ACQUISITION FINANCE GLOBAL PRACTICE GUIDES - NEW ZEALAND DAVID WEAVERS AND MATT CONSEDINE RUSSELL MCVEAGH
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GLOBAL PRACTICE GUIDES Definitive global law guides offering comparative analysis from top-ranked lawyers Acquisition Finance New Zealand David Weavers and Matt Consedine Russell McVeagh practiceguides.chambers.com 2021
NEW ZEALAND
Law and Practice
Contributed by:
David Weavers and Matt Consedine
Russell McVeagh see p.17
CONTENTS
1. Market p.3 6. Guarantees p.11
1.1 Major Lender-Side Players p.3 6.1 Types of Guarantees p.11
1.2 Corporates and LBOs p.3 6.2 Restrictions p.12
1.3 COVID-19 Considerations p.3 6.3 Requirement for Guarantee Fees p.12
2. Documentation p.4 7. Lender Liability p.12
2.1 Governing Law p.4 7.1 Equitable Subordination Rules p.12
2.2 Use of LMAs or Other Standard Loans p.4 7.2 Claw-Back Risk p.12
2.3 Language p.4
8. Tax Issues p.13
2.4 Opinions p.4
8.1 Stamp Taxes p.13
3. Structures p.4 8.2 Withholding Tax/Qualifying Lender
3.1 Senior Loans p.4 Concepts p.13
3.2 Mezzanine/PIK Loans p.5 8.3 Thin-Capitalisation Rules p.14
3.3 Bridge Loans p.5 9. Takeover Finance p.14
3.4 Bonds/High-Yield Bonds p.5 9.1 Regulated Targets p.14
3.5 Private Placements/Loan Notes p.5 9.2 Listed Targets p.15
3.6 Asset-Based Financing p.5
10. Jurisdiction-Specific Features p.16
4. Intercreditor Agreements p.5 10.1 Other Acquisition Finance Issues p.16
4.1 Typical Elements p.5
4.2 Bank/Bond Deals p.6
4.3 Role of Hedge Counterparties p.6
5. Security p.7
5.1 Types of Security Commonly Used p.7
5.2 Form Requirements p.8
5.3 Registration Process p.8
5.4 Restrictions on Upstream Security p.9
5.5 Financial Assistance p.9
5.6 Other Restrictions p.10
5.7 General Principles of Enforcement p.10
2NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
1. MARKET firms (with an emphasis on Australasian private
equity firms).
1.1 Major Lender-Side Players
Banks provide the majority of funding for acqui- There is also now an active and growing set
sition financing in New Zealand. The market of domestic private equity firms, which tend
continues to be dominated by the four main to focus on mid-market transactions and have
Australian-owned banks, each of which have enjoyed a number of successes in recent years.
large operations in New Zealand. A number of In comparison to their international counterparts,
other international banks are also prevalent in domestic private equity firms tend to place less
the market (in terms of both arranging transac- emphasis on maximising leverage to enhance
tions and participating as lenders in syndication), returns.
and there is increasing participation from locally
owned banks. There are also recent examples of 1.3 COVID-19 Considerations
direct lenders/debt funds sitting alongside sen- The acquisition market (for both corporate and
ior banks in syndicated deals. leveraged transactions) was relatively subdued
in 2020 as a result of the COVID-19 pandemic.
Alternative sources of debt financing, such as Deal activity is beginning to increase in Q2 2021
direct lenders/debt funds, have not historical- as confidence in the market grows, particularly
ly formed a significant part of the acquisition as a result of the New Zealand government’s
finance market in New Zealand. However, there strong response to the pandemic.
is a growing trend for purchasers to consider
the possibility of accessing local and interna- The COVID-19 pandemic did have an initial
tional direct lenders to provide funding, particu- impact on existing deals, as a significant num-
larly on private equity sponsor-led transactions. ber of corporates and sponsors required amend-
Given the variety of options available, private ments and/or waivers to their finance documen-
equity sponsors and their debt advisers often tation consistent with the experience in other
seek terms and pricing on alternative financing markets. Those changes tended to focus on
structures before deciding on a final preferred additional liquidity, facility repurposing, financial
structure; some of these alternatives may involve covenant relief, more extensive reporting obliga-
a combination of bank debt and direct lenders/ tions, additional equity requirements and re-pric-
debt funds (eg, super-senior RCFs, Holdco Mezz ing. However, given the strong performance of
structures). the domestic economy, many of these features
were not actually required and COVID-19-spe-
1.2 Corporates and LBOs cific amendment and waiver activity has largely
In recent years, acquisition activity has involved subsided. A government-backed scheme that
a mixture of corporate transactions and lever- effectively backstopped a portion of bank credit
aged buyouts. On the corporate side, these risk on certain new lending was used widely by
transactions tend to be led by local corporates some banks, although this was more focused on
with growth-by-acquisition strategies, although smaller and mid-market borrowers.
investment from large Australian corporates and
global trade buyers in the New Zealand market is
also common. Leveraged transactions are pre-
dominantly led by international private equity
3Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
2 . D O C U M E N TAT I O N 2.3 Language
Although it is not a legal requirement, financ-
2.1 Governing Law ing documentation is almost always drafted in
New Zealand law will govern all finance docu- English.
ments in domestic transactions. This is the case
for corporate loans, acquisition finance and 2.4 Opinions
LBOs. Typically, legal opinions will be provided by
counsel to the lenders in respect of the follow-
For international transactions, the governing ing, among other things:
law of the main finance documents (aside from
security) will be driven by the market where the • the capacity and authority of, and due
financing is being raised. However, it would be execution by, the obligor entities party to the
rare for NZD-denominated financing to be raised finance documents; and
outside of New Zealand. • the validity, binding nature and enforceability
of the main finance documents (including any
Security documents will typically be governed security documents).
by the law of the jurisdiction in which the relevant
assets are located. Such opinions will be required to be provided
as conditions precedent to initial drawdown
2.2 Use of LMAs or Other Standard under the facilities agreement (in respect of the
Loans initial obligors and the initial finance documents),
Financing documentation is not fully stand- with equivalent opinions to also be provided as
ardised in the New Zealand market. The Asia conditions precedent to the subsequent acces-
Pacific Loan Market Association (the equivalent sion to the finance documents of any additional
of the Loan Market Association in the Asia- obligors, such as the target (in respect of those
Pacific region) has produced a suite of standard additional obligors and any new finance docu-
form documents that are applicable for use in ments, such as accession documentation and
the Australasian market. Although not standard any new security documents).
across the market, the APLMA forms are becom-
ing more commonly used for investment-grade
transactions. For leveraged transactions, it is still 3. STRUCTURES
relatively common to base the facility agreement
on the sponsor’s most recent transaction, rather 3.1 Senior Loans
than starting with an APLMA form. The structure of an acquisition financing in New
Zealand will vary from transaction to transac-
Each law firm in New Zealand tends to have its tion, depending on (among other things) whether
own form of facility and security documentation, it is a corporate or leveraged transaction, the
although these documents are generally similar relevant industry, the purchaser and the target.
in substance.
Corporate acquisitions could be as simple as
For non-New Zealand law-governed financing utilising headroom in the purchaser’s exist-
documents, the form that the documents take ing financing arrangements or amending such
depends on the market practice in the relevant financing arrangements to include an additional
jurisdiction.
4NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
acquisition facility, although new acquisition accordingly, corporate purchasers may enter
financing arrangements are common too. into a bridge financing to complete an acquisi-
tion and then refinance the bridge with a bond
Leveraged buyouts tend to be more complex issuance (typically, to wholesale and retail inves-
and may involve different facilities/tranches, tors) or a capital raise.
such as a term loan acquisition facility (some or
all of which will often be amortising), a term loan 3.4 Bonds/High-Yield Bonds
capex facility, a term loan acquisition facility/ While there is an active debt capital market for
incremental facility (eg, for bolt-on acquisitions) corporate issuers in New Zealand, this market
and a revolving credit facility, as well as different is rarely used as the primary source of funding
layers of debt (see 3.2 Mezzanine/PIK Loans). for an acquisition (although, as mentioned in 3.3
Bridge Loans, a bond issuance may be used to
With the increasing prevalence of direct lenders refinance an acquisition bridge loan).
in the New Zealand market (both international
and domestic firms), a growing (albeit still very There is no established high-yield bond market
limited) number of deals have been structured in New Zealand.
in a style similar to European unitranche deals.
Amortisation is typically not required under such 3.5 Private Placements/Loan Notes
structures, and direct lenders are able to offer Similar to the position as noted in 3.4 Bonds/
purchasers greater leverage than traditional High-Yield Bonds, there is no established pri-
bank-led transactions, forgoing the need for vate placement/loan note market in New Zea-
multiple layers of debt. This additional flexibility land. Corporate issuers (typically in the property
results in wider pricing. or infrastructure sectors) may access overseas
private placement markets from time to time,
Covenant-lite transactions in the style of term such as in the United States, but such debt is
loan Bs – which originated in the US and have rarely used to fund an acquisition.
become prevalent in other markets (such as in
Europe) – are rare in New Zealand. To date, they 3.6 Asset-Based Financing
have only been used on a very small number of All of New Zealand’s major domestic banks pro-
large transactions with US sponsors. vide asset-based financing solutions. The legal
framework around taking security (as noted in
3.2 Mezzanine/PIK Loans 5. Security) makes this straightforward. Asset-
Mezzanine/PIK loans do exist in New Zealand based financing is very common in the rural sec-
but are certainly not the norm. Having said that, tor.
this market is expected to grow significantly over
the next 24 months.
4. INTERCREDITOR
3.3 Bridge Loans AGREEMENTS
Bridge loans are less common in the New Zea-
land leveraged market than they are in other lev- 4.1 Typical Elements
eraged markets around the world, due to there Intercreditor agreements are common in the
being no established high-yield bond market in New Zealand market and are used to contrac-
New Zealand. There is a strong domestic mar- tually regulate the rights and obligations of the
ket for investment grade corporate bonds and, various financing creditors of a borrowing group.
5Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
There is no market-standard intercreditor agree- Enforcement
ment in New Zealand, although most intercredi- The intercreditor agreement will set out which
tor agreements will cover a number of certain group of creditors is entitled to instruct the secu-
elements. The principles and structure will follow rity trustee to take enforcement action follow-
the LMA’s form of intercreditor agreements. ing an event of default. Usually this is a certain
majority of senior creditors (usually two thirds).
Order of Priority Junior creditors will be restricted from taking
The ranking and order of priority of all financing enforcement action during a standstill period,
creditors will be set out. Senior debt will rank during which the senior creditors are permit-
ahead of junior debt, and there may be “super ted to enforce. If the senior creditors fail to take
senior” debt that ranks ahead of the senior debt enforcement action during this period, then the
on enforcement – for example, where a bank junior creditors will be permitted to step in and
provides a revolving credit facility on a super- undertake their own enforcement process, sub-
senior basis in a unitranche transaction. Hedge ject to certain conditions and certain time peri-
counterparties and ancillary finance providers ods being met.
usually rank pari passu with the senior debt
providers. 4.2 Bank/Bond Deals
As outlined in 3.4 Bonds/High-Yield Bonds,
Payments there is no high-yield bond market in New Zea-
The intercreditor agreement will govern what land. However, it is relatively common for invest-
payments are permitted to be paid to, and ment-grade corporate issuers to have a bond or
received by, each class of creditor. Payments to private placement as part of their debt capital
senior creditors are usually not restricted. Junior structure. In these circumstances, such instru-
creditors, on the other hand, are often restricted ment would usually rank pari passu with the
from receiving principal repayments until all sen- corporate issuer’s senior bank debt. The bond
ior debt has been repaid or, alternatively, such holders will often have the same rights and obli-
payments will be subject to strict parameters. gations as the bank lenders and, accordingly,
Payments of interest and fees to junior creditors the intercreditor agreement in this situation will
are usually permitted, subject to certain condi- be straightforward. More complex, bespoke
tions, such as compliance with certain covenant arrangements may be seen where the bond or
levels and no default occurring. Repayments of private placement makes up either a substantial
shareholder loans are typically restricted, with majority (in which case, the bond holders will
such restrictions mirroring the equivalent restric- have greater rights) or a small minority (in which
tions on distributions out of the borrowing group case, the bond holders will have fewer rights) of
in the finance documents. the debt capital structure of the issuer.
Provisions are also typically included to require 4.3 Role of Hedge Counterparties
a creditor to turn over receipts to the agent or Where a borrowing group has hedging in place
security trustee where they have received more (which is common), hedge counterparties will
than they are contractually entitled to, and to typically benefit from any security and will rank
hold such receipts on trust for the agent/security pari passu alongside the senior lenders.
trustee until they have done so.
The hedge counterparties’ rights to terminate
hedging transactions or otherwise take enforce-
6NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
ment action may be restricted, and will often be provided, it is common for a guarantor coverage
governed by an intercreditor agreement. test to be included, as for leveraged transac-
tions.
5. SECURITY In New Zealand, property is generally classed
into two separate asset types – real property
5.1 Types of Security Commonly Used (real estate) and personal property (in general
Leveraged acquisition finance transactions will terms, all property other than real property) –
almost always be secured. and the systems that govern security interests
in each are fundamentally different. Real prop-
The security package will be dependent on the erty is governed by the Property Law Act 2007
acquisition that is being financed but will typi- (PLA) and personal property is governed by the
cally involve the following: Personal Property Securities Act 1999 (PPSA).
• on or prior to closing, all-asset security being Real Property
granted by the SPV acquisition vehicle and Security over freehold or leasehold interests in
security being granted by the owner of that land (real estate) is generally taken by a regis-
acquisition vehicle over the shares in the tered mortgage. Although an all-assets security
acquisition vehicle, any receivables owing to agreement will create a security interest over
its owner and any bank account of its owner; both personal property and real property, reg-
and istered mortgages will also be taken where land
• within a certain period after closing, all-asset is a material part of the credit package. Reg-
security being granted by the target and cer- istration is not mandatory, but registered mort-
tain other target group entities. gages generally have priority over unregistered
mortgages. Registration is a straightforward and
Typically, a guarantor coverage test will apply, largely online process facilitated through Land
such that members of the target group owning Information New Zealand (a government depart-
between approximately 80% and 95% of the ment).
target group’s assets and contributing between
approximately 80% and 95% of the target Personal Property
group’s EBITDA must grant all-asset security Under the PPSA, personal property includes
and become guarantors. (among other things) investment securities (such
as shares), goods (such as inventory and other
For corporate transactions, on or prior to com- movable goods), money, intangibles (such as
pletion of the acquisition the security package receivables and intellectual property rights) and
will typically reflect the purchaser’s existing movable assets. Security over personal property
security arrangements (and if the purchaser is can be taken by either an all-asset security deed
using headroom in its existing financing arrange- (which would extend to all personal property and
ments then no new security will be required). real property owned by the obligor) or a spe-
Post-closing, whether or not members of the cific security deed (ie, a security deed limited
target group grant security and the nature of to certain classes of personal property, such
that security will vary on a deal-by-deal basis, as shares, bank accounts or receivables). As
as some strong corporate borrowers are able to referred to above, financiers in a leveraged con-
borrow on an unsecured basis. Where security is text would typically require (i) the holding com-
7Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
pany of the acquisition vehicle to grant specific secured party the best protection possible for
security over the shares in the acquisition vehi- their collateral. In respect of shares, secured
cle, its bank account and any receivables owing parties will typically take possession of all share
to it by the acquisition vehicle, and (ii) all-asset certificates, record the security interest over the
security to be provided by the acquisition vehicle shares in the share register of the company or
and, post-closing, the target and such members (with respect to listed securities) with the relevant
of the target group to grant all-asset security so clearing house or securities depository and, to
as to comply with the guarantor coverage test. assist enforcement, obtain blank executed stock
The security interest will usually operate in rela- transfer forms.
tion to both current and future assets, as well as
any proceeds of the collateral. 5.2 Form Requirements
There is no particular form of security agreement
In order for a security interest to “attach” to that must be followed when taking security over
personal property (ie, for the secured party to personal property, although certain statements
obtain in rem rights in the collateral) and for such are included in a security agreement for the
security interest to be enforceable against third security to “attach” (as described in 5.1 Types
parties, either the collateral must be in the pos- of Security Commonly Used).
session of the secured party, or the debtor must
sign a security agreement that contains the fol- Security agreements governed by New Zealand
lowing: will be in the form of deeds (rather than simple
contracts). This is because they typically contain
• an adequate description of the collateral by a power of attorney granted by the grantor in
item or kind that enables it to be identified; or favour of the security party, and such an attorney
• a statement that a security interest is taken in is only able to execute a deed if it itself has been
all of the debtor’s present and after-acquired appointed by a deed (see section 12 of the PLA).
property (noting that this can be subject to
certain exceptions for specific items or kinds See 5.1 Types of Security Commonly Used in
or personal property). relation to the registration of security over real
property.
Possession of collateral is an impractical method
of attachment for most assets, so it is essen- 5.3 Registration Process
tial (and customary) that the security agreement Personal Property
contains one of the statements referred to above. As mentioned in 5.1 Types of Security Com-
monly Used, a registration will be made to per-
Once “attachment” has occurred, security over fect a security interest over personal property.
personal property will be “perfected” once either Key aspects of a security interest over personal
the secured party has taken possession of the property must be included on a PPSR registra-
collateral or a financing statement has been reg- tion, including the names and addresses of the
istered on the Personal Property Securities Reg- debtor and the secured party, and a description
ister (PPSR). It is customary for each security of the collateral. The registration can be made
interest to be perfected by registering a financ- instantly and costs NZD14 (goods and services
ing statement on the PPSR. However, a secured tax (GST) excluded). The maximum registration
party will also take possession of certain types period for a financing statement is five years, but
of collateral, such as shares, in order to give the
8NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
it may be renewed at or before the expiry of this • all “entitled persons” of the company (being
period for an additional NZD14 (GST excluded). all the shareholders of the company and all
other persons (if any) upon whom the con-
It is critical that the information recorded in a stitution of the company confers any of the
financing statement is correct, otherwise there rights and powers of a shareholder) must
is a risk of the financing statement (and secu- agree or concur, in writing, to the financial
rity perfection) being invalid. For example, if the assistance being given; and
debtor’s name has been incorrectly recorded on • the board of the company must resolve that
the register, this will be deemed to be seriously it is satisfied, on reasonable grounds, that the
misleading and the financing statement will be company will, immediately after the giving of
deemed invalid under the PPSA. the financial assistance, satisfy the modified
solvency test.
Real Property
See 5.1 Types of Security Commonly Used for For most companies, the only entitled persons
a summary of the registration process in respect are the shareholders. If this is the case, an agree-
of mortgages over real property. ment expressed to be made under this procedure
rather than under the section 76 test dispenses
5.4 Restrictions on Upstream Security with the need for the section 76 board resolu-
See 5.5 Financial Assistance and 5.6 Other tion and the commensurate risk of liability for
Restrictions. the board if there is a change of circumstances.
5.5 Financial Assistance This method is used for wholly owned compa-
The Companies Act 1993 regulates the giving nies and is very straightforward and quick to
of financial assistance (including the giving of implement.
a loan or guarantee or the provision of security)
to a person for the purposes of, or in connec- Section 76 Test
tion with, the purchase of a share issued or to The section 76 test requires that, prior to the
be issued by the company, or its holding com- financial assistance being given, the board must
pany, whether directly or indirectly. This restric- resolve that:
tion is relevant in an acquisition finance context
where members of the target group guarantee • the company should provide the assistance;
or secure the acquisition debt. • giving the assistance is in the best interests of
the company; and
Financial assistance is permitted where the sec- • the financial assistance was given on fair and
tion 107 test or the section 76 test is complied reasonable terms and conditions.
with; in each case, a modified solvency test must
also be complied with. In addition, one of the following procedures must
also be followed.
Section 107 Test
The simplest, and least onerous, procedure • All shareholders have consented in writing to
under which financial assistance may be given the giving of the assistance.
is pursuant to section 107 of the Companies Act. • The board resolves that the giving of the
The only two requirements are that: financial assistance is of benefit to sharehold-
ers not receiving the assistance, and that the
9Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
terms and conditions under which the assis- 5.6 Other Restrictions
tance is given are fair and reasonable to those A director of a New Zealand company has a
shareholders not receiving the assistance. number of duties. These exist at common law,
Under this method, a disclosure document by way of fiduciary duties, and in most instances
must be sent to each shareholder and the have been codified under the Companies Act.
assistance cannot be given fewer than ten Such duties include the duty to act in good faith
working days or more than 12 months after and in the best interests of the company (section
the disclosure document has been sent to 131 of the Companies Act).
each shareholder.
• The financial assistance is given under sec- Directors need to turn their mind to this duty
tion 80, which permits an aggregate amount when entering into financial transactions. This
of financial assistance under this section up becomes particularly important when contem-
to 5% of the aggregate amounts received plating subsidiaries of a borrower who make up
by the company in respect of the issue of part of the security package. If the borrower is a
shares and reserves, as disclosed in the most subsidiary of another company, it is permissible
recent financial statements of the company. under section 131 for directors to act in the best
The company must also receive fair value in interests of the company’s holding company if
respect of the assistance and must circulate a this is expressly permitted by the company’s
disclosure notice to all shareholders. constitution. However, if the company is not a
wholly owned subsidiary, the prior agreement of
Solvency Test the shareholders must also be obtained. Simi-
Before financial assistance is given under any larly, where a company is carrying out a joint
one of the tests described above, the board venture, the directors may act in the best inter-
must be satisfied on reasonable grounds that the ests of the shareholder if they are permitted to
company will, immediately after the giving of the do so by the constitution.
financial assistance, satisfy the solvency test.
5.7 General Principles of Enforcement
A company will ordinarily satisfy the solvency A lender’s right of enforcement under a financ-
test if: ing transaction is governed by the contractual
arrangements agreed with the borrowing group
• it is able to pay its debts as they become due and the other financing creditors, and can gen-
in the normal course of business; and erally be undertaken without application to the
• the value of its assets is greater than the court. In addition to what is agreed contractually,
value of its liabilities, including contingent the lender will also be entitled to certain enforce-
liabilities. For this purpose, “assets” excludes ment rights (and subject to certain obligations)
all amounts of financial assistance given by under the PPSA (in respect of personal property)
the company at any time in the form of loans, and the PLA (in respect of real property).
and “liabilities” includes the face value of all
outstanding liabilities, whether contingent or Typically, the loan documentation will provide
otherwise, incurred by the company at any that, upon the occurrence of an event of default,
time in connection with the giving of financial the lender will have the right to accelerate the
assistance. This requires careful analysis, debt owing to it, cancel any undrawn commit-
including the treatment of rights of contribu- ments and exercise its rights to enforce its secu-
tion in the case of cross-guarantees. rity under the security documents. The security
10NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
documentation will then govern the process for during which an administrator takes control of
enforcement and, to the extent provisions of the the company’s business and property (except
PPSA and/or the PLA apply, these will supple- for property in respect of which a secured credi-
ment the process for enforcement. tor has appointed a receiver). Upon doing so,
a moratorium on enforcement applies, so that
The general principles of enforcement within the creditors of the company cannot take steps to
security documentation are considered below. enforce any debts or security against the com-
pany without the consent of the administrator
Power of Possession and/or Sale or leave of the court. Notwithstanding this, a
The security documentation should contain a secured creditor who has a security interest over
right for the secured party to take possession substantially the whole of a company’s property
of the collateral and/or sell it to recover debts can elect to enforce its security within ten work-
owed. This right also exists as a matter of law ing days of the commencement of the admin-
under the PPSA (in respect of personal property) istration.
and the PLA (in respect of real property). The
secured party has a duty to obtain the best price PPSA
reasonably obtainable (and it is not possible to The enforcement section of the PPSA contains
contract out of this duty). certain debtor rights and lender obligations that
can be contracted out of. It is expected that a
Appointment of a Receiver well-drafted security document would contract
Security documentation will usually include pro- out of these provisions to the extent it benefits
visions for the lender to appoint a receiver upon the lender. For example, you would typically see
an enforcement event. Receivership is a pro- the lender contract out of its obligation to give
cess that allows a secured creditor to appoint a notice to the debtor that it intends to sell the col-
receiver to realise assets or manage the business lateral within ten working days and the debtor’s
of a company for its own benefit and is governed right to reinstate the security agreement prior to
under the Receiverships Act 1993. The security sale of the collateral by remedying all defaults
agreement will provide that the occurrence of (sections 114(1)(a) and 133 of the PPSA).
certain debtor defaults may entitle the creditor
to appoint a receiver, who can take charge of
the grantor’s assets and business to the extent 6. GUARANTEES
covered by the security agreement, to run the
business and/or to sell off assets and to repay 6.1 Types of Guarantees
the creditor from the earnings or sale proceeds. Typically, guarantees are required to be pro-
Receivers are appointed in respect of property, vided by all material companies in the target
and not the company itself, which differs from group (being companies owning or contributing
the liquidation process. a certain percentage of assets or EBITDA of the
group). In addition, sufficient members of the tar-
Voluntary Administration get group to satisfy the guarantor coverage test
A secured creditor who has a security interest (as described in 5.1 Types of Security Com-
over substantially the whole of a company’s monly Used) must become guarantors.
property (as may be the case if a secured credi-
tor takes all-asset security over a company) can Guarantees will typically be cross guarantees
place a company into voluntary administration, and indemnities, extending to all obligations
11Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
owing by all obligors under the finance docu- • if it was entered into when the company was
ments. insolvent; or
• if it enables another person to receive more
6.2 Restrictions towards satisfaction of a debt owed by the
Financial assistance includes the giving of company than the person would be likely to
upstream guarantees; see 5.5 Financial Assis- receive in the company’s liquidation.
tance.
Voidable Charges
The corporate benefit test will also apply to A charge is voidable where it is created within
any guarantees given, as detailed in 5.6 Other the relevant time periods as for an insolvent
Restrictions. transaction (as described above), and if the giv-
ing of that charge means the company is unable
6.3 Requirement for Guarantee Fees to pay its due debts.
There is no requirement in New Zealand for a
guarantee fee to be paid to a guarantor, although A charge will not be voidable in certain circum-
it may be appropriate for a guarantee fee to be stances, including where it:
paid in certain circumstances.
• secures valuable consideration given at the
time of, or after, the giving of the charge; or
7. LENDER LIABILITY • is a substitute for a charge created before the
relevant restricted period.
7.1 Equitable Subordination Rules
There is no concept of equitable subordination Transactions at Undervalue
in New Zealand. Transactions are voidable to the extent of the
difference in the value received by the company
7.2 Claw-Back Risk and the value given by the company, provided
When a company enters liquidation proceedings that the transaction occurred within two years of
in New Zealand, the recovery by that compa- the company’s liquidation and the company was
ny’s creditors is not always limited to the pool of either insolvent at the time or became insolvent
assets at the date of liquidation. Liquidators are as a result of the transaction.
able to void transactions that meet certain cri-
teria under the relevant legislation. The relevant Inadequate or Excessive Consideration
legislation in New Zealand is the Companies Act, The Companies Act also aims to prevent compa-
which sets out four pre-liquidation situations that nies from siphoning away their assets in antici-
give rise to voidable transactions. pation of future liquidation. Therefore, liquidators
can pursue related persons of a company (direc-
Insolvent Transactions tors, company controllers or related companies)
A transaction by a company is voidable in the who have entered into certain transactions with
following circumstances: the company within three years of the com-
mencement of liquidation.
• if it was entered into within six months of the
commencement of liquidation proceedings The following transactions are considered void-
(or, in the case of related party transactions, able under this provision:
within two years);
12NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
• where a related person receives consideration vides some comfort to the creditor to the trans-
from the company considered excessive for action that the innocent creditor defence may
the company to have given; or apply to them.
• where a related person gives consideration to
the company that is considered inadequate
for the company to have received. 8 . TA X I S S U E S
Innocent Creditor Defence 8.1 Stamp Taxes
The Companies Act provides for an “innocent No stamp taxes are applicable in New Zealand.
creditor” defence to creditors who have dealt
with the company. A liquidator or other credi- 8.2 Withholding Tax/Qualifying Lender
tors cannot pursue a creditor party to one of Concepts
the transactions specified above if said creditor The concept of a qualifying lender does not exist
satisfies the three limbs of the test: it must have within New Zealand taxation law. Broadly speak-
acted in good faith, there must be no reason- ing, New Zealand has two key types of withhold-
able grounds of suspecting the company was ing tax:
or would become insolvent and it must have
provided value or materially altered its position • resident withholding tax (RWT); and
on reasonable belief the transaction was valid. • non-resident withholding tax (NRWT).
Property Law Act Voidability RWT must be withheld on payments of resi-
The PLA operates independently of the Com- dent passive income made by New Zealand
panies Act and allows creditors or liquidators to tax residents or non-residents carrying on a
apply to the court to set aside a disposition of taxable activity in New Zealand through a fixed
property that prejudices a creditor (or creditors). establishment in New Zealand, such as interest,
The court may set aside a disposition of prop- dividends and royalties paid to New Zealand
erty if the company was insolvent at the time residents. Resident passive income includes
or became insolvent as a result of the disposi- payments to non-residents for the purpose of a
tion, would be left with an unreasonably small business they carry on in New Zealand through
pool of assets or at least would reasonably have a fixed establishment, and offshore registered
believed it was incurring debts beyond its ability banks operating through a New Zealand branch
to pay. (who are not associated with the payer).
The disposition must also have been made with RWT is required to be withheld at the marginal
the intent to prejudice a creditor, or was a gift or rate of the payee of the interest (28% for compa-
was made at undervalue. Therefore, there is a nies), or at a default rate of 45% if information is
degree of overlap with voidability for undervalue not provided by the payee regarding the appro-
transactions in the Companies Act. priate withholding rates. If the relevant payee of
interest holds RWT-exempt status, RWT is not
Solvency Confirmation required to be withheld on the interest payment
Companies provide a certification of solvency (regardless of whether the lending is provided by
within the customary director’s certificate given a New Zealand or offshore branch).
by a director of the company as a condition
precedent to a financing transaction. This pro-
13Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
NRWT must be withheld on payments of non- 9 . TA K E O V E R F I N A N C E
resident passive income. The rate of NRWT is
15% but this is reduced to 10% in most cases 9.1 Regulated Targets
where the payee is resident in a country with Transactions in particular industries may give
which New Zealand has a double tax agreement rise to specific requirements (such as notifica-
(with the exception of Malaysia, Chile, Turkey tion and/or regulator approval requirements),
and Thailand). including banking, financial services, insurance
and oil and gas.
Where a payer and payee are not associated, a
payer may elect to reduce the rate of NRWT to The following also applies.
0% and instead register for and pay an approved
issuer levy (AIL) at a rate of 2%. The AIL regime Competition Rules
is not available where interest is derived jointly A merger or acquisition that substantially less-
by a resident and a non-resident or by associ- ens competition in a market is illegal under the
ated persons (unless the approved issuer is a Commerce Act 1986, unless it is authorised by
member of a New Zealand banking group), or in the Commerce Commission. The Commerce
instances of related-party debt. Commission will clear a merger or acquisition if
it is satisfied that the transaction would not be
8.3 Thin-Capitalisation Rules likely to substantially lessen competition in any
Thin capitalisation rules in New Zealand apply New Zealand market. The Commerce Commis-
to both inbound and outbound investment. sion may also authorise a transaction that would
Broadly speaking, the inbound thin capitalisation be likely to substantially lessen competition if it
rules apply to non-resident taxpayers and New is satisfied that the transaction would be likely
Zealand entities controlled by non-residents to result in such a benefit to the public that it
operating in New Zealand and directly earning should be permitted.
NewZealand-sourced income. The rules may
apply to outbound investment when a New Zea- Overseas Investment
land company owns foreign-controlled compa- The approval of the Overseas Investment Office
nies or non-portfolio foreign investment funds. may be required for an acquisition by an “over-
seas person” if such transaction would result in
The rules operate to deny interest deductions an overseas investment in significant business
in circumstances where an entity subject to assets, sensitive land (which includes residential
the thin capitalisation rules has excessive lev- land), farm land or fishing quotas. The Overseas
els of debt in New Zealand in comparison to its Investment Office’s processes and approach
level of worldwide indebtedness. An excessive to applying the regime are currently undergo-
level of debt is determined according to spe- ing a comprehensive review and overhaul, with
cific debt-to-asset ratios, known as the “safe changes being aimed at strengthening the regu-
harbour” thresholds. If the New Zealand group latory system, simplifying assessments to align
debt percentage is greater than 60% and greater with risk levels and streamlining processes for
than 110% of the worldwide group debt percent- timely and efficient decision making.
age, interest must be apportioned and added as
assessable income. Certain Funds
See 9.2 Listed Targets.
14NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
9.2 Listed Targets • consent from the boards of the companies
There are two options for structuring change of involved, as the Scheme is technically pro-
control transactions in relation to listed compa- posed by the target and accordingly would
nies in New Zealand and certain other widely only be available for a recommended takeo-
held private companies that are deemed to be ver and not in a hostile situation;
“code companies”: • shareholder approval from 75% of shares
held in each interest class and 50% of all
• takeover offers under the Takeovers Code shares; and
Approval Order 2000 (Takeovers Code); and • approval of the court – the court must be sat-
• schemes of arrangement (Schemes) under isfied that the shareholders of the target com-
Part 15 of the Companies Act. pany will not be adversely affected by using a
Scheme (as opposed to the Takeovers Code)
Takeover Offers under the Takeovers Code to effect the change of control, unless the
An offer under the Takeovers Code involves the Takeovers Panel issues a no-objection state-
offeror notifying the target company of its intent ment with regards to the Scheme.
to make an offer by issuing the target with a
takeover notice, which must contain certain pre- Certain Funds Requirements
scribed information. The target company must Where an offer is conditional on finance from a
then notify the exchange that a takeover notice third party, the ability to terminate the arrange-
has been received and provide such notice to ment must not be “in the power or under the
any person that requests it. The offeror may then control of” the offeror (see rule 25(1) of the Take-
proceed by submitting an offer to offerees within overs Code). Typically, the list of conditions to
the prescribed time period. the financing will be limited to conditions that are
bona fide required by the third-party financier to
An offer could be either: protect its interests and which cannot be used
a device to avoid the takeover offer.
• a full offer (ie, an offer for all of the voting
securities in the target company) – such an Within the offer, an offeror must also confirm that
offer must be conditional on acceptances tak- sufficient resources will be available to them to
ing ownership or control over 50%; or meet the consideration in connection with full
• a partial offer (ie, an offer for less than 100% acceptance of the offer and to pay any debts
of the voting securities in the target company) incurred in connection with the offer (see Clause
– such an offer must be for sufficient shares 9 of Schedule 1 of the Code). As above, to sat-
to take the offeror’s holding over 50% of the isfy this requirement, the grounds upon which
voting rights. the financing could be withdrawn would need
to be very limited.
Schemes Under Part 15 of the Companies
Act
A Scheme is a court-supervised mechanism that
allows the restructuring of a group of compa-
nies (including by way of amalgamation) to be
undertaken so that it is not subject to the Takeo-
vers Code. To be exempted from the Takeovers
Code, a Scheme requires:
15Law and Practice NEW ZEALAND
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
10. JURISDICTION-
S P E C I F I C F E AT U R E S
10.1 Other Acquisition Finance Issues
There are no further considerations that are
important to acquisition finance practice in New
Zealand.
16NEW ZEALAND Law and Practice
Contributed by: David Weavers and Matt Consedine, Russell McVeagh
Russell McVeagh has one of New Zealand’s major banks (representing 90% of the domes-
leading acquisition finance offerings. The tic lending market) and is the go-to adviser for
broader banking and finance team has five part- the growing non-bank lending market. It also
ners and 22 other qualified lawyers – with virtu- regularly works with regional and global private
ally all senior lawyers having worked for leading equity sponsors on their New Zealand acquisi-
magic circle and/or US firms. The team acts as tions.
bank-panel lawyers for five of New Zealand’s
AUTHORS
David Weavers leads Russell Matt Consedine is a senior
McVeagh’s acquisition finance associate at Russell McVeagh
offering and regularly acts for and has significant experience in
global and regional private advising financial institutions,
equity sponsors on their New non-bank/direct lenders,
Zealand transactions. He also sponsors and corporates on a
acts for all of New Zealand’s major financial wide range of market-leading cross-border
institutions and leading credit funds/non-bank financing transactions, including acquisition
lenders. David has completed all three levels of finance (across the credit spectrum and
examinations for the Chartered Financial including public takeovers), corporate finance,
Analyst (CFA) programme, and has many years margin lending and restructurings. In addition
of experience working on acquisition finance to his experience in the New Zealand market,
transactions and structures in Europe, Asia and Matt spent four years working at Linklaters LLP
the USA – having been based for many years in London, where he acted on some of the
working for leading US firms in London and most complex and significant transactions in
Hong Kong before returning to New Zealand. the market.
Russell McVeagh
Vero Centre
48 Shortland Street
Auckland 1140
New Zealand
Tel: +64 9 367 8165
Fax: +64 9 367 8163
Email: david.weavers@russellmcveagh.com
Web: www.russellmcveagh.com
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