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:
Do we really need all that paper?
The Electronic Transactions Act 2002 (ETA) was introduced for the express purposes of:
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 can’t be denied legal effect just because it’s 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 don’t expect that the variation won’t be legally binding just because you haven’t 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 ETA enables people to retain information that’s 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 8–20].
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 isn’t 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!
Who pays for your funeral?
Most Wills have a clause directing the executors to pay funeral expenses as well as other usual estate liabilities. Often there is also a clause saying whether you want burial or cremation. Are these directions binding?
Surprisingly, a direction in a Will concerning cremation or burial is not necessarily binding. The law has long said that no one owns a dead body and therefore there cannot be any binding directions. The New Zealand Supreme Court has ruled that:
Those points were decided in a 2012 New Zealand Supreme Court case[1]. The court also agreed that the estate should meet funeral, and cremation or burial costs. The executor/s should pay those costs if there is money available. If there is no executor then the family has responsibility for the funeral.
It’s also quite hard for executors to get out of paying funeral expenses by saying there is no money in the estate. In a 2004 case[2], the only asset in the estate was a one-third share in a property. The widow owned the other two-thirds share and had a lifetime right of occupation. Nevertheless the court ruled that the executor was obliged to pay for the funeral out of the estate. The executor had to raise a loan secured against the one-third share in the property. The amount of the loan, with interest, will have to be repaid when the property is sold.
The funeral director will expect to be paid from the estate. It is usually the family members who arrange the funeral. They will look to the executors to cover the cost if possible. However, if there is really nothing in the estate then the family members who signed the funeral director’s forms may themselves be liable for the cost.
Possible government assistance
It’s possible to get a funeral grant from the Ministry of Social Development/Work and Income. However this is subject to an income and asset test, and the person who died must have normally lived in New Zealand. As at 1 April 2015 the maximum funeral grant was set at $2,008.76. The Ministry will also look at the assets of the estate and any surviving spouse or partner. If the person who died was under 18, MSD may take into account the assets of the parents. It’s also be possible to obtain help with funeral costs from ACC or Veterans’ Affairs – in some cases.
Pre-paid funerals
Because of the high cost of a funeral, many people want to relieve their family from the burden of paying for this. One option is to make an arrangement with a local funeral director to pay for the funeral in advance. This may restrict your family’s choice about who will organise the funeral. The arrangement will usually have some built-in adjustment for increased costs due to inflation.
Another alternative is a funeral trust. This means money is held in a trust fund and interest is earned on the money. This is then available to meet the costs of the funeral. A number of pre-paid funeral trusts have been approved by the Ministry so that the amount in the trust will not be taken into account if you apply for a subsidy for your long term residential care.
Points to remember
It’s helpful to say in your Will what sort of funeral, or burial or cremation you want. This gives guidance to your executors and family. You can also include an organ donation clause but you need to discuss this with your family and your doctor: your Will may not be read until after your funeral. The funeral costs normally come from your estate but the family should be involved in arranging the funeral. Some financial assistance is available from Work and Income in cases of hardship. It can make it easier for your family if you have a pre-paid funeral or funeral trust.
[1] Takamore v Clarke [2012] NZSC 116.
[2] Public Trustee v Kapiti Coast Funeral Home Ltd [2004] 3 NZLR 560.
Could be the best option for you
With the growth of multiple relationships and blended families many couples are having to consider ways to ringfence assets and protect inheritances. One option is to establish parallel trusts – so you each have your own trust for your share of the assets
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A typical parallel trust structure |
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David’s Trust |
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Sally’s Trust |
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Settlor: |
David |
Settlor: |
Sally |
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Trustees: |
David, Sally and an independent trustee |
Trustees: |
Sally, David and an independent trustee |
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Beneficiaries: |
David, Sally, and only David’s children, grandchildren and direct family members |
Beneficiaries: |
Sally, David, and only Sally’s children, grandchildren and direct family members |
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Naming new trustees or beneficiaries: |
David decides, not Sally |
Naming new trustees or beneficiaries: |
Sally decides, not David |
Advantages of parallel trusts
At the start of a new relationship, a couple may already have assets they wish to protect, particularly when one partner brings more assets to the relationship. They may each wish to provide for children from previous relationships.
If the couple buys a property the two trusts can be co-owners in equal shares (or unequal shares, depending on how much they each put in). Each party can arrange financing in a way that suits them.
If either person receives an inheritance, it can be kept in his or her trust. Having parallel trusts can protect against a claim to a half share if there is a separation.
If your parents are willing to change their Wills, your future inheritance can be left to your trust. In most cases it would be unwise for any inherited property to be paid to one trust set up for the two of you.
If an inheritance is put into a single trust and the couple separates later, the trust assets will usually have to be divided equally so that one half of any inheritance will go to each former partner’s trust.
In the event of a separation, the parallel trust structure means most of the available assets are already divided equally between two trusts. Fifty per cent of the sale proceeds of each jointly-owned asset would go to each partner’s trust. Each partner can then simply change his or her trust to remove the other partner as a beneficiary and trustee.
Where one partner dies, the surviving partner may have further children or enter into a new relationship. Parallel trusts ensure that, when one partner dies, the assets owned by the deceased partner’s trust at that time are protected for the benefit of the deceased partner’s children or beneficiaries. The surviving partner can still have the use of the shared assets. The deceased partner’s share of the assets cannot be diverted to third parties. The surviving partner can add more beneficiaries to their trust, such as a new partner or children.
Where couples or partners in a relationship are thinking of transferring assets to trusts there is always the question of who needs to receive independent advice and the extent of that advice. Valuations may be required to ensure that future rights under the Property (Relationships) Act 1976 are not affected. In most cases, dividing assets 50/50 between parallel trusts may avoid expensive valuations, particularly for business assets.
Obtaining independent advice is, in most cases, more straightforward and in turn less expensive.
The downside of parallel trusts
There will be some additional cost but having two trusts, rather than one, does not mean double the cost. We believe the advantages to a couple having parallel trusts far outweigh this extra expense.
If you would like to know more about parallel trusts, talk to us about whether they are the best protection for you.
New Health and Safety at Work Act 2015
Significant changes for organisations with volunteers
In last year’s Spring edition we included an article on the proposed reform of New Zealand’s health and safety law. The new law will come into force on Monday, 4 April this year. Despite some of the originally proposed changes being watered down in the final stages of drafting the new Act there will still be significant effects for you, your business or your organisation. This article looks specifically at implications for organisations with volunteers.
If you engage volunteers in your business or organisation then the new Act may have particular significance for you. The Act acknowledges that volunteers are an integral part of New Zealand communities and one of its main aims is to make sure that this won’t be compromised. The Act does this by distinguishing between casual volunteers and volunteer workers. If you, or an organisation you are part of, rely on volunteers then establishing where they fit under the new law will be critical.
Volunteer-only organisation
A purely volunteer organisation where volunteers work together for community purposes (ie: not for profit) and which does not have any employees is known as a ‘volunteer association’. A volunteer association is not what the new Act deems to be a Person Conducting a Business or Undertaking (PCBU) so the Act will not apply to it. PCBUs, so far as is reasonably practicable, have the primary duty to ensure the health and safety of its workers as well as others who may also come into contact with it.
A PCBU
A volunteer organisation, which may only have one paid employee, is deemed to be a PCBU and under the Act will need to meet the primary duty to the extent of what is within its influence and control. This will involve identifying, minimising and/or eliminating risks and hazards in the workplace. The new legislation will also impose substantial duties on ‘officers’ of PCBUs to be proactive when it comes to matters of health and safety, and on workers to promote the health and safety of themselves and others around them.
Volunteers vs volunteer workers
There is, however, a further distinction depending on whether the organisation has casual volunteers or volunteer workers. Volunteer workers are people who regularly work for an organisation with its knowledge and consent on an ongoing basis, and will usually be an important part to the organisation’s operations. If you have these types of volunteers in your organisation then the Act will apply and your organisation will meet the criteria of a PCBU. You will need to ensure that they receive appropriate training, supervision and instruction in order to work safely, as with any other regular worker.
As referred to above, the new Act however maintains the law under the current legislation by excluding from the definition of ‘volunteer worker’ those volunteers who carry out particular activities. People volunteering for the following activities will not be volunteer workers:
Therefore if your organisation engages only with volunteers who carry out one of the activities listed above then it would not be a PCBU.
Next steps
With the legislation coming into force in two months’ time, if you’re involved with an organisation with volunteers, you will need to look into how your volunteers are treated under the new Act. You should firstly review whether your organisation operates strictly as a volunteer association or meets the criteria of a PCBU. Secondly, you should consider how your volunteers are treated, are they engaged sporadically or is it on a more regular basis? Thirdly, do your volunteers carry out one of the activities specifically excluded from the Act? By addressing these questions you’ll be able to determine whether or not the new law will apply. Penalties for failing to maintain a safe workplace will be significantly higher than under the current law so this is an important exercise.
If you’re unsure on how to proceed or would like more advice on not only volunteers but also on the wider implications of the new Health and Safety at Work Act, please don’t hesitate to be in touch with us.
The Fences & Kerbs case may help you
As we approach the first anniversary of the Supreme Court’s decision in what is known as the Fences & Kerbs case1 where three appeals were heard and ruled on together by the Supreme Court, we revisit the significance of the decision for creditors of insolvent companies and voidable transactions.
Allied Concrete Ltd, Fences & Kerbs Ltd and Hiway Stabilizers NZ Ltd each had a debtor (two of which were the same) to which they had been supplying goods and services, on the basis of a running account. Each debtor company had a liquidator who was seeking to claw back payments made to the three different companies while the relevant debtor was insolvent under the clawback provisions of the Companies Act 1993.
Sections 292–296 of the Act allow liquidators to claw back payments made by insolvent companies to individual creditors, up to two years before the date of a debtor company’s liquidation. The purpose of such provisions is to prevent debtor companies from preferring one creditor over another. The Supreme Court, however, acknowledged the importance of protecting individual creditors who unknowingly have traded with, and been paid by, an insolvent company.
The defence
Section 296(3) of the Companies Act was amended in 2006 to provide a defence to the recovery of voidable transactions by liquidators of debtor companies. In order to rely on the defence a creditor has to prove that when they received payment from a debtor company:
The meaning of value
The focus of this case was on s296(3)(c) the last of the three elements of s296(3). Specifically whether ‘value’ meant ‘new value’ given at or after the time a creditor received payment from a debtor company or whether it could also include value given prior to the receipt of payment when the debt was created.
The Court of Appeal decision held that ‘new value’ had to have been given by a creditor, which meant that one-off suppliers were left particularly vulnerable to the clawback provisions as they would not be able to show ‘new value’ if payment was received after the goods or services were supplied (on-credit). The result of the Court of Appeal’s decision was that organisations in the construction industry in particular were left vulnerable to the clawback provisions.
To the relief of many, the Supreme Court held that there was no intention for s296(3)(c) to apply only in circumstances where ‘new value’ was given and that value given earlier to payment would suffice. The Supreme Court held that it was important that creditors not be dissuaded from providing goods or services to companies on-credit. The Supreme Court also felt that it was important to protect creditors who had unknowingly traded with insolvent companies. The Supreme Court’s decision has provided much-needed commercial certainty and the decision shows a judicial step-away from solely focusing on the pari passu approach (where each creditor is of equal ranking) to debts owed to creditors.
Protecting your business
From a practical perspective, it’s important to be aware that in order to depend on the s296(3)(c) defence you must be able to show that at the time you received payment you did so in good faith and that you did not, nor did you have any reason to suspect, that the company was or could possibly become insolvent. The threshold for the defence, therefore, is still quite high. In order to protect your company from a potential clawback, keep well informed about the companies with which you choose to do business.
If you find your business in the general pool of creditors of a company that has been put in liquidation, the Fences & Kerbs case could have a negative effect on your position as there are less resources for a liquidator to pool from to pay off a company’s debts.
One of the more effective ways to protect your interests is to make yourself a secured creditor. If you would like to secure any of your interests or if you have any questions as to how the outcome of the Fences & Kerbs case may affect your business, please get in touch with us and we can arrange a time discuss your options with you.
1 Allied Concrete Limited v Meltzer (SC 51/2013); Fences & Kerbs Limited v Farrell (SC 80/2013); Hiway Stabilizers New Zealand Limited v Meltzer (SC 81/2013) [2015] NZSC 7
The New Zealand Law Society produces information pamphlets to inform you of your legal rights, the law and how lawyers can help you:
- Making a Will and Estate Administration
- What happens when a Relationship Breaks Up
- Dividing Up Relationship Property
- What Happens To Your Children When You Part
- Over The Fence Are Your Neighbours
- Buying or Selling A Property
For further information on the New Zealand Law Society please click here
