Edmonds Judd

Law commission

Modernising the Companies Act

Commercial, News
0

In August 2024, the government announced that it would progress a package of reforms to the Companies Act 1993 and related legislation.

 

The reforms are designed to address several issues that are regularly encountered in practice, to make New Zealand an easier and safer place to do business and to increase uptake of the New Zealand Business Number (NZBN).

 

The reforms will be carried out in two phases:

  • Phase 1 will focus on modernising the Act, simplifying compliance, deterring poor and illegal business practices and making improvements to insolvency law to make outcomes fairer for creditors. The bill introducing these reforms is expected in early 2025, and
  • Phase 2 will take place after a Law Commission review of directors’ duties and liability issues, which is also due to begin in early 2025.

 

Phase 1

The first phase includes reforms that will address several practical issues. The key changes that have been suggested for Phase 1 include:

  • Introducing a simpler process for a company to reduce its share capital, modelled on Australian legislation
  • Amending the definition of ‘major transaction’ by excluding transactions relating solely to the capital structure of a company (for example: issuing shares, share buy-backs, dividends and redemptions) and by clarifying that a series of related transactions does constitute one ‘major transaction’
  • Extending the shareholder unanimous consent process in section 107 of the Act to cover issuing options or convertible securities, crediting unpaid share capital and acquiring shares to be held as treasury stock
  • Providing a process for dealing with unclaimed dividends
  • Providing for certain actions such as share buybacks and a company holding its own shares to be available by default (currently these actions are only allowed if expressly permitted by the company’s constitution)
  • Simplifying processes to reserve company names, restore companies to the register and correct mistakes on the register
  • Allowing companies to put certain shareholder and creditor information on a webpage rather than having to physically send out copies to each person
  • Introducing unique identifier numbers for directors and changing address requirements so directors’ residential addresses don’t have to be disclosed on the public register
  • Improving insolvency laws by extending the claw back period for related party transactions, and
  • Introducing various measures to improve the uptake of the NZBN.

 

The bill containing the reforms will be introduced in early 2025, and the public will be able to make submissions on the legislation as it progresses through the select committee stage.

 

Phase 2

The second phase is expected to begin in parallel with Phase 1, starting with a Law Commission review of directors’ duties and liabilities. This is expected to address several concerns, including that the law related to reckless trading and incurring obligations is unclear and difficult to apply.

 

 

 

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

Business briefs

Commercial, Employment, News, Your Own Business
0

Companies Act reforms announced

The government has announced a suite of changes to the Companies Act 1993 aiming to improve fairness and the ease of doing business in New Zealand. The reform is expected to take place in two phases.

 

Phase One: The first phase focuses on the modernisation and simplification of the Act to better reflect a more evolved business and technological landscape.

 

Specific proposed changes include:

  • Providing a process for reducing the share capital of a company that does not require court approval
  • Amending the definition of ‘major transaction’ to exclude transactions relating to the capital structure of a company and clarify that a series of related transactions are captured by the definition
  • Adding additional types of transactions that can be approved by unanimous shareholder consent
  • Allowing companies to mingle unclaimed dividends with other funds after two years
  • Assigning unique identifiers to directors to prevent ‘phoenixing’ (where a new company is registered to take over an insolvent or unsuccessful one), and
  • Allowing directors and shareholders to have their residential addresses removed from the Companies Register, resolving safety and privacy concerns.

 

Further insolvency law amendments are also being proposed, including extended claw back periods, preference for long service leave and greater honouring of gift cards.

 

Phase Two: The second phase will involve a Law Commission review of directors’ duties and related issues such as director liability, sanctions and enforcement.

 

The bill introducing Phase One is expected to be introduced in early 2025 and Phase Two will closely follow.

 

 

Siouxsie Wiles employment decision

In July, the Employment Court ruled that the University of Auckland had breached its health and safety, and good faith obligations to Associate Professor Siouxsie Wiles.[1]

 

Dr Wiles was prominent in the media during the Covid pandemic, communicating complex Covid information in an understandable way to the public. Dr Wiles received harassment and abuse, both online and offline, from those who disagreed with her. She sought help from the university, but was told that it was not part of her academic duties and that she should minimise further public statements until a security audit had been completed.

 

Although the university was commended for the actions it did take, ultimately, those actions were insufficient. The Employment Court was critical of the university’s delay in responding to safety concerns and the university’s misplaced focus on Dr Wiles’ outside activities. The court found that the onus was on the university to obtain the right health and safety advice, and proactively put a plan in place. By failing to do so, the university was not acting in good faith and was breaching its contractual obligations to be a good employer.

 

This ruling serves as a good reminder that employers, especially those in the public sector or that engage with the public, should consider health and safety risks in relation to employees’ work-related activities, including where those activities pose a risk of harassment. Employers may also be responsible for work related activities occurring outside of an employee’s work premises and normal working hours.

 

 

New bill to improve consumer data rights

Parliament is currently considering the Customer and Product Data Bill – a bill designed to increase consumer control over their data. It is currently with the select committee. If passed, the legislation will create an obligation for businesses that possess customer data to provide, on request, that data to those customers and certain third parties.

 

The bill will help consumers access their data to compare services and change providers, making it easier for new or smaller businesses in an industry to compete with the ‘big players.’ The bill introduces hefty fines for non-compliance, including a fine of up to $50,000 for failing to respond to a data request and a fine of up to $5 million for making an unauthorised data request. Initially, the bill will only apply to the banking, electricity, and telecommunications sectors.

 

 

Changes to insurance industry coming

The Contracts of Insurance Bill, that awaits its second reading, will make significant changes to the rights of policyholders and insurers to promote confidence in the insurance market and ensure that insurers operate fairly. The bill proposes several changes to insurance contracts legislation, including:

 

  • Disclosure duties: The bill draws a distinction between consumer policyholders (where the insurance contract is for personal, domestic or household purposes) and non-consumer policyholders. Consumer policyholders will have a duty to take reasonable care not to make a misrepresentation to the insurer.
    Non-consumer policyholders will have a duty to make a fair representation of the risk. This shifts the burden on insurers to ask the right questions to reveal all the information they need
  • Unfair contract terms: The bill removes the existing exception for standard form insurance contracts from the unfair contract term provisions in the Fair Trading Act 1986. In other words, the unfair contract terms regime will apply more widely to insurance contracts, meaning insurers must make sure that the provisions of their insurance contracts are fair.
    There are still some exceptions in insurance contracts that will not be subject to the unfair contract terms regime, including event, subject or risk insured, sum insured, the basis for settling claims, excess, and exclusions or limited liability in certain circumstances, and
  • Proportionate remedies: Insurers will no longer be able to avoid an insurance contract for any failure or misrepresentation of a policyholder. Instead, insurers will have proportionate remedies based on how it would have responded if it had known the relevant information, such as reducing the amount paid on a claim.

 

Uber appeal dismissed: drivers are employees

In 2022, the Employment Court made a landmark ruling against Uber when it found four Uber drivers were employees and not independent contractors.[2] Uber appealed the decision, and the Court of Appeal issued its decision in August.[3] The Court of Appeal criticised the Employment Court’s approach, stating that the first step should be to look at the parties’ agreement governing the relationship, rather than whether the individual is vulnerable or suffering from an imbalance of power. Ultimately, however, the focus should still be on the parties’ mutual rights and obligations, interpreted objectively.

 

Despite these criticisms, the Court of Appeal still dismissed the appeal affirming the finding that Uber drivers are employees. This means Uber must provide the drivers with employee benefits, including minimum wage, leave entitlements and holiday pay.

 

The decision only applies to the four Uber drivers, but it has implications for all businesses that engage contractors, particularly for those operating in the gig economy. It is a timely reminder for businesses that rely on contractor workforces to ensure their contracts accurately reflect the nature of the relationship with their workers.

 

The Workplace Relations and Safety Minister Brooke van Velden has indicated that the coalition government intends to amend the Employment Relations Act in 2025 to increase certainty and clarity for contractors and businesses regarding employment status of workers. The changes will provide a four part gateway test which, if met, would mean a worker is a contractor. More information on the government’s announcement can be found here.

 

If you would like to know more about how any of the items in Business briefs may affect you and your business, please don’t hesitate to contact us.

[1] Wiles v University of Auckland [2024] NZEmpC 123.

[2] E Tū Inc v Rasier OperaAons BV [2022] NZEmpC 192.

[3] Rasier OperaAons BV v E Tū Inc [2024] NZCA 403.

 

 

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

The plight of stepchildren

Estate, Kids, Relationships
0

Non-traditional family structures can result in unfair estate outcomes

When a parent dies and leaves their child or children out of their will, those children are entitled to bring a claim against their parent’s estate under the Family Protection Act 1955 (FPA). While a financially stable adult child may not have a claim to a large  proportion of their parent’s estate, they will usually still have a claim for ‘recognition.’

The same is not true for children claiming against the estate of a stepparent.

Stepchildren are only entitled to bring a claim against the estate of a stepparent in very limited circumstances – usually when they are financially dependent on their stepparent at the date of their death.

This can become a real problem when a parent dies, leaving everything to their spouse or partner, who is trusted to make provision in their own will for their stepchildren, but fails to do so.  Stepchildren are often left without a remedy, and this is an increasing source of perceived unfairness in a society where non-traditional family structures are becoming common.[1]

 

 

How does the law respond?

When someone inherits all their partner’s property, but ultimately fails to provide for their partner’s children in their own will, those stepchildren typically must look for alternative ways to bring a claim against the estate of their stepparent, outside of the FPA. Commonly this includes two possible actions:

 

  1. Making a mutual wills claim

Where the parent and stepparent originally had wills which left everything to each other, and then after the death of the second, made provision for each of their families, it might be argued that the wills were intended to be binding and that the stepparent was not intended to be able to change their will later on to leave out their stepchildren. If successful, a mutual wills claim would bind the stepparent’s estate to make the promised provision for their stepchildren.

The difficulty is often found in showing that there was an agreement between the parent and stepparent that the wills would not be changed. This may have been assumed, but it is rarely spoken about or expressed in writing. It can also be difficult when the stepparent clearly did not feel that they were bound by such an agreement.

 

  1. Testamentary promise claims

Claims are sometimes brought under the Law Reform (Testamentary Promises) Act 1949.  As the name suggests, these claims require some sort of promise to have been made.  The stepchild will need to show that:

  • They rendered services to their stepparent
  • Their stepparent promised to reward them for those services in their will
  • The promise was motivated by the services, and
  • The stepparent failed to keep their promise in their will.

Difficulties often arise in showing ‘qualifying services.’ Normal things that one might do for a close family member, such as helping in their older age, will not usually qualify. While some stepchildren have successfully argued that they abstained from making a claim against their parent’s estate, and that was a service to their stepparent, many children don’t ever seriously think about making such a claim, so it is hard to make that out as a ‘service.’

Promises are often vague, and New Zealanders do not always like to talk about money.

Even where there are services, and a promise to reward, in many cases the promise is found to have been motivated by the close relationship rather than the services themselves.

It can be very hard to make a successful testamentary promises claim.

 

 

Case example

In a 2015 case,[2] a child failed in several claims against his stepfather’s estate. The High Court said:

“While I have sympathy for the position Paul finds himself in, his personal claims against the estate appear to me to fall within the rock of the [Family Protection Act 1955] and the hard place of the [Law Reform (Testamentary Promises) Act 1949].”

There are also a variety of claims available to stepchildren such as a constructive trust, estoppel or unjust enrichment. These generally make similar arguments, but often fail for the same reasons as in the Blumenthal case.

Stepchildren often miss out because they wanted to do the right thing when their parent died, and they made the unfortunate decision to trust their stepparent to do the right thing later.

 

 

 

Will this change?

The Law Commission identified the plight of stepchildren in its 2021 Succession Review Issues Paper, but it did not propose any new avenue for stepchildren to bring claims against the estate of a stepparent, simply because they have ‘missed out’ on their parent’s estate.[3]

Further, the law reform project has stalled, leaving things in a rather unsatisfactory position for stepchildren who are more and more commonly in this situation.

This situation for stepchildren highlights the continued importance of having proper estate planning arrangements in place – particularly for blended families. There can be a significant financial and emotional cost when these things are not discussed and addressed while both parents and stepparents are alive and capable.

 

[1] The Law Commission noted in 2021 that only 7% of children lived from birth to age 15 in households containing only nuclear family members: Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [1.15].

[2] Blumenthal v Stewart [2015] NZHC 3187, affirmed on appeal.

[3] Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [4.70].

 

 

 

 

DISCLAIMER: All the information published in Trust 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 Trust 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