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BusinessLaw

Consequences of ‘accidental directorship’

Business Law, Company Law, Corporate Governance, Directors’ Duties, StartupAdvice, Startups, Venture Capital
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Caution for investors, startup advisers and board observers

Startup companies often rely on advisers, investors and board observers to help guide their new businesses. This is a good thing, but it carries hidden risk.

If you are in one of these roles, in some circumstances, you can be treated as a director, even if you never formally agreed to the appointment. If this happens, it can expose you to personal liability.

 

Directors vs advisers: What’s the difference?

Directors are responsible for the overall governance and strategic direction of the business.

Directorship also comes with legal compliance under the Companies Act 1993. There are significant consequences for directors if things go wrong.

On the other hand, advisers and board observers typically provide strategic, non-binding guidance for the directors to take into consideration when making decisions.

In theory, this is a clear distinction. The line, however, can become blurred. What matters is what you do in practice, rather than your title.

 

How do people become accidental directors?

This is common in startups, where governance structures are still evolving and roles are often informal. Having said that, this is still a real risk for any company. Courts tend to focus on how you are fulfilling your role as an adviser or observer in practice. Warning signs include:

  • The board of directors regularly following your instructions or directions
  • Being involved in decision-making on the same level as directors, and/or
  • Exercising authority normally reserved for directors.

If these patterns develop, you may be seen as a deemed director.

 

Personal liability

Directors’ duties are personal. If a company gets into financial trouble, the directors are exposed to personal liability, and in some instances may be required to personally contribute to company debts. This risk doesn’t just apply to those formally appointed. If you are treated as a director in substance, you may carry this risk without even realising you’ve taken it on.

 

A risk area

Board observers and startup advisers are particularly exposed because their role sits very close to the line. For example, an observer may:

  • Attend meetings and receive board papers
  • Provide input on strategy or decisions, and/or
  • Represent investor interests.

 

That’s fine, but the risk increases where:

  • You participate in decision-making on significant matters
  • The board tends to follow your recommendations
  • Your role is not clearly recorded as ‘observer only,’ and/or
  • You (or your investor) have significant control or approval rights.

Over time, what starts as ‘advice’ can start to look like decision-making.

 

This is one of those areas where things can drift without anyone noticing. Everyone is acting in good faith, wanting the business to succeed, but the legal position gradually shifts. If you are involved in a startup as an adviser, investor or observer, it’s worth asking yourself:

  • Am I just advising, or am I influencing decisions?
  • Does the board treat my input as optional or as direction?
  • Is my role clearly documented and understood?

Small changes in how you operate can make a big difference.

 

Be careful

Being an adviser or board observer is often valuable and rewarding, and is of great benefit to startups. However, there are real risks with these roles that are not always obvious. If your involvement crosses the line into decision-making or control, the law may consider you as a director, exposing you to all the responsibility and possible personal liability that comes with that title.

It pays to be clear about your role from the outset and to keep checking that your involvement hasn’t crept further than intended. If you’re not sure where that line sits in your situation, it’s a good time to get legal advice to help avoid unintended consequences.

 

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, 2026.     Editor: Adrienne Olsen.       E-mail: [email protected]     Ph: 029 286 3650 

Modern Slavery Bill

Business Law, Employment Law, Human Resources, Human Rights, Legislation, Supply Chains, Workplace Law
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Implications for business

The introduction into Parliament of the Modern Slavery Bill has brought awareness of how modern slavery has manifested itself into New Zealand businesses. Modern slavery can rear its ugly head in a range of ways from forced labour in supply chains, exploitation (or coercion) of workers and various forms of trafficking.

The Bill has also made history as it is the first time a bill has been introduced through Standing Order 288. This allows a Private Member’s Bill to bypass the random ballot (or ‘biscuit tin’) process if it is supported by two-thirds of non-executive MPs.

This Bill was co-sponsored by Labour MP Camilla Belich and National MP Greg Fleming. This bi-partisan effort shows the importance of the Bill not only to our parliamentarians, but also to New Zealand society.

 

What is modern slavery?

Modern slavery is often seen as a global matter and, for many New Zealanders, it probably feels like an issue away from our shores. Unfortunately, this is far from the truth. World Vision currently estimates that the average Kiwi spends around $77 a week on goods linked to various forms of modern slavery.[1] Walk Free’s 2023 Global Slavery Index estimated that in 2021, there were 8,000 individuals on any given day, living in modern slavery in New Zealand.[2]

In a high-profile case in the modern history of slavery in New Zealand, Joseph Matamata was convicted of 13 charges of slavery and 10 charges of human trafficking involving labourers working in orchards. After bringing the labourers to New Zealand with promises of a better life, Matamata retained their income, restricted communication and movement, and used threats of violence to ensure the labourers stayed in their jobs.[3]

The Bill

The Bill is both broad and extensive in defining modern slavery. It is defined as:

  • Crimes already understood in the Crimes Act 1961:
    – Dealing in slaves, as well as debt-bondage or sefdom
    – Dealing in people under 18 for sexual exploitation, removal of body parts, or engagement in forced labour
    – People trafficking, and
    – Coerced marriage or civil union
  • The ‘worst forms of child labour’ under Article 3 of the International Labour Organisation Convention No. 182
  • Trafficking as defined by Article 3 of the United Nations Protocol
  • Forced or exploitative labour
  • Servitude, and
  • Sexual exploitation.[4]

 

Outside of the definition of modern slavery, the Bill requires the Minister to report annually on modern slavery matters, to publish guidance and to direct the Chief Human Rights Commissioner to designate modern slavery as a ‘priority area’ if necessary. The Bill will lead to the creation of a Modern Slavery Statement Register to be publicly accessible. All this will be overseen by the proposed independent Anti-Slavery Commissioner.

 

What does this mean for business?

The Bill currently states that ‘reporting entities’ are required to:

  • Prepare and publish annual modern slavery statements that describe their structure and supply chains
  • Identify modern slavery risks (both real and potential)
  • Outline what steps the entity is taking to deal with the identified risks, and
  • Lodge these statements on the Modern Slavery Statement Register.

A ‘reporting entity’ in the Bill is defined as a business with a consolidated annual revenue that exceeds $100 million. These entities not only refer to New Zealand entities, but also any overseas company carrying on business in New Zealand. These entities can be both public and private organisations, with government agencies also being captured under this regime.

 

How this affects New Zealand businesses

If your business is considered a reporting entity under the Bill, non-compliance with the regime could carry a strong penalty. Offences will be committed if entities fail to comply with their reporting obligations, or if they knowingly make false or misleading statements in their reports. These offences could amount to reporting entities being liable on conviction to a fine of up to $200,000.

From a civil point of view, the maximum pecuniary penalty for a contravening reporting entity is $600,000.

This also imposes personal liability for directors and individuals involved in management. If an offence occurs with the permission, knowledge or presumed knowledge of these individuals, they will be found guilty. This is particularly important if the director or management should have known it was occurring but failed to take reasonable steps to prevent it from happening.

The final important note for businesses is that if they are found to be non-compliant, both the name of the business and the individuals responsible will be published on the Register for three years.

 

Preparing for the Bill to become law

Many affected by the reporting obligations of this Bill may already be familiar with its obligations, considering there are similar laws in other jurisdictions. However, potential ways to prepare for the implementation of the modern slavery legislation in New Zealand could be in the form of preparing policies and governance, reviewing supply and procurement contracts (and being particularly diligent about who your suppliers are), and potentially establishing internal whistleblowing procedures.

Other steps could involve identifying risk factors that may facilitate the exploitation of workers, and developing management plans to mitigate them. The Ministry of Foreign Affairs and Trade has a range of specific resources all targeted towards combatting modern slavery.[5]

 

A positive development

This Bill is widely seen as a positive development in New Zealand law. While there may be concerns on the extent of obligations imposed on entities, the benefits to victims undoubtedly outweigh the costs. If you are concerned that this proposed legislation may affect the way you do business, please don’t hesitate to contact us.

[1]  https://www.worldvision.org.nz/about/media/parliamentary-rule-modern-slavery-act-for-nz/

[2] https://www.walkfree.org/global-slavery-index/country-studies/new-zealand/

[3] Joseph Auga Matamata v R [2020] NZHC 1829.

[4] https://www.legislation.govt.nz/bill/members/2026/242/en/latest/#LMS1569519

[5] https://www.mfat.govt.nz/en/trade/nz-trade-policy/combatting-modern-slavery

 

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, 2026.     Editor: Adrienne Olsen.       E-mail: [email protected]     Ph: 029 286 3650 

To Share and Share alike

Business Law, Contracts and Agreements, Due Diligence, Legal Guidance, Shareholder Agreements
0

It was just another Monday, as Simon entered his law office, looking forward to slaking his thirst with a comforting cup of tea. He shrugged off his suit jacket and hung it up. While he waited for his computer to wake itself for the day ahead, he made himself a cup of tea.

 

He was just about to have a sip, when the phone rang. He put the tea down. Reception told him that someone was here to see him, no appointment in place, but it was apparently urgent. Taking a last look at his untouched drink, he went downstairs and shook hands with Reggie, who was flustered, Sally’s cousin.

 

“I’m joining someone in an engineering business, it’s all got to be done by tomorrow for some reason, and I’ve got all this paperwork to sign. In fact, I’ve already signed it and was going to hand it over, but Lory said I better come and see you first. Well, she demanded it.”

 

Simon sat Reggie down in an office, and had a look at the papers provided. Reggie was joining two other people in a company which ran the engineering business, he was going to take over from a current owner, and this all had to happen by 31 March for tax reasons. Simon went back to his room, grabbed his favourite pen, ignored the cold cup of tea on his desk, and returned to an expectant Reggie, who said: “We’re all good to go, aren’t we, can I just pay the money and get on with it?”

 

Simon put down the documents, looked at Reggie, and took a deep breath. “Reggie, there are some really important things to think about first:

 

Due Diligence – how well do you know the people you are going into business with? Do they have experience in the industry, in this company, do they have a good reputation? Are they financially sound, can they help bail the company out of trouble if necessary, have they had money problems in the past?

 

Shareholder Agreement – it is essential that you and the other owners sign an agreement which sets out expectations of each other, whether you will need to put more money into the business, who makes decisions, and when do you all have to agree.

 

You should commit to a timeframe where no one can pull out of the business, and if they do they must offer the shares to each other.”

 

Reggie’s eyes were wide open. “Thanks for this, I’ll have a good chat with the others, I won’t sign anything, and I’ll come back and see you shortly.”

 

Simon waved him goodbye, and poured himself a cup of tea. He knew that was not the end of this story.

 

 

Simon Brdanovic

Rent reviews in commercial leases

Business & Employment, Insights & Tips, Landlord & Tenant, Legal Updates, Property & Commercial Leasing
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Methods of review

Two of the most important considerations for parties to a commercial lease are, ‘What is the annual rent?’ and ‘How and when can the rental amount be reviewed?’ The answers are always found in the deed of lease for the premises.

The first schedule of The Law Association Deed of Lease (the most common format for commercial leases) sets out the methodology relating to rent reviews, including the review dates and the review types. There are three main methods of rent review:

  1. Market rent review
  2. CPI (Consumer Price Index) rent adjustment, and
  3. Fixed rent adjustment.

Most leases include a combination of two of the three rent review/adjustment methods, with a common pattern being fixed with market rent reviews on renewal dates.

The Law Association’s Deed of Lease standard terms are discussed below. Care, however, should be taken to ensure the clauses have not been modified in your lease.

 

Market rent review

When conducting a market rent review, either party may give the other party written notice of what the new market rent amount will be from the rent review date.

Notice cannot be given earlier than three months before the relevant rent review date, and it can be given at any time before the next rent review date (regardless of the method of the next rent review). If it is given more than three months after the rent review date, however, the new annual rent amount will only apply from the date of service of the notice rather than the rent review date.

Typically, the rent review process is initiated by the landlord obtaining a market rent valuation to use as the basis for the new rent figure. The other party then has 20 working days to agree, or dispute, the market rent value.

If the new rent value is disputed, the matter will either be decided by an arbitrator or, more commonly, by each party appointing a registered valuer to act as an expert, with the valuers to agree on the market rent value. If the valuers cannot agree on the market rent, a third party appointed jointly by the valuers will decide.

 

CPI rent adjustments

The second method of rent review is a CPI rent adjustment; this follows a formula set out in the deed of lease. CPI rent adjustments can only increase the rent payable, if the CPI rent adjustment results in a lower amount, the rent will remain the same.

CPI adjustments can be popular with landlords as they are less costly and time consuming to complete when compared with market rent reviews.

A drawback, however, is that in high inflation environments, CPI adjustments can result in significantly larger than anticipated rent increases, and the new rent payable may not be reflective of the general market.

It is open to landlords and tenants to agree to a different rent adjusted amount, even if the lease provides for a CPI adjustment, but agreement on rent reviews is not always easy to reach.

 

Fixed rent adjustment

In a fixed rent adjustment situation, the rent will increase by a fixed amount at specified intervals, regardless of changes in the market rent amount or CPI. This method of rent adjustment can provide both the landlord and tenant with certainty on rent amounts moving forward.

 

Limits for a rent review/adjustment

The lease may also provide for a limit for the rent review. Most leases specify that the reviewed/adjusted rent will not be less than the rent payable immediately before the relevant review or adjustment date, which means that the rental amount will either increase or stay the same. It won’t decrease!

Some leases specify that the rent will not be less than the annual rent payable at the commencement of the current lease term. Other leases specify that the rent will not be less than the rent payable at the commencement of the lease, though this is not common. The landlord and tenant are free to agree to an alternative method of limiting rent reviews if it suits their circumstances.

 

Important to understand the process

It is very important for both the landlord and the tenant to understand the rent review processes in the lease, as it can have significant implications for both parties. We can assist if you have any questions on your lease rent review process.

 

DISCLAIMER: All the information published in Property Speaking 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 Property Speaking 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

Terms of trade

Contracts & Documentation, Legal Agreements, Risk Management, Terms & Conditions
0

After firming up a child support agreement with Sally and adjusting to his new routine after separating from Sally, Luke decided that he better check in with his business and make sure nothing has fallen by the wayside while he was preoccupied with his separation.

While doing a general review of what’s been happening in the business, he comes across his business’ terms of trade. After having a quick look at the terms of trade he is shocked to see that the terms haven’t been updated in a couple of years. To make matters worse he notices that his terms of trade don’t build in any protection for his business should a customer not pay him for his goods and services. Luke decides to set up a meeting with his lawyers for advice.

At this meeting, Luke gives his terms of trade to his lawyers and explains how his business operates and what terms and conditions he would like to be in place. Luke and his lawyer discuss the importance of regularly reviewing and updating the terms of trade.

A business’ terms of trade are recorded in a written document that set out the relationship between the business and customer, and the terms and conditions that apply to the supply of goods and services.

Luke’s lawyers review his terms of trade, update them to reflect his business needs and make further suggestions on how the terms and conditions should be amended to provide clarity to both Luke and his customers. Importantly, his lawyers made sure that the terms included clauses that set out what would happen if there was a dispute, limited Luke’s liability to the customer, and detailed the business’ rights if a customer didn’t pay.

Luke now felt much more protected using his new terms of trade for his business.

Kristin O’Toole

Business briefs

Business Regulation & Compliance, Consumer & Fair Trading, Employment Law & Workplace Wellbeing, News & Legal Updates, Privacy & Technology
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Commerce Commission – Misleading and deceptive conduct – Noel Leeming

The Commerce Commission has filed criminal charges against electronics retailer Noel Leeming, alleging that its well-known ‘Price Promise’ misled consumers.

 

The retailer had promoted the promise as a guarantee that customers would always receive a match with a competitor’s price. In practice, however, the exclusions and restrictions in the terms and conditions significantly limited the application of this and many shoppers were unable to rely on the promise as advertised.

 

The Commission has alleged multiple breaches of the Fair Trading Act 1986 that prohibits businesses from engaging in misleading and deceptive conduct. The Commission emphasised the importance of large retailers being clear and honest in their advertising. It has previously warned businesses that disclaimers buried in fine print may not be enough to correct misleading impressions.

 

This investigation serves as a reminder to all New Zealand businesses of the importance of ensuring promotional promises are accurate and not undermined by hidden conditions. For consumers, it highlights the need to be cautious of marketing claims that may not tell the full story.

 

Online Casino Gambling Bill

The government has introduced the Online Casino Gambling Bill. This is a significant reform in the gambling sector that would allow online casino operators to be licensed and regulated in New Zealand for the first time.

 

Up to 15 operator licences will be allocated by auction to businesses seeking to offer online casino services to individuals in New Zealand, whether based locally or offshore. It is anticipated that large offshore gambling companies will feature prominently among applicants for the 15 licences. These licences will be valid for three years and renewable for a further period of five years. Operators will be subject to strict conditions, including mandatory age and identity verification, advertising restrictions, harm minimisation obligations and fines of up to $5 million for breaches.

 

While the Bill is intended to facilitate a safe and compliant regulated online casino gambling market, it has attracted strong opposition from more than 50 sporting organisations. Unlike the current Class 4 ‘pokie trusts’ system, which distributes millions each year to grassroots and community sport, the new framework does not require online casino operators to contribute to community funding. Sporting leaders have warned that the change could severely impact local organisations already facing financial pressure due to a lack of funding.

 

The Bill is currently before the select committee and a report on the Bill is due in November 2025.

 

Biometrics Processing Privacy Code 2025

In last summer’s edition of Commercial eSpeaking (#69), we reported on the draft Biometrics Processing Privacy Code. Since then, the Office of the Privacy Commissioner has finalised the Code; this will take effect on 3 November 2025. Organisations already using biometric technologies will have until 3 August 2026 to ensure full compliance.

 

The Code applies to organisations using automated processes to collect and use biometric information – that is, information about a person’s physical features or behavioural traits, such as facial features, fingerprints, voice or eye patterns.

 

The Code introduces 13 rules that go beyond the general information privacy principles in the Privacy Act 2020, requiring businesses that collect biometric data to take a more rigorous and transparent approach. These rules can be broadly categorised in the following way:

 

  • Purpose: Organisations must clearly identify why they are collecting biometric information and ensure that collection is necessary, effective and proportionate to that purpose
  • Safeguards: Adequate privacy protections must be in place before collection, including measures to reduce privacy risks, ensure system accuracy and strengthen security
  • Proportionality: Biometric data should only be collected where there are reasonable grounds to believe that the benefits of collection outweigh the potential privacy impacts on individuals
  • Openness: Individuals must be informed about how their biometric data will be used and disclosed so they can make an informed decision about providing it, and
  • Use limits: The Code places clear limitations on how biometric data can be used and when it may be disclosed.

 

Each rule contains specific obligations that may impact how your business collects, uses and protects biometric information. As a result, it is important that businesses review their biometric systems and policies to ensure compliance with the Code as the effective date (3 November) approaches.

 

To view the full and detailed list of the rules under the Code, please click here.

 

If you need any guidance on any of the above topics, please don’t hesitate to contact us.

 

 

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, 2025.     Editor: Adrienne Olsen     E-mail: [email protected]    Ph: 029 286 3650

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