), and a full list of all creditors and the estimated amounts owing. This key information also includes the method by which the creditors can vote. A minimum of five days’ notice must be provided to creditors to review the creditor plan and submit their votes.
  6. Vote: If the creditors vote to approve the plan, it will be binding on all creditors regardless of which way they voted. In order to ‘pass’, at least 50% of the number of creditors and 75% of the value of the creditors in each class must approve the compromise. If the compromise is not approved, a liquidation or receivership may result.

Regardless of whether you are a director of a company facing insolvency, or a creditor who has discovered a company which is indebted to you has, or may, become insolvent, seeking experienced legal advice on insolvency is key.

Directors will need a good legal or insolvency advisor to discuss all available options to get the best result for the company and its creditors, as well as ensuring there is protection from the risk of an accusation of reckless trading.

As a creditor, an advisor will ensure you are fully informed of all options that could lessen your total losses.

If you would like to know more about how a creditor compromise works, or if your company is heading towards insolvency, please don’t hesitate to contact us.

[1] Mainzeal Property and Construction Ltd (in liq) v Yan and Others [2019] NZHC 255

[2] Trends Publishing International Ltd v Advicewise People Ltd [2017] NZCA 365

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Over the fence

Health and safety on farms

Between June 2020 and May 2021, WorkSafe New Zealand recorded 12 workplace fatalities in the agricultural sector, while 2,517 workers in the sector had work-related injuries requiring them to have more than a week off work. Any fatality or serious injury which occurs at a workplace is a tragedy and it is therefore important to have health and policies in place which are fit for purpose and protect both employers and employees.

Although it is not a formal duty, it is the responsibility of all individuals in a workplace to identify any hazards, assess their risk, actively take steps to control that risk and to report any hazards they have identified. There are also specific formal obligations owed by both employers and employees which are summarised as follows:

  • Employers: you have a primary duty of care to your employees. There must be a health and safety policy in place that should be regularly reviewed to ensure that the policy takes into account the constantly evolving risks that your employees face. You must also ensure that the policy is being complied with by, for example, checking that your staff wear the correct safety equipment and that the correct safety measures have been taken with machinery, chemicals and animals.
  • Employees: you must adhere to your workplace’s health and safety policy. You must take reasonable care of your own health and safety, and ensure that you do not cause harm to others in your workplace.

Health and safety on the farm is hugely important. Failing to have proper policies in place and/or failing to comply with these policies can lead to serious fines and/or imprisonment.

If you need help with your farm’s health and safety policy and/or have queries around employment or health and safety laws, please don’t hesitate to be in touch.

Stock control bylaw changes

The Tasman District Council (TDC) has recently proposed changes to its stock control bylaws. If these changes are adopted, there will be major implications for the Tasman rural community.

Some of these proposals align with other districts that have already implemented similar bylaws, however some proposals by the TDC go even further.

The TDC proposes introducing further signage requirements to stock warning signs. If the bylaws are passed, all stock warning signs in the Tasman district must be placed in front of the crossing by a distance equivalent to three times the speed limit of the area. A crossing is any part of the road used for the purpose of driving stock across the road. This aligns with Waka Kotahi NZ Transport Agency’s guidelines for best sign locations. There are a number of district councils across New Zealand that have implemented similar bylaws.

Perhaps the most controversial proposed bylaw, however, is the obligation that farmers would have to hold livestock 50 metres back from the road’s exit point until all traffic has passed. There are understandably concerns as to the practicality of this proposal.

Public consultation on the proposed stock bylaws remained open until 1 August 2022. The proposed changes will not only affect the Tasman district rural community, but could also influence other councils to update their stock control bylaws.

It is important to understand your legal responsibilities when moving livestock on roads. To learn more about stock bylaws, contact your local council or look at its website for useful summaries on your obligations.

Live export contracts and force majeure clauses

The live export of cattle often means that farmers receive higher prices for their cattle than they would in the domestic market. Despite this, farmers run the risk of incurring significant loss when livestock exporters cannot meet their obligations under a live export contract (contract entered into by a farmer/s and a livestock exporter that records the terms of selling and shipping livestock overseas).

A livestock exporter may be unable to ship cattle overseas if, for example, they are unable to arrange a ship to transport the livestock. This occurred in May 2022 when livestock exporter Genetic Development (NZ) Limited (GDNZ) was unable to arrange a ship to collect 12,000 or so cattle from New Zealand. GDNZ was forced to abandon the contracts it had signed with farmers across New Zealand and relied on a force majeure clause in the respective contracts to do so.

A force majeure clause allows a party to be released from its obligations under a contract when that party is unable to fulfil their obligations due to unforeseeable circumstances. In the GDNZ situation, some farmers had to sell their cattle on the local market at a lower price than they would have received if the cattle had been shipped overseas.

The GDNZ example shows that farmers should carefully review contracts to understand the implications of force majeure clauses and their ability to receive compensation for loss suffered in the event such a clause is invoked.

If you are involved in live export contracts and are unsure about the wording or implications of a force majeure clause, please don’t hesitate to contact us.

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Business briefs

Fair Pay Agreements Bill on the table

The long-awaited Fair Pay Agreements Bill was recently introduced in Parliament proposing a framework for collective bargaining of fair pay agreements (FPA).

What is an FPA? An FPA is an agreement that establishes mandatory minimum employment terms (such as wages or hours of work) across an entire industry or occupation that exceed the minimum entitlements outlined in employment law. Currently, an employer and employee are free to negotiate the terms of employment without being subject to fair pay obligations, provided the minimum entitlements in employment law are met.

What is the FPA process? A union initiates the bargaining process by applying to the Ministry of Business, Innovation and Employment (MBIE). If MBIE approves the application, the union begins bargaining with an employer association (that represents employers in the relevant industry).

What does this mean for employers? If the negotiation is successful, all the employers in an industry covered by an FPA would have to provide their employees with at least the minimum entitlements required by the FPA, regardless of whether the employer engaged in the bargaining process.

The Bill also proposes granting employees and unions other rights such as the right for a union to enter a workplace without an employer’s consent to meet with employees to discuss FPAs. This may be confronting to some employers, particularly smaller businesses that may be new to collective bargaining.

Next steps: Public submissions on the Bill closed on 19 May 2022, so we now await the Select Committee’s report. The Bill is expected to become law by the end of 2022.

Proposed legislation to address modern slavery and worker exploitation

The government has released a consultation paper proposing new legislation to reduce modern slavery and worker exploitation in New Zealand and internationally. As currently proposed, the legislation may have a material impact on the way businesses operate in this country.

The paper defines ‘modern slavery’ as severe exploitation that a person cannot leave due to threats, violence or deception, including forced labour, debt bondage, forced marriage, slavery and human trafficking. ‘Worker exploitation’ is behaviour that causes material harm to the economic, social, physical or emotional well-being of a person, which essentially includes non-minor breaches of New Zealand employment standards (such as providing no less than minimum wage or annual holiday entitlements).

The legislation as proposed would require:

  • Organisations to take action if they become aware of modern slavery or worker exploitation in their operations or supply chains
  • Medium and large organisations to report on steps they are taking to address modern slavery or worker exploitation in their operations or supply chains, and
  • Large organisations to undertake due diligence to prevent, mitigate and remedy modern slavery and worker exploitation in their operations and supply chains.

Although this proposed legislation is not yet law, businesses should start considering now how these changes will affect the way they operate, and the consequences associated with any breach such as monetary penalties and reputational risk.

Incorporated societies – what’s next?

After many years of consultation and deliberation, the new Incorporated Societies Act 2022 was finally passed on 5 April 2022. The Act’s changes will affect all of New Zealand’s 23,000+ societies.

The legislation puts in place a modern framework of legal, governance and accountability obligations for incorporated societies and the people who run them.

All existing societies have at least until 1 December 2025 to ensure their constitution complies with the new requirements and to apply to re-register under the new Act. Societies that do not re-register by that date will be removed from the register.

Although the Act is now in place, there are still regulations to be developed before existing societies can start the re-registration process. These regulations are expected sometime in the next 12 months.

We can help if you are unsure of your obligations under the Act or would like some help with the transition.

 

Next stage of vaping legislation coming into effect

Changes made to New Zealand’s vaping laws are being phased in, with the next changes taking effect over the coming months. The latest changes require all packaging for smokeless tobacco products and vaping products containing nicotine to include specific labels warning of the health dangers and addictive nature of the products. Critical dates for this labelling are:

  • 11 May 2022: manufacturers and importers (should be achieved by now)
  • 25 June 2022: distributors, and
  • 11 August 2022: general and specialist vape retailers.

The staged approach is to allow for stock rotation of products with non-compliant packaging.

You can find more information on vaping regulation here or don’t hesitate to talk with us if you need some help.

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Would be compulsory for most Kiwis

Every year, more than 100,000 workers in New Zealand are laid off or lose their jobs through no fault of their own.[1]

In February, the government proposed a new compulsory insurance scheme for all employees. This would provide most Kiwis with 80% of their regular salary for a minimum of seven months if they lose work through no fault of their own (including a health condition or redundancy).

We look at what the proposed scheme would involve and whether you as an employer should prepare.

Why introduce such a scheme?

Mass and dramatic redundancy of workforces has been experienced in New Zealand during the 2007–09 global financial crisis, the Christchurch earthquakes in 2010–11 and the current Covid pandemic. These events cause significant economic stress on employees and their families while also impacting the broader community as there is decreased consumer spending. The government claims the scheme will also help close the income gap and make income support available to people who cannot work due to non-accident-related health conditions.

What would it entail?

The proposed scheme would provide coverage for total loss of work due to redundancy or health conditions (including disability). It will not cover an employee’s reduced hours, reduction from full-time to part-time hours, or unemployment due to a dismissal or resignation.

How much coverage?

To comply with this scheme, employers would have to give a statutory four weeks’ paid notice of termination to their employee. In circumstances where an employer is unable to make that payment, the scheme would pay it and seek reimbursement from the employer’s liquidator.

Employees would then receive 80% of their usual salary for up to a further six months paid by the government. Payments would be capped at an annualised salary of $130,911. In some circumstances, the support could be increased to 12 months if the recipient is using the time to retrain or undertake medically required rehabilitation.

To continue to receive the coverage, each recipient would need to prove they are continuing to look for new work, are taking part in training/further education, are medically unfit for work or undertaking medical rehabilitation.

Who will be eligible?

To be eligible for the proposed insurance coverage, an employee would need to have contributed to the scheme for at least six months in the immediately preceding 18 months. An exemption is proposed for someone who does not meet the contribution timeframe if they have been on statutory parental leave.

Fixed-term and seasonal workers on short-term contracts would only be eligible to receive coverage until the end of their contracted period, ie: if someone lost their job two months before the contracted end date, the scheme will only cover the two-month period of lost work. However, any fixed-term or casual worker who could show a regular pattern of work with an employer and have a reasonable expectation of ongoing employment will be eligible for full support.

The government is yet to issue a position on how the scheme would treat the self-employed or contractors. It is possible this will be dealt with on a case-by-case basis to determine eligibility and ensure work is not being rejected just to gain access to the scheme.

Paying for it

Nothing comes for free. It is proposed that the Income Insurance Scheme will be administered by ACC and, as such, will be funded in a very similar way by levies. The government estimates that it will require a 1.39% per annum levy from both employers and employees to successfully fund the scheme (resulting in a total levy of 2.78% per annum of the employee’s gross annual salary). The levy would be reviewed after two years and, if insufficient to cover the number of people it is supporting, could be raised.

Do I need to make changes to my business?

If the scheme goes ahead, it could become operational in 2024. Until there is a known date and more detail, however, businesses need not take any specific steps to prepare. In the meantime, you should review your own personal insurance or any insurance you offer to your staff.

[1] Employment New Zealand/MBIE.

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


2022 Budget

Commentary on the Minister’s main points

The Minister of Finance, the Hon Grant Robertson, presented the government’s Wellbeing Budget to the House on Thursday, 19 May.

With inflation running at a 30-year high at 6.9%, and similar levels of inflation with most of our trading partners, rising interest rates, the stock market in the doldrums, the knock-on effects of the Ukrainian war and the continuing situation with Covid, the government is walking an economic tightrope.

With an eye on the late 2023 general election, did the Budget give short-term relief for New Zealanders or did it take the long-term view for the good of the country? The government has probably put a dollar each way.

Cost of living

To help mitigate inflation and the squeeze on the lower-middle income sectors, the government has established a $1 billion cost of living relief package. This includes a one-off $350/person cost of living payment for the estimated 2.1 million people earning less than $70,000 per annum and who are not eligible for the winter energy payment. This $350 payment will be made in three instalments from 1 August.

The half-price public transport fare regime (introduced to run from 1 April–30 June) will continue for an additional two months to 31 August, as will the reductions in fuel excise and road user charges. There will be ongoing concessions for Community Services card holders.

The government is attempting to quell some elements of the current supermarket duopoly. On 19 May, it introduced legislation to ban covenants over land as a barrier to supermarkets accessing new sites thus restricting competition. There will shortly be more announcements in response to the Commerce Commission’s recent report on the operation of New Zealand’s supermarkets.

Business

Businesses that had been expecting a significant Budget boost may be disappointed.

The government has, however, announced some support for small and medium-sized enterprises (SMEs) through a $100 million Business Growth Fund. Working alongside the retail banks, the government can buy a minority shareholding in appropriate SMEs. Privately operated and independently managed, the Fund will support SMEs where equity funding may be preferable to debt finance.

The Minister of Finance says, “The Fund would always be a minority investor [in an SME] with a seat on the board, offering guidance and expertise, but always leaving owners in control. [The Fund] will improve SMEs’ access to finance, enabling them to grow, create jobs and increase their contribution to our wider economic development.”

Although the concept is new to this country, similar funds have been successful in countries such as the UK and Australia.

The government has allocated $60 million towards the implementation of its proposed Income Insurance Scheme; it expects the Scheme to be operational in 2024. There is more about the proposal here.

For Kiwis who live in broadband’s ‘worst served’ areas, the government has allocated $60 million to improve broadband infrastructure.

There is $132 million allocated towards industry transformation plans for the construction sector, advanced manufacturing, agri-tech, digital and primary industries.

Health

The health sector is a big winner in this year’s Budget with an allocated $11.1 billion operating budget for the new Health New Zealand entity over the next four years. There is another $1.3 billion earmarked for health capital investments including specific allocations for Whangārei and Nelson hospitals, and the Hillmorton mental health project in Christchurch.

The financial deficits of district health boards will be wiped allowing Health New Zealand to start with a clean slate on 1 July.

Pharmac is to get a major funding boost of an extra $191 million over the next two years.

Climate change

The Emissions Reduction Plan is allocated $2.9 billion from the Energy Response Fund. There is $16 million over four years for community-based renewable energy projects from the Māori and Public Housing Renewable Energy Fund, and $31 million is for a Māori climate action platform.

More highlights

  • Māori and Pacific communities have been allocated a $580 million package across health, social and justice sectors
  • There are changes to the First Home Grants and First Home Loan regimes that take into account the significant increases in house prices
  • The Affordable Housing Fund will receive an additional $221 million
  • Public and transitional housing is allocated $1 billion
  • A new Ministry for Disabled People will be established – $108 million for establishment and support operations, and
  • Further funding has been announced for cultural organisations such as the New Zealand Symphony Orchestra, Royal New Zealand Ballet and the Waitangi National Trust Board.

Although times are tough right now, the government is optimistic that good times will return. Although a $19 billion deficit is expected this year, the government expects a return to surplus in 2025.

The Minister of Finance says, ”Budget 2022 shows the economy is expected to be robust in the near term. It is expected to strengthen from the second half of this year, with annual growth peaking at 4.2% in the year to June 2023.”

We have only had space to outline some Budget highlights. To read in more detail about the Budget
go here.

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.


Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Over the fence

New minimum wage

From 1 April 2022, the minimum wage increased from $20.00 to $21.20/hour. If you haven’t already, you should review your employees’ pay rates to ensure you are compliant with the new minimum wage. For employees on a wage, this is a straightforward process as you only need to ensure that your employees’ wages are at least $21.20/hour. This is not the case for all employees, however, including those on a salary, as it makes it more difficult to calculate if their current pay rate is sufficient when they work overtime.

During busy times, such as the harvest and calving, salaried employees often work hours over and above their regular contract hours. You should check the pay of these employees every pay period to ensure their pay divided by the actual hours they worked meets minimum wage requirements. If not, your employee’s pay must be topped up to at least the minimum wage, regardless of whether any term in their employment agreement says otherwise.

Failing to keep accurate time records could lead to a penalty under the Employment Relations Act 2000 or Holidays Act 2003. You should also take this opportunity to ensure your time recording systems are accurate.

Vaccine mandate ends: how this will affect the rural sector

People employed in education, police, defence and hospitality are no longer required to be vaccinated to carry out their work. Employees in the health, aged care, corrections and border sectors, however, must still comply with vaccine mandates. Any terminations based on vaccination status made before these mandates were dropped are not unlawful, nor are there requirements to reinstate these past employees.

The rural sector is not directly impacted by these mandate changes. However, with many businesses having imposed mandates, they can still choose to implement their own vaccine mandates, but it must be implemented in accordance with a risk assessment.

It is important to be cautious when implementing a vaccine mandate as the case of Yardley v Minister for Workplace Relations[1] found that vaccine requirements for the police and defence force were unlawful and imposed on their right to refuse medical treatment. There is a risk that similar cases could be brought in other employment sectors. Therefore, it’s necessary to undertake a comprehensive risk assessment to determine if a vaccine mandate is required at your farm or rural business.

Vaccine passes are also no longer required for those entering a business. People coming on to farms are no longer required to prove their vaccination status. However, businesses can choose to keep this mandate in place.

Russia Sanctions Act: impact on the rural sector

The Russia Sanctions Act 2022 was recently passed to help combat Russia’s breach of international law and aggressive acts towards Ukraine. The Act came into force on 12 March 2022 and imposes sanctions on individuals and entities involved in the attacks on Ukraine. Sanctions may also be imposed for strategic purposes or to undermine Russia’s economy. The sanctions have extraterritorial application and target travel to and from New Zealand, and impose certain controls over assets and services connected to sanctioned entities. There is further detail in the Act’s accompanying Sanctioned Persons Schedule.

These sanctions are expected to have implications on both imports and exports. Russia’s top imports to New Zealand include crude petroleum oils and potassium fertilisers that are key resources used in the rural sector. It is anticipated that supply chain disruption, shortages in raw materials and fluctuations in prices will result.

Some corporates are also choosing to impose sanctions on Russia. Fonterra has announced it will exit its businesses in Russia and suspend all its exports to Russia. This may have implications for dairy farmers, but Fonterra has stated its exports to Russia total only about 1% of its annual exports (primarily butter).

[1] Yardley v Minister for Workplace Relations [2022] NZHC 291

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Forestry update

Challenges ahead

Forestry is attracting a great deal of interest and opportunity right now. This rapidly growing area faces challenges in terms of public opinion, regulation and general understanding. With all that is going on, where does this leave the agricultural sector in terms of sequestering carbon and the Emissions Trading Scheme (ETS)? We update you on some current issues.

‘Forest land’ and the farm

Forestry is a big player in sequestering carbon, however, not all forestry on a property can be registered in the ETS. The ETS defines ‘forest land’ as an area that is at least one hectare in size and has (or will have) tree crown cover of more than 30% in each hectare of forest species, at least 5m in height at maturity and an average width of at least 30m.

This set of rules restricts the parameters of registerable areas for carbon sequestration and, in particular, discounts some current developments and areas on farms. The scheme, for example, rules out smaller areas of riparian planting that many farmers have invested in to improve the ecology and environment on their land. However, if He Waka Eke Noa achieves its alternative emissions goal, this could change and, while these areas would not generate the same economic gain as ‘forest land’ under the ETS, they could create reward for existing on-farm sequestration.

Carbon accounting

Carbon accounting is the method by which an ETS participant calculates and reports changes in the carbon stored in a forest. To determine how many units a participant is entitled to earn (or must surrender), an emissions return must be completed and filed with the Ministry for Primary Industries. An emissions return must be made at least once during an emission return period; the current period runs from 1 January 2018 to 31 December 2022.

The 2023 ‘rush’

If an eligible area is ETS-registered before the end of the current emission period (see above), significant returns could be leveraged by a participant claiming carbon units back to the start of the return period – 1 January 2018. This opportunity will, however, lapse by the end of 2022 when the next emissions period begins, thus creating an incentive (or ‘rush’) for landowners to consider the ETS in a more serious light in order to reap this financial reward.

2023 also introduces a change to carbon accounting. All post-1989 forests currently registered in the ETS use the stock change accounting method for carbon units and will continue to do so until 2023, at which point a landowner can decide whether to move to averaging accounting or remain in stock change accounting. From 1 January 2023, however, if a post-1989 forest is registered in the ETS the participant can only use the averaging accounting method unless the forest land is registered in the permanent forest category. The permanent forest category (see below) will continue to use the stock change accounting method despite this change.

Stock change accounting: as a forest grows it stores carbon and the participant earns units; however, if the carbon stock decreases then carbon units must be surrendered, that is, harvested. In other words, stock change accounting focuses on short-term increases and decreases in carbon storage in a forest.

Averaging accounting: the participant will earn units for the first rotation growth, until the forest reaches its ‘average age.’ Averaging accounting means that if an area is replanted within a reasonable time period, the landowner is entitled to keep harvesting and not surrender credits.

While a participant can earn more carbon units under stock change accounting compared with average accounting, a participant will earn fewer ‘low risk’ units under stock change accounting. Low risk units are less likely to need to be repaid or surrendered.

Permanent forest category

2023 will bring about an additional category in the ETS called the ‘permanent post-1989 forest’; it replaces the current ‘permanent forest sink initiative.’

The new category is for forests that will not be clear-felled for at least 50 years. This option has generated much interest as an attractive investment opportunity for forestry owners and, more particularly, landowners seeking to turn farmland into economic gain. With the carbon price at upwards of $80/tonne, it is unsurprising the permanent forest category, and ETS generally, is pushing many farmers to consider forestry as a more viable practice in the future.

But is this set to change with the government’s recent proposal?

Proposal to exclude exotics

Under the current rules, a permanent forest category allows both exotic and indigenous forests to be registered in the ETS and earn New Zealand units (NZUs). The government has now, however, proposed excluding exotic species (such as pinus radiata) from the permanent forest category in a bid to better manage carbon farming in New Zealand.

The government’s proposed change (click here) has been generated from significant feedback and concern from scientists, primary industry and community groups, and local government with the increased rate of planting of exotic carbon forests on productive farmland.

Carbon farming is a hot topic not only in the rural sector, but also in environmental circles. Hopefully, the government’s proposal is the first step to a more strategic and managed process for the ETS in New Zealand.

In an ideal world we will have balanced opportunities for farmers to harness an income stream from their less productive land, while cultivating more valuable and sustainable areas of farmland for food production.

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


He Waka Eke Noa

Options out of the ETS for the primary sector

He Waka Eke Noa (HWEN) is a partnership established to reduce the emissions generated by the primary sector. It works to equip farmers to measure, manage and reduce on-farm agriculture greenhouse emissions and to provide sustainable farming practices for future generations.

More importantly, HWEN is developing a suitable emissions pricing scheme as the entire primary sector is not currently covered by the Emissions Trading Scheme (ETS). The government’s approval to this industry-led approach, however, comes with a large caveat – the ETS is the backstop for pricing agricultural emissions if HWEN does not deliver an effective and workable alternative.

HWEN has put forward two options to the ETS:

  1. A farm-level levy: this will calculate emissions using farm-specific data and the farm will pay a price for its net emissions, or
  2. A processer-hybrid levy: this will calculate emissions at the meat, milk, and fertiliser processor level, based on the quantity of produce received from farms or, the amount of product sold to farms. It will be paid at a processor level. This levy is likely be charged through to the farmer based on the quantity of product processed or supplied.

These options went out for public consultation earlier this year; HWEN will provide its recommendations to the government in late May.

These options aim to provide farmers with a practical and credible emissions pricing framework enabling them to control how their farm is operated. Crucially, the alternative mechanisms delink the methane price from the carbon price and give greater recognition of the sequestration on a farm, that is, a split gas approach.

Both the farm level levy and the processer-hybrid level acknowledge on-farm sequestration. For example, it would recognise native regeneration, riparian planting, shelter belts and other non-ETS eligible tree lots. This would be a significant win for many farmers who have invested heavily in improving the ecology and wellbeing of their land over the last few years.

What if either option is rejected?

If these two options are rejected, the sector will be subject to the ETS and the split gas approach will not be available; this means that the methane price will be linked to a rapidly increasing carbon price.

While agricultural emissions would be calculated at a processor level initially to create a ‘financial incentive’ for farmers to reduce emissions, it is likely that this would be passed on to farms based on the quantity of produce processed or product purchased. There is no doubt that costs for farmers would continue to increase annually, together with the ever-growing carbon price, despite continued work to reduce emissions.

‘Know your number’

Another milestone for HWEN is to ensure that all farmers and growers in New Zealand will know the annual methane and nitrous oxide emissions for their farms by December 2022. This has been dubbed ‘know your number’ by many in the primary sector. By 2025, each farm must have a written plan in place to measure and manage these emissions.

HWEN has defined a ‘farm’ as any farm over 80 hectares, or a dairy farm with a milk supply number or a cattle feedlot as defined in the National Environmental Standard for Freshwater. HWEN is supporting and assisting farmers in this process of knowing their numbers. While this space is still evolving and subject to change, the sooner farmers determine their numbers, the sooner they can understand where the emissions are being generated, and what actions may be taken to manage, mitigate or reduce them on farm.

Looking ahead

Regardless of the outcome that HWEN generates, the ETS and New Zealand’s international obligations create a need for better integration between forestry, emissions and the farming landscape. Farmers need to know their numbers so they can begin leveraging opportunities, and ensure they are in a good position for meeting legislative requirements.

To know more about HWEN and how it is working with the primary sector, click here. For advice relating directly to your farm or forestry situation, please don’t hesitate to contact us.

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650