Issue 43, Winter 2016 Commercial eSpeaking
Commercial eSpeaking, Winter 2016, No 43
Welcome to our new look Commercial eSpeaking. We hope you enjoy its brighter fresher design
and continue to find our articles both useful and interesting.
To talk further about any of the topics
covered in this e-newsletter, please dont hesitate to contact us.
Do you really need all that paper?
Sometimes you do
The way we live our lives and operate our
businesses is always changing. Amongst the biggest changes is the move to
electronic communication and information. Despite its potential for quick,
efficient communication and the reduction in the need for paper and storage,
ironically, many people find themselves surrounded by more paper than ever!
Historically, good practice has been to record
agreements in some sort of tangible document, a letter, fax or a written
agreement and for information to be stored in physical files. Today, emails and
other electronic communications are taking the place of letters and faxes. Electronic files such as PDFs, TIFs and Word files are taking the
place of hard copies, and information is being stored electronically rather
than on paper.
The natural tendency is to do things the way
they have always been done and to rely on existing systems for storing information.
Relying on electronic communications and information can, however, make people
feel uneasy. How many times have you:
·
Scanned and sent a document or a letter
electronically and then put the original in the post?
·
Emailed but thought this is important,
should I do it by letter?
·
Received or sent an email and printed off a
hard copy for a physical file?
·
Generated a report from your electronic
systems, printed it and then filed it?
Do we really need all that paper?
The Electronic Transactions Act 2002 (ETA)
was introduced for the express purposes of:
·
Reducing uncertainty about the legal effect
of information which is in electronic form or is communicated electronically
(and the time and place that those communications are sent and received), and
·
Providing that certain paper based legal
requirements can be met by using electronic technology.
Electronic format now as valid as paper
With a few exceptions, electronic
information is now equally as valid as its paper-based equivalent. The Act
provides that information cant be denied legal effect just because its in
electronic form or is an electronic communication. So, if you sign a
paper-based contract and then agree to a variation by e-mail dont expect that
the variation wont be legally binding just because you havent signed a paper
copy.
Requirement for things to be in writing
A legal requirement that information be in
writing, recorded in writing or given in writing is satisfied by information
that is in electronic form if the information is readily accessible so it can
be used for subsequent reference.
Some documents are still required to be on
paper notices required to be given to the public; information required to be
given in writing either in person or by registered post; notices required to be
attached to anything or left or displayed in any place; affidavits, statutory
declarations and similar documents; powers of attorney or enduring powers of
attorney; wills, codicils or other testamentary instruments; negotiable
instruments; warrants or other documents authorising entry onto premises,
search or seizure; court documents; some specific statutory requirements, etc.
Legal requirements to store information
The main requirements for keeping records in
electronic form under the ETA, whether the records were originally in paper
form or in electronic form, are that:
·
The integrity of the information contained
in the records is maintained (so make sure it is properly backed up), and
·
The information is readily accessible so it
can be used for subsequent reference.
The ETA enables people to retain information
thats in paper or other non-electronic form by retaining an electronic copy.
If the information is in an e-mail or other
electronic communication, you must also keep information that identifies where
it was sent from, where it was sent to, when it was sent and when it was
received.
Inland Revenue accepts that records can be
stored electronically; guidelines on the retention of business records in
electronic format are set out in its standard practice statement SPS 13/01 [TIB
vol 25:3 (April 2013) at 820].
It requires taxpayers to keep their business
records in New Zealand; this raises issues for people storing their information
in the cloud. Taxpayers who want to store their records offshore should apply
to the IRD for authorisation before sending their records offshore. However, if
either a backup of the business records is retained in New Zealand, or the
records to be stored offshore are merely a backup of the records held in New
Zealand, then the IRD considers that the requirement to store the records in
New Zealand is satisfied and an authorisation isnt necessary.
The challenge
The Electronic Transactions Act has been
introduced to facilitate the use of electronic communications and to reduce the
need for paper-based storage. The challenge is to look critically at how we
communicate and how we store information to reduce all that paper!
Whod be in business?
Other options if your business is shaky
Even the best of operators can face financial
struggles and at such times a wounded business loses friends quickly.
When a business starts to look shaky,
creditors will often tighten their trading terms for fear of suffering losses
themselves. Assertive creditors may choose to seek liquidation of a company or
bankruptcy of an individual. These options can lead to very poor outcomes. The
result can be staggering liquidation costs, lost jobs for employees, lost
owners equity, disruption for customers and losses to other creditors.
Sometimes it makes no sense for creditors to
shut down a business. In these instances there are legal mechanisms available
to companies and business owners to make compromises with creditors possible
and, to an extent, put the fate of the company or the business owner/s in the
hands of common sense.
Voluntary administrations
In the case of companies, voluntary
administrations are intended to be a fast and inexpensive alternative to a
liquidation. The voluntary administration regimes purpose is to maximize the
chances of a struggling company to continue trading.
An administrator may be appointed by the
companys board, a liquidator, a secured creditor or the court where a company
is, or is likely to become, insolvent.
A meeting of creditors must be held within
20 working days of appointment of the administrator. The creditors then decide
(by a 75% majority in value of debt owed) the future of the company. The
creditors may decide to specify the terms on which the company will continue
trading and what protection the company will have from existing creditors in a
deed of company arrangement. Alternatively, the creditors may decide to do
nothing and return the company to the control of its directors, or to put the
company into liquidation.
A deed of company arrangement will bind the
companys directors, shareholders and unsecured creditors, and all secured
creditors and lessors of property who have voted in favour of it. It may also
suspend the ability of creditors to enforce personal guarantees.
Another real strength of this process for
the struggling company is that after the creditors have decided that the
company will enter into a deed of company arrangement, the court may order that
a secured creditor may not exercise its rights, or a lessor may not retake
possession of leased premises or chattels.
Such orders may be made only if the
interests of the secured creditor or lessor will be adequately protected.
Adequate protection doesnt necessarily mean
equal treatment. In Australia, where the rules are similar, the courts have
allowed a company to walk away from its lease commitments, paying the landlord
only the amount it would have received in a liquidation of the company. The
other creditors were paid in full from funds contributed by a parent company.
Insolvency proposals
Theres a similar procedure in the case of
individuals who are unable to meet their financial commitments. Insolvent
people can apply to the court to have a trustee appointed to convene a meeting
of creditors to reach a compromise short of bankruptcy. The content of the
proposal is flexible but must be accepted by both a majority of the creditors
voting and a 75% majority of the creditors in value of debt owed. It must also
be approved by the court.
There are very clear benefits for a person
to avoid bankruptcy: this includes being able to continue in business, to
continue to hold directorships of companies, freedom to travel overseas and
avoiding the stigma of bankruptcy.
Worth considering
For any looming company or personal
insolvency situation where the business owner has the ability to achieve a
better outcome for creditors than they would otherwise achieve, these
alternative processes should be considered. This might require a contribution
of funds from an external source but, in the right circumstances, creditors may
also be convinced that the best outcome will come from supporting continued
trading.
Such compromises can also give directors
protection from personal claims, and creditors a degree of control, with the
real prospect of a better financial outcome than they might otherwise achieve
using the more severe liquidation or bankruptcy remedies.
Voluntary administration and insolvency
proposal procedures give business owners and creditors the opportunity to work
together to achieve an outcome, which is mutually beneficial and has wider
positive spinoffs.
Business Briefs
The tail
of two crocodiles
Lacoste recently successfully defended its
rights in the Court of Appeal[1] to its trade mark which depicts
both a crocodile and the word crocodile (mark 70068) despite it never
actually having used the mark.
Crocodile International Pte Limited had
applied to have Lacostes mark revoked on the ground of non-use under
66(1)(a) of the Trade Marks Act 2002. Lacoste argued that its use of its other,
more familiar mark, constituted use of mark 70068 under the Acts extended
definition of use which includes use in a form differing in elements that do
not alter the distinctive character of the trademark in the form in which it
was registered.
In making its decision, the Court of Appeal
agreed with the High Court that it should first assess the points of difference
between Lacostes familiar mark that has been used and the mark as registered
(70068). It must then ascertain if the differences alter the distinctive
character of the mark as registered (70068).
The court held that the differences between
mark 70068 and its more familiar mark were insignificant and did not alter the
distinctive character of mark 70068, which was dominated by the image of a crocodile.
It held the use of the word crocodile added nothing to the distinctiveness of
the mark.
Despite the result of this case, its
important to remember to use your registered trade mark to prevent claims of
this nature being brought by your competitors.
Business
tax proposals announced
In April 2016, the Prime Minister announced
a package of proposals to simplify business tax, many of which will benefit
small and medium-sized businesses. Some of the key tax proposals include:
·
A new pay-as-you-go option for paying
provisional tax for small businesses with less than $5 million annual turnover.
This will give small businesses an alternative to the current system which
requires three annual provisional tax payments. In order to take advantage of
the proposal, businesses will need to use a cloud-based accounting system
linked to the Inland Revenue such as Xero.
·
Changes to the use-of-money interest rules
that govern the interest paid to taxpayers for overpayment of tax and interest
charged for underpayment. The practical effect is that the changes will
eliminate or reduce use-of-money interest for the majority of taxpayers.
·
Contractors will be able to elect their own
withholding tax rate to better reflect their circumstances and reduce the
impact of provisional tax.
·
Certain penalties will be removed, including
the current 1% monthly penalty for new debt. However, immediate penalties
and interest charges for late payments will still apply.
New legislation is likely to be introduced
later in 2016 and most of the proposals have a planned implementation date of
1 April 2017.
Attempt to
structure around the Overseas Investment Act proves costly
A recent case[2] serves as a
reminder of the wide application of the overseas investment regime and a
warning against attempts to try and structure deals around it.
Carbon Conscious New Zealand Limited (CCNZ)
needed to buy some land to meet its planting obligations for a carbon credits
scheme. The land was sensitive under the Overseas Investment Act 2005. However
CCNZ (a subsidiary of an Australian company) did not have the time it would
have required to get consent it needed to buy the land to start its planting
in time to meet those obligations.
After taking advice an arrangement was
entered into which involved a new company (Katey LR) being incorporated with
the CCNZ general managers wife as the sole shareholder and director. That
company bought the land and entered into some contractual arrangements with
CCNZ which included giving CCNZ an option to buy the land.
These arrangements made the two companies
associates under the Act, the result being that there was an acquisition of
sensitive land by an associate of an overseas person without consent which is
in breach of the Act. The High Court looked at a number of factors including
the nature of the breach, the nature of any damage caused or gain made and
whether the breach was intentional, inadvertent or negligent. The court
ultimately ordered CCNZ to pay a penalty of $40,000 (after applying a 50%
reduction for its admission of liability and co-operation) and $6,000 in costs.
New Zealands overseas investment regime is
intentionally broad in its application. Any attempt to structure around it is
unlikely to succeed, and carries with it the potential for significant penalties.