Take time to read up on REINZ - New REINZ land sale agreement - potential pitfalls
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
SUMMER 2009 Take time to read up on REINZ New REINZ land sale agreement – potential pitfalls ALEXANDRA ISHERWOOD
Come on – Share your plans with us!
From our experience the best lawyer/ A good example is with your exit
client relationships are the ones strategy. If we know when you want to
where there is a deep understanding exit your business we can better position
between lawyer and client. Such your business, from a legal perspective,
relationships don’t just happen – or to extract maximum exit value. Often we
happen overnight, it normally takes can introduce you to potential buyers or
many shared experiences and a period intermediaries who can access buyers or
of time. We both need to invest time ways to release capital from your business.
and energy working out the best ways So go on – give us a call and let’s have a
to deliver value to you – the client. chat about your plans and ways we can
help you to achieve them. You will be
We find that business clients who share pleasantly surprised by the value we
Tony Southall
their long-term strategic plans with us can add.
Partner,
are more likely to get better outcomes
Gibson Sheat
and better value from us. It enables
us to be more proactive, rather than
reactive. If we know where you want to
take your business we can often give
better strategic legal advice, and often
through our extensive network of contacts,
introduce you to people, or other
businesses, who may help you achieve
your goals faster.
Thanks for your feedback
Thanks to all readers that completed the great way to ensure your lawyers are up to
Connect survey. Respondents seem to like date with legal and law firm management
the new format, and enjoy the variety of issues so that your lawyers can provide you
articles in each issue. Most like receiving with the best advice possible. As well as an
Connect in hard copy with only a few annual conference Lawlink facilitates other
opting for an electronic version. We will meeting opportunities to enable exchange
investigate electronic delivery of Connect. of information and ideas.
Some have mentioned it would be useful to In this issue, we have an article that looks
have articles on our website, and I take this at the changes to the District Courts Rules
opportunity to advise that all articles are which will ensure civil claims are dealt with
on the Lawlink website, www.lawlink.co.nz. simply, cheaply and as promptly as possible.
Carol Patton There is also an article that looks at the
Articles are categorised for ease of searching,
General Manager, recent controversial decision from the High
for example, Employment, Property, Trusts.
Lawlink Court involving a vineyard, farm land and
We also learned that many of you are a relationship property claim. There is
unaware of our other publications. Your also an article that discusses government
Lawlink firm has a series of useful client assistance for residential care.
booklets, and these are Corporate
I would like to take this opportunity to wish
Governance, Your Business and the Law,
all our readers and their families a happy
Family Trusts and Estate Administration.
and safe holiday period and we look
If you would like any of these booklets,
forward to a brighter 2010.
please contact your Lawlink firm.
We are busy preparing for our 2010
conference. Lawlink conferences are a
Connect is printed on 9lives Satin. 9lives coated contains 55% recycled fibre with the balance being virgin fibre that is chain of custody certified. The manufacturing process operates
under an Environmental Management System that is Certified by ISO 14001 and uses an Elemental Chlorine Free (ECF) bleaching process, generating 46% of its power from steam.
New REINZ land
sale agreement
– Potential pitfalls
In this article Alexandra Isherwood, a Key changes
solicitor with Anderson Lloyd, comments
on the new agreement for buying and Changes to form of agreement
selling real estate form produced by The REINZ form is drafted in ‘Plain English’
the Real Estate Institute of New Zealand. and, ‘was designed to do away with
ambiguity and complexity’ says the REINZ
The standard form Agreement for Sale and
CEO, Christine Le Cren.1 The intention is to
Purchase of Real Estate jointly produced by
make the form more easily understood
REINZ and the Auckland District Law Society
by the public. While the language and
(‘the ADLS form’) is probably the most widely
layout may indeed be easier for the
used legal document in New Zealand.
layperson to read, the implications and
The Real Estate Institute of New Zealand Alexandra Isherwood
effect of those words will not necessarily
(‘REINZ’) has now produced and is marketing Solicitor,
be fully understood. In addition, the form
its own standard form sale and purchase Anderson Lloyd
introduces new terminology not defined
agreement of real estate (‘the REINZ form’).
by case law which will almost certainly lead
The REINZ form is markedly different both
to uncertainty in interpretation – possibly
in form and substance from the ADLS form.
creating more ambiguity and complexity. Section A contains the details
With REINZ reporting around 100,000 house
sales every year, the contents of this new
of the individual transaction
The ADLS form has been around for many
form could well impact on many prospective years and has been tried and tested by the
while Section B contains the
buyers and sellers who need to be aware courts so that the clauses and terms have standard terms of sale.
of any potential pitfalls of the new form. been well defined and interpreted. This is not
so for the REINZ form which does not have
the assistance of case law to help bring
certainty to the terms of the agreement.
For example, the word ‘warranty’ has been
replaced with the word ‘promise’. While
the term promise is better understood by
the average New Zealander, the question
remains whether it will translate in court to
having the same power and enforceability
as a warranty? How questions such as this
will play out in the courts remains to be seen.
Contents
1 New REINZ land sale agreement 6 What to do when the recession 14 Dairy effluent prosecutions
– Potential pitfalls hits you
15 I’ll see you in court (or will I?)
3 Start planning for farm succession now 9 Repossession – When you are the
16 Personal Properties Securities Act –
dreaded ‘repo’ man
4 Completing an agreement for sale Seven years on and still misunderstood
and purchase of real estate 12 Government assists elderly in need 18 A thorny issue
of care
Connect Summer 2009 1
It is for reasons such as this that some legal Anna Fitzgibbon, ADLS’s president, has Title/Building Report condition which does
commentators have criticised the REINZ warned that the form ‘markedly favours not require the buyer to give the seller the
form as flawed in certain respects, some purchasers. It attempts to introduce new opportunity to remedy. Buyers need to
going as far to say it is unsafe to use. principles into settled areas of vendor and be careful when signing a REINZ form that
purchaser law – perhaps unsuccessfully’.2 the standard provisions are modified if
The REINZ form for negotiated sales is While there may be other provisions which necessary to meet the buyer’s requirements.
comprised of two sections, Section A and favour of the buyer, the REINZ form also
Section B. Section A contains the details attempts to make it more difficult for both The REINZ form requires builders’ reports to
of the individual transaction while Section the seller and the buyer to cancel the be from a ‘qualified builder’ so you cannot
B contains the standard terms of sale. It is agreement. It is already being suggested get a mate around to ‘kick the tyres’ and
intended that the standard terms of sale that in fact the agreement, to the contrary, request a price reduction. The report must
are just that and should remain constant. gives clever solicitors acting for purchasers in be from a ‘suitably qualified person’. This term
The promoters of the REINZ form suggest particular more scope to cancel a contract. is not specifically defined in the Agreement
that if any amendments to those standard and parties may have to look to the courts
terms are required, these can be achieved What to look out for to determine who is ‘suitably qualified’.
through Section A which allows for the
deletion or amendment of the standard Approval treated as given Onerous seller obligations
terms contained in Section B. Section B The conditions clauses in the REINZ form Sellers need to look carefully at the
containing the ‘fine print’ terms need not differ from those in the ADLS form and it obligations under clause 19 ‘Promises’ of the
be actually attached to the agreement is important for the buyer and seller to be REINZ form and will likely wish to vary some
that is signed. Buyers and sellers must aware of all conditional dates. Where a of the more onerous obligations imposed
sign Part 3 of Section A declaring that buyer or seller is required to approve a under this clause. For example, under
they have received a copy of Section condition in the agreement such as LIM, clause 19.4 the seller promises to remove
B. However, to ensure an agreement is title, or building report conditions (‘the documents registered against the title to
enforceable by everyone affected, care approver’) and the date for confirmation the property on settlement. Some of these
will need to be taken to ensure everyone has passed without confirmation, the documents may be intended to remain
has been given a copy of Section B, as other party can issue a ‘warning notice’ registered on the title. It may therefore be
there may be room for argument that a requiring the approver to issue a ‘refusal beyond the seller’s control to have them
party cannot be bound by any standard notice’ in respect of that condition. If the removed and the Seller could be in breach
terms they have not in fact received. approver fails to give the refusal notice of the contract through no fault of their own.
within three working days of receipt of
the warning then they will be treated as Dispute resolution
having approved the condition, and lose Under the REINZ agreement all disputes
the right to raise issues. arising out of the agreement must be
referred to mediation as a first resort but
Conditions the agreement fails to provide for any
further processes should the mediation
Title not resolve the dispute. The problem with
Under the ADLS form, if the title to a property this is that when a dispute arises, parties
is defective the buyer can give notice to the may feel that mediation will not resolve
seller requiring the seller to remedy and if the issues and are often opposed to
entering into mediation with the other
Take time to read the seller doesn’t comply either party can
party, particularly in more fractious
cancel the agreement. This is known as
up on REINZ. the right to requisition the title. This right has situations. It might be prudent to vary
been replaced in the REINZ form by a clause the REINZ form in all cases to clarify the
While there may be other which provides for the buyer’s lawyer to mediation obligations and lead on to
other dispute resolution processes.
provisions which favour of withhold consent to the title for anything that
‘could’ be registered on the title that ‘might’
the buyer, the REINZ form Be careful
affect the buyer’s use of the property. This
also attempts to make it new condition is causing concern amongst
The issues discussed in this article are
possibly equivalent to the tip of an iceberg
more difficult for both the practitioners for its wide discretion in favour
in relation to matters that might arise from
of the buyer. The buyer must, however, give
seller and the buyer to notice to the seller detailing the reasons for
the use of the new REINZ form. Before
cancel the agreement. not giving approval to the title (‘the refusal
signing, a prudent buyer or seller should
ensure that everything in the agreement
notice’). If the objections can be rectified
being created is what the person signing
the seller has five working days to do so.
expects and wants. Your solicitor’s advice
Upon rectification, the buyer’s approval is
is available to provide that assurance.
treated as being given.
© Anderson Lloyd
LIM/Building report Email alexandra.isherwood@andersonlloyd.co.nz
Under the REINZ form the conditions relating Website www.andersonlloyd.co.nz
to a building report and LIM also require the 1 ‘REINZ sale form flawed says lawyer’, NZ Herald,
buyer to issue a ‘refusal notice’ giving the electronic version retrieved 16/08/2009 from
reasons for not confirming the condition. http://www.nzherald.co.nz/property/news/article.
cfm?c_id=8&objectid=10588670
The seller then has the opportunity to
2 Letter from Anna Fitzgibbon, Auckland District
remedy those ‘defects’. This process is Law Society to All Practitioners in New Zealand
similar to the standard LIM condition in dated 30 July 2008
the ADLS form. However, in using the ADLS
form it is common to insert a specific LIM/
2 Connect Summer 2009
Start planning for
farm succession now
The potato famine happened, partly, Of course, if this step is to be taken, there
because farms in Ireland were subdivided is much farmers can do to minimise the
as passed down to each generation. perception of unfairness.
A man with a small farm and six sons left
behind six smaller farms when he died. The first thing you should do is to stand
Potatoes were the only viable crop to grow back and have a good look at the farm’s
on such small plots. Eventually, almost five business model:
million people became dependent on this
• do you think there is room for growth?
barely viable method of farming. Blight
caused successive potato harvests to fail • can you move into a lower-cost model?
from 1841. The result was that Ireland’s • how is the farm protected against
Liam Hehir population today is about one-half of fluctuations in income and expenses?
Graduate Solicitor, what it was when the crops started to fail.
Fitzherbert Rowe Next, see your lawyer or accountant,
This is a good, if dramatic, illustration of the who will be able to help you come to an
perils of poorly managed succession. A less arrangement to help you to achieve your
dramatic example is what unfortunately succession goals. They may suggest:
Liam Hehir, a graduate solicitor with
has, in the past, happened more often than
Fitzherbert Rowe, gives some practical
it should when the farmer has deliberately • utilising companies and other ownership
advice when it comes to planning for
favoured a son or sons, at the expense of structures to protect the next generation
the future of the family farm.
daughters (or other sons). This has caused from liability, minimise taxation, maximise
For farmers, the decision about who from anger and resentment at the unfair profit, and give all of the children a ‘stake’
the next generation gets the farm is fraught treatment meted out to the daughters in the farm;
with peril. However, it’s important to make and has sometimes torn families apart.
• using trusts to give some assistance to the
the right decision as soon as possible. non-farming children, perhaps for tertiary
There has to be a better way to plan
Making the wrong one, or even worse, not education or buying a home; and
for succession!
making a decision at all, can tear families
• ways in which you can use the farm’s
apart and ruin generations of work.
Profit: the True North assets to develop other investments,
The figures appearing in the rating valuation or even expand your farming
The family legacy
or in the financial statements of the farm are operations, to broaden the base from
Chris, a fifth generation dairy farmer,
one thing, but the real value of a family farm which you can provide for yourself and
has a dilemma. He has to plan for the
is the income it generates for its owner. your family.
future of a farm and he has four children.
Chris desperately wants the farm to stay
After becoming informed, but before
in family hands. His eldest children, Ben
A farm that is worth millions making any decisions, you should have
and Rachael, have both expressed an
a frank and open discussion with all of
interest in farming. on paper is of little real value
your children.
to farmers and their children
Chris is unsure if the farm, based on its
current profitability, can produce enough when, as a business, it It may not be possible to reach a consensus,
but forearmed with your lawyer’s advice,
income for two families. does not produce enough it should be much easier to ease any
Chris feels he would have to sell the farm income to service debts disappointments, to ‘sell’ a fair solution,
and you will have demonstrated that your
to Ben and Rachael at fair market value. and provide a reasonable
His own retirement is at stake and he wants ultimate solution is rational and well advised.
income.
to see that his younger children are treated
However, the cardinal rule is that it is the
equally. The price of dairy land, though
ability of one or more of your children to
subject to fluctuation, is still high. Paying Facing reality make a profit from the farm that will be
market value will put a big dent in Ben Ultimately, farmers like Chris can’t have it the key to whether it stays in family hands.
and Rachael’s hopes of farming profitably. both ways. It is probably impossible to treat
all of the children equally, provide for his © Fitzherbert Rowe
An age-old bugbear and his wife’s future, and ensure the farm Email l.hehir@fitzrowe.co.nz
This isn’t a new problem. Farmers like Website www.fitzrowe.co.nz
stays in family hands. Some special financial
Chris face a problem similar in nature, assistance will have to be given to those
if not in scope, to one that had horrific children who will take over the farm.
consequences in 19th century Ireland.
Connect Summer 2009 3
Completing an
agreement for sale and
purchase of real estate
Owen Culliney is a solicitor with Whether you use the REINZ agreement
Harkness Henry in Hamilton with over or the ADLS agreement when buying
three years’ experience in commercial or selling real estate may well depend
law including transacting the sale and on the preference of the parties or their
purchase of real estate. In this article, advisers. However, before you sign any
Owen discusses some of the issues agreement, make sure you seek guidance
that need to be considered when from your lawyer. While the documents are
preparing an agreement for the sale standard your circumstances are unique.
and purchase of real estate. Accordingly, the standard documents
may need minor or major adjustments to
Decisions decisions account for your particular circumstances.
Owen Culliney As discussed in Alexandra Isherwood’s
Solicitor, article, New REINZ land sale agreement –
Harkness Henry Potential pitfalls, there are now two main Always bear in mind that
choices of agreement when buying or once an agreement is
selling real estate. The Auckland District
Law Society’s agreement for sale and
signed its provisions are
purchase of real estate (‘ADLS agreement’) binding on both parties –
and the REINZ agreement for buying and
the time to make sure an
selling real estate (‘REINZ agreement’).
agreement meets your
needs is before it is signed.
4 Connect Summer 2009
The agreement 6. GST It is strongly recommended that you 12. Add further terms There are many
This article sets out some items that you get advice about the GST implications other conditions and terms that can be
should discuss with your lawyer if you of your agreement, particularly if the added to the agreement. For example,
are looking to purchase a property. The property is tenanted or if any sort of you can include conditions to deal with
relevance of those same items for vendors business is being conducted from the matters such as:
is discussed at the end of this article. You property. Missing out on or having to
• obtaining a specialist
should ask your lawyer to check any draft pay 12.5% of the purchase price to weathertightness inspection;
agreement before you sign it. Although you the IRD could end up being a very
• obtaining a valuation report;
can include a solicitor’s approval condition significant unexpected cost.
in any agreement you sign before obtaining • obtaining a soil/geotechnical report;
7. Should the agreement be subject to
legal advice, these conditions are often finance? Particularly now that the banks • obtaining solicitor’s approval of title,
limited in scope. have their purse strings tied so tightly, the agreement, a lease or other
your lawyer may recommend that the legal documents; or
Some of the matters your lawyer will want
agreement be subject to finance. You • completing the sale of your existing
to discuss with you are:
should not commit yourself to complete property.
1. The identity of the property Your lawyer will a purchase without first knowing that
ensure that the property you are buying you have the money to do so. If you are What about vendors?
is the one described in agreement. able to obtain pre-approval from your If you are selling your property, you will
bank to complete the purchase your also need to be sure that the agreement
2. Timing Make sure that the dates
bargaining position will be improved in protects your position and covers all of
for settlement and the fulfilment of
that the agreement will not be subject the issues that are important to you. As a
conditions within the agreement provide
to finance. However, now more than vendor, you will also need to keep an eye
enough time for you to complete all
ever, you will need to be certain of on all the items listed above. If you receive
the steps necessary to comply with
finance being available before signing an agreement from a purchaser wanting
your obligations. Your lawyer can
up without this protection. to buy your property, you should contact
advise you on what time frames will be
8. Get a LIM A Land Information your lawyer to discuss the agreement
appropriate. Also ensure that if you are
Memorandum (‘LIM’) will give you before signing it. All of the issues raised in
selling your existing property to finance
all of the information that the local this article have important (but often quite
the purchase that the settlement dates
council has collected on the property. different) implications for vendors.
for both agreements coincide.
This document is relatively inexpensive
3. Purchase price The price paid for a
to obtain but will provide you with
property is solely at the discretion of
important details about the property
When buying or selling
the parties and is generally the most
such as whether or not all building work real estate, whether you
negotiated item in any agreement. It is
quite common for this negotiation process
on the property has been undertaken in are using the new REINZ
compliance with the relevant legislation
to involve writing down a proposed
and council expectations. agreement or the tried and
purchase price with that proposal being
9. Vacant possession or tenanted? If there
true ADLS agreement, consult
crossed out and replaced by the other
party. This process can be repeated is a tenant, the details of the tenancy your Lawlink lawyer before
arrangement need to be added to
several times and this can create a signing up.
messy agreement with the final agreed the agreement. If you do not want
purchase price being unclear. You to buy the property with a tenant in
possession, your purchase agreement © Harkness Henry
need to make sure that the final agreed Email owen.culliney@harkness.co.nz
amount is easily discernable from the will need to provide that the property
Website www.harkness.co.nz
numbers that have been struck out. is to be transferred to you with vacant
possession.
4. Deposit Do not ignore the significance of
the deposit. This is the sum that you must 10. Is the chattels list complete? Both
pay first. It should be affordable for you standard agreements include a list of
but vendors will want to ensure that it is standard chattels. You may need to add
significant enough to cover their costs if or remove chattels from the standard
you default. Your lawyer will be able to chattel list so that the correct chattels
advise you on whether a deposit figure are included in the purchase. If there
is reasonable or not. If the deposit is are heat pumps or additional fittings
significant or if you have concerns about that are to be included in the sale,
the financial stability of the vendor, your they must be listed in the agreement.
lawyer may recommend that you take 11.Builder’s report The REINZ agreement
steps to make sure the deposit is held contains a standard builder’s report
by an independent party until the condition. While this condition does
sale is settled. not appear in the ADLS form, your
5. When is the deposit payable? The terms lawyer can add such a provision to
of both the ADLS and REINZ agreements that agreement. A builder’s report
state that the deposit becomes payable may reveal issues with the property
on execution of the agreement unless that are not included within the
provided otherwise. Your lawyer may LIM report or apparent by way of
recommend that you make a change a superficial inspection.
so that the deposit is payable when the
agreement becomes unconditional.
5
What to do when
the recession hits you
Matthew Peploe, a senior associate with Harkness Henry, outlines some legal
options available if you are struggling financially.
6 Connect Summer 2009
Bankruptcy than you need to cover your day-to-day
The purpose of bankruptcy is to provide living expenses you will need to pay some
people who cannot pay their debts with of your income to your creditors. If your
an opportunity to make a fresh start. income changes during your bankruptcy,
Bankruptcy is a legal procedure dating you must notify the Official Assignee.
back to the European city states in the
Middle Ages. In New Zealand bankruptcy During your bankruptcy, you must:
is governed by the Insolvency Act 2006.
• co-operate fully with the Official
If you are insolvent, you can file for Assignee;
bankruptcy with the Insolvency and Trustee • provide the Official Assignee with a full
Matthew Peploe Service. Alternatively, your creditors can statement of your financial affairs;
Senior Associate, apply to the court to have you declared
• advise the Official Assignee if you change
Harkness Henry bankrupt. A court hearing will then be held
your name, address, employment status,
to determine whether you are insolvent.
income or expenditure;
If you do not meet the court’s requirements
(which generally require payment of the • make payments towards your debts; and
As the world’s financial difficulties
continue, more New Zealanders are creditor’s debt within a certain time frame) • in some cases, leave your land and
struggling to meet their financial you can be declared bankrupt. This can buildings.
obligations. For some, these challenges occur even if you refuse or fail to attend
the relevant court hearings. Furthermore, you cannot:
can be managed through careful
budgeting and prudent spending.
If you are declared bankrupt an officer • withhold information;
For others, the situation is more
from the Insolvency and Trustee Service,
serious. If you are struggling to meet • obtain credit for or borrow more than
known as an ‘Official Assignee’, will be
your financial obligations you need $1,000 without disclosing you are
appointed to take control of your assets.
to carefully consider your financial bankrupt;
position and the legal options available • leave New Zealand without the Official
to you. The purpose of this article is to You will remain in bankruptcy Assignee’s consent;
outline some of these legal options.
for a period of three years • be involved in the management or
control of any business without the
(although this period can
If you are struggling to meet be extended in some
Official Assignee’s consent; or
your financial obligations the circumstances).
• be employed, directly or indirectly,
by any relative without the Official
first step you need to take Assignee’s consent.
is to review your finances to Once you have been declared bankrupt,
You can be fined or face imprisonment if
determine whether you are your creditors will no longer be able to
you do not comply with these obligations.
recover from you the debt owed to them.
legally insolvent.
However, while you are bankrupt, your At the end of your bankruptcy, you will be
assets and income will belong to the discharged from any obligation to repay
You should check all invoices, statements Official Assignee and may be used to the debts you incurred before bankruptcy.
and contracts which establish your debt pay your creditors. You will not be able However, you remain liable for:
and asset position. Your accountant or the to use your assets or income without the
Insolvency and Trustee Service forming part Official Assignee’s permission. • fines;
of the Ministry of Economic Development
• court ordered reparation;
can assist you with this process. The Official Assignee will allow you to retain:
• maintenance and child support
You are legally insolvent if: • necessary tools of trade; payments;
• necessary household furniture and • amounts owing to WINZ; and
• you cannot pay your debts as they
personal effects;
fall due; or • any debts you incurred after you
• a motor vehicle (provided that it is became bankrupt.
• the value of your debts exceeds the
worth less than $5,000); and
value of your assets.
The opportunity to make a fresh start
• cash up to a maximum of $1,000.
through bankruptcy comes at a significant
If you are insolvent, your legal options
The Official Assignee is able to sell all of your cost. You will lose control of your assets
include:
other assets to meet your outstanding debts. and income for a number of years and the
• applying for bankruptcy; bankruptcy is a matter of public record
Although you can earn an income affecting your future prospects. Before
• entering a compromise with your
while you are bankrupt you will need to considering bankruptcy you should look
creditors;
complete a budget to show the Official at all of the other options available to you.
• applying to the Official Assignee for Assignee how much of that income you
a Summary Instalment Order; or need to cover your living expenses. If you
• applying for administration under the are in a relationship, the Official Assignee
no asset procedure contained in the can take into account any income earned
Insolvency Act 2006. by your partner. The Official Assignee will
then decide how much of your income
This article reviews each of these options. you can keep. If your income is more
Connect Summer 2009 7
Compromise with creditors of public record. However, you will need • the procedure only lasts for one year
One way to avoid bankruptcy is to discuss to ensure that all of your creditors agree to (whereas a bankruptcy generally lasts
your situation with creditors and negotiate your compromise proposals. Any creditors for three years);
payment arrangements. If you can agree that do not agree could take legal action
• you can only make use of the procedure
terms for the repayment of your debts you to place you into bankruptcy.
once; and
may avoid bankruptcy. Your creditors may
agree to accept a lesser amount than If you enter a private compromise with • there are significant limits on who can
they are owed in full and final settlement. creditors it is important to clearly record use the procedure.
Such an arrangement, referred to the terms of the compromise and for
you to comply with those terms. Your If you want to use the no asset procedure
as a ‘compromise with creditors’:
creditors can still apply to the court for you must:
• can help you to avoid bankruptcy; your bankruptcy if you fail to comply. We
• have total debts of less than $40,000;
therefore recommend that you speak with
• provides your creditors with an
your lawyer to document the compromise • not have used the no asset procedure
enforceable repayment plan; and
agreement appropriately. If you cannot before;
• saves costs and avoids delays for you reach a private compromise agreement • not have been declared bankrupt
and for your creditors. with all of your creditors, you may be able before;
to obtain a formal compromise agreement
A compromise with creditors can be a • have no realisable assets (excluding
under Part 5 of the Insolvency Act.
purely private arrangement between cash up to $1,000, a motor vehicle
you and your creditors. The Insolvency This establishes a complicated procedure worth less than $5,000, personal
and Trustee Service does not need to for avoiding bankruptcy with the agreement and household effects and tools
be involved if all of your creditors agree of at least 50% of your creditors provided of trade); and
to your proposals. Consequently, these that those creditors are also owed at least • prove that you are unable to repay
arrangements do not become a matter 75% of your total debt. As this procedure is these debts.
reasonably complicated you should seek
professional advice from your lawyer if you Even if you can meet these strict
want to pursue this option. requirements the Official Assignee can
still reject your application if:
Summary instalment orders
If your debts are reasonably modest • your creditors object;
another option available to you is to apply • bankruptcy proceedings have already
to the Insolvency and Trustee Service for been initiated and your creditors are
a summary instalment order (‘SIO’). Your likely to obtain a better result through
creditors can also apply for this order. those proceedings;
You can only apply for an SIO if: • you incurred debts knowing that you
would be unable to pay them; or
• your total unsecured debts (excluding
• you commit an act that would be an
fines, reparation orders and student
offence under the Insolvency Act if
loans) are less than $40,000; and
If you cannot reach a private you were bankrupt.
• you are unable to pay those debts
compromise agreement immediately. Given these significant limits, the no asset
with all of your creditors, procedure is not available to many people
Under an SIO you are obliged to repay facing insolvency. If you want your debts
you may be able to obtain some (if not all) of your outstanding debts to be administered through the no asset
a formal compromise within three to five years, generally by procedure, you will need to carefully
way of instalment payments. You can consider whether you meet the strict criteria
agreement under Part 5 negotiate with your creditors how much before applying to the Official Assignee.
of the Insolvency Act. you will pay and once the SIO has been
entered your creditors cannot take further Conclusion
action against you unless you fail to follow As the world’s financial woes continue,
the terms of the order. more New Zealanders are struggling to
pay their debts or finding that their debts
An SIO is therefore similar to bankruptcy exceed their assets. If this is the case for you,
in that it is a formal arrangement, is consider the legal options available and
administered by the Insolvency and Trustee proactively address your financial difficulties.
Service and prevents your creditors from Seek financial and legal advice as soon as
taking further action against you. However, insolvency becomes a possibility for you.
it is preferable to bankruptcy because you If you do so there are options available for
do not lose control of your assets. managing your way out of financial difficulty
that are less onerous and of shorter-term
The no asset procedure effect than bankruptcy. But if you fail to seek
Another option available to you is to apply
advice and take active steps yourself, you
to the Official Assignee for administration
may lose control of your assets when creditors
under the no asset procedure provided
give up waiting and take action themselves.
for in the Insolvency Act. This procedure
provides an alternative to bankruptcy. © Harkness Henry
It is similar to bankruptcy but: Email matthew.peploe@harkness.co.nz
Website www.harkness.co.nz
8 Connect Summer 2009Do you have a business selling goods unless the right has been set out
household goods or renting them clearly in the contract, and the disclosure
out? Customers aren’t paying up? requirements of the Credit Contracts and
This article, written by Rowena Smith, Consumer Finance Act have been met.
a solicitor with Webb Ross, will help to
explain the repossession process from If a creditor has a right to repossess, he or
start to finish and how it may apply she must then follow the steps set out in the
to your small business. Credit (Repossession) Act 1997 (‘the Act’).
The Act refers to ‘consumer goods’ only,
Introduction
and defines these as goods that are used
Depending on the nature of your business,
or acquired for use primarily for personal,
you may retain ownership of goods you
have sold until all payments are made, domestic, or household purposes.
or you may wish to list certain goods as
security for a loan. Either way, if someone
What gives you the right to
stops paying and a guarantor does not repossess?
take over the repayments, good business A creditor or their agent must not repossess
sense would dictate that you repossess the any goods unless the debtor is in default
goods and sell them to offset your losses. under the security agreement, or the
goods are at risk. ‘Security agreement’
The Credit Contracts and Consumer is the term used in the Act for a contract
Finance Act 2003 is the main law to which it applies.
designed to protect consumers in credit
contracts. When someone signs up to a The Act defines goods as being ‘at risk’ if the
credit contract, the creditor must provide creditor has reasonable grounds to believe
accurate information about the cost of that they have been or will be destroyed,
the arrangement to the consumer. This damaged, endangered, disassembled,
information is contained in a disclosure removed, or concealed contrary to the
Rowena Smith
statement which must be given before the provisions of the contract. An example of
Solicitor,
contract is made or very shortly afterwards. goods being at risk might be that they have
Webb Ross
The creditor’s right to repossess must be been advertised for sale by the debtor.
set out and explained in the contract. You must be able to prove that you have
The creditor will have no right to repossess grounds to believe the goods are at risk.
Repossession
– When you are the
dreaded ‘repo’ man
Connect Summer 2009 9A clause designed to keep ownership 1. Send a pre-possession notice.
of the goods with the creditor, although
Before taking possession of the goods, you
possession of the goods has gone to the
must have served on the debtor, and on
buyer, is called a ‘Romalpa’ or ‘Retention
every guarantor of the debtor, a notice
of Title’ clause. If the buyer defaults on
explaining the nature of the default and
payment, the creditor is allowed to retake
the amount owing, and requiring the
possession of the goods sold. As it is a form
debtor to remedy the default within a
of security, it needs to be registered on
certain period (no less than 15 days after
the Personal Property Securities Register to
service of the notice on the debtor).
ensure appropriate priority is recognised.
Although the Act will apply whether A pre-possession notice does not need to
or not a financing statement has been be served if you have reasonable grounds
registered, by registering your interest in to think the goods have been, or will be,
the goods you should take priority over damaged or removed. ‘Reasonable’ is
any other creditor. not defined in the Act, but just means
that common sense should be used,
The retention of title clause must have been
taking into consideration the individual
A pre-possession notice brought to the attention of the customer
circumstances of each case.
does not need to be served before the goods were purchased. For the
clause to be effective, there is a requirement 2. Repossess the goods.
if you have reasonable that you can identify the goods and prove
grounds to think the goods that they belong to you when invoking
If no payment is made after the period
given to remedy the default, then you may
have been, or will be, this condition. If your goods are mixed or
repossess the goods.
incorporated into another product this
damaged or removed. identification becomes more difficult.
The clause that actually authorises you You are able to enter the
to enter the debtor’s premises is also debtor’s premises yourself, or
important. You will generally only have
you may appoint an agent
authority to enter the debtor’s premises;
debtors usually cannot authorise entry to do so on your behalf.
onto a third party’s premises. Only in
extraordinary circumstances would you Anyone can act as a repossession agent
be able to repossess goods located on the as long as they have not been convicted
premises of a third party. of a crime of violence or dishonesty in the
past five years, sentenced to 10 years in
The six-step process prison, or released from prison within the
Once you have established that you do have
last year.
the authority to repossess the goods, there
are six basic steps that must be followed. The repossession agent can only enter
the debtor’s premises between 6 am and
9 pm on a Monday to Saturday, and not
on a public holiday unless the debtor
In order for you to be able Goods can only be Some points to consider are:
to repossess goods, you repossessed if they are listed • a time frame to show when you want
must have a written and on or are specific to that ownership of the goods to change;
signed contract that states contract. • wording that shows clearly that
possession of goods does not necessarily
that ownership of the goods mean ownership;
does not pass until the final It is often best to get your • a clause to ensure that the agreement
payment is made, and lawyer to draft such a authorises you or your company to enter
that you have authority to contract for you. You do premises to seize goods when there has
been a breach of contract;
repossess if there is a default not want to find yourself in
• a statement that goods are not to leave
on the contract. a situation where you are New Zealand unless paid for in full.
unable to recover your losses
because this has been
inadequately provided for
in your contract.
10 Connect Summer 2009has consented in writing to their premises You must give notice to anyone who has This may be done by auction, tender,
being entered outside these times. an interest in the accession, and they or private sale as long as you use all
are able to refuse permission to remove reasonable efforts to obtain the best
That word ‘reasonable’ is used again any goods unless you have given them price for the goods.
where the Act states that the creditor adequate security for the reimbursement.
must enter the premises in a ‘reasonable The debtor should be given notice of
manner’. You are expected to take care 3. Send a post-possession notice. any auction or tender, unless the goods
and cause as little damage as possible. are perishable or liable to drop in value
After the goods have been taken, you
quickly.
must serve a post-possession notice on
When you enter the premises you must
the debtor within 21 days of repossession.
produce a copy of the pre-possession 6. Statement of account to be sent
notice, as well as evidence establishing within 10 days of sale.
The notice must state that, to get the
your authority to take possession of the
goods back, the debtor must within When the goods have been sold the
consumer goods (for example, written
15 days pay the money due under the creditor must give the debtor a statement
proof that you are, or are working for,
contract, or arrange another option of account within 10 days showing the
the creditor).
with you. sale proceeds, costs of the sale, and the
balance owing to or from the debtor.
4. Debtor has 15 days to pay up.
If applicable you must also Conclusion
Now is the chance for the debtor to
produce the debtor’s written contact you about entering into another
As unpaid debts and the necessity for
consent to entry outside the agreement. As the debtor has this time,
repossession may become more common
you must not sell the goods before the
prohibited hours. during these hard financial times, creditors
15 days given under the post-possession
need to make sure the process is carried
notice has expired.
If the occupier of the home is not present, out correctly. As this article gives only a
you are still able to enter the premises The debtor has a right to reinstate brief outline of the repossession process,
to take the goods, but must take steps the original contract. They must pay it would be wise to pay a visit to your
to ensure that the premises are not left the amount owing on the debt, costs lawyer to ensure you have the appropriate
obviously open. As well as leaving a copy incurred by you in repossessing, as well authority at every step of the way.
of the documents stated above, you must as remedying any other default. You must
© Webb Ross
also leave in a prominent place a notice then return the repossessed goods to the Email rowena.smith@webbross.co.nz
stating that the premises have been debtor. A point to note before returning Website www.webbross.co.nz
entered, the date of entry and a list of the the goods is that you cannot repossess
consumer goods that you have taken. them a second time for the same breach
if they have already been returned to
Special rules apply if the goods you are the debtor.
taking are accessions – ie, installed in,
or affixed to other consumer goods as 5. The goods can be sold if there is no
there may be other people who have action from the debtor.
an interest in these goods. If you damage If the default is not remedied, then you
an accession, then YOU may be liable are able to sell the repossessed goods.
to reimburse for the damage caused.
Connect Summer 2009 11Government assists
elderly in need of care
In the current economic climate any • be a New Zealand citizen or resident;
extra financial assistance can help • be aged 65+ or 50-64 and single with
make ends meet. If you or someone you no dependent children;
know is part of the baby boomer bubble
that we so often hear about and is • have a needs assessment that shows
about to enter a rest home, that person you need ongoing, long-term residential
may be able to get financial help from care in a rest home or hospital;
the government. In this article Isabel • have a financial means assessment that
Blake, a solicitor with Webb Ross, looks shows your assets are equal to or below
at government funding available for the asset threshold and how much of
elderly in need of care. your income will go towards your care
Isabel Blake costs; and
Solicitor, Residential Care Subsidy:
• receive care from a rest home or hospital.
Webb Ross what is it and who can get it?
The residential care subsidy offers financial Step 1: have your needs assessed
help towards the cost of long-term The first step is to have your needs
residential care for people in rest homes assessed. If you need long-term care
and hospitals. The government is required in a hospital or rest home you can apply
by the Social Security Act 1964 and the to have your finances assessed.
Social Security (Long-term Residential Care)
Regulations 2005 to give you financial help
if you meet the following test:
12 Connect Summer 2009Step 2: have your finances assessed Gifts in recognition of care Assets owned by your family trust are not
The second step is to have your assets and If your gifts come to less than $27,500, treated as being owned by you personally.
income assessed. This assesses whether you you can also give someone a gift to thank That means gifts given and debts forgiven
qualify for financial help. Your application them for caring for you. That gift must to your family trust may also be ‘clawed
can be backdated up to 90 days if your meet the following test: back’ and included in the assessment.
assets have been equal to or below the
threshold since then. • it is given within 12 months before Outcome of your assessment
your application; and Those who meet the test for the residential
Assessment of your assets • is given to someone who lived in the care subsidy must pay the decided amount
Your assets (minus your debts) must be same house as you and cared for you towards their care (minus a personal
equal to or below the threshold. If you are for at least 12 months; and weekly allowance of $34.87) and the
65+ and single, or you have a spouse who government will pay the rest. If you get the
• that person is not your spouse or subsidy you will also get a yearly clothing
is also in care, the threshold is $190,000.
dependent child; and allowance of $246.91.
If you are 65+ and you have a spouse who
is not in care (for example still living in the • the gift is not over $5,500 for each
family home) you have a choice between 12 months of care.
two thresholds: $190,000 or $95,000 Those who need care but
excluding the value of your home and Assessment of your income do not meet the test for
car. If you are 50 to 64 and single with no Your income is assessed when your assets
dependent children your assets will not are equal to or below the threshold. This
the subsidy must pay a set
be assessed (but your income will be). decides the weekly amount that you must amount for their care.
pay from your income towards the cost
of your care.
The government will pay the difference
Your ‘assets’ are all the things
Your ‘income’ is money (after tax) given to between that amount and the cost of
that belong to you and your you and your spouse, for example, wages, the care. If you do not meet the test for
spouse. benefits, 50% of any superannuation the subsidy you may be able to get a
and life insurance allowances, clothing residential care loan.
allowances and residential care subsidies.
Included are the values of things that you Residential care loan as a back-up
have given away up to five years before This assessment does not include income You can apply for a residential care loan
applying, any money you will receive from your assets of $879 each year for a when your assets are above the subsidy
if you move out of a retirement village, single person, $1,758 for a couple with both threshold and you meet the loan conditions.
and any income or property you have in care or $2,636 for a couple with one
deprived yourself of on purpose. Exempt partner in care; some compensation or This is an interest-free loan to help pay for
assets, allowable gifts and gifts given in goodwill payments; and any interest from your care. It will be secured against your
recognition of care are not counted. pre-paid funerals for you and your spouse. property. Your assets (other than your
home) must be less than $15,000 for a
Exempt assets Assets and income can be single person and $30,000 for a couple.
The following assets are not included
clawed back The loan must be repaid six months after
in an assessment of your assets:
Sometimes assets and income can be you die or when your home is sold. If you
• the value of the home where your spouse ‘clawed back’ and included in the get the residential care loan you will also
and/or dependent child lives and the car assessment. get a clothing allowance each year.
used by your spouse (except if you elect
the threshold of $190,000); If, later on, you think your assets are
You risk losing your subsidy getting close to the threshold, or your
• pre-paid funerals for you and your
spouse up to $10,000 each;
when you deprive yourself circumstances have changed, you can
apply to be reassessed. If your assets
• lump sum payments from ACC;
of income or property. are equal to or below the threshold you
will get the residential care subsidy. The
• KiwiSaver contributions; You have deprived yourself if the loan balance will not be wiped and
• household furniture and effects, following happens: the loan repayment conditions will
personal belongings (eg clothing, continue to apply.
jewellery), personal collectables, family • you make a gift when the total of all gifts
made in the last five years is more than Please see your lawyer if you think you
treasures and taonga (eg art works,
$27,500. Getting rid of property for no should be getting the residential care
books, stamps, antiques); and
cost or selling it for an amount less than subsidy or loan.
• some compensation and goodwill its market value is treated as a gift;
payments. © Webb Ross
• you do not make someone repay Email isabel.blake@webbross.co.nz
money they owe you; Website www.webbross.co.nz
Allowable gifts
Allowable gifts are not counted. You can • you invest money in something that
give away up to $27,500 of real or personal does not give you income.
property (eg money) in the five years
before applying for the subsidy.
Connect Summer 2009 13Dairy effluent prosecutions
In this article Nikki Edwards, a solicitor that may enter water, were the activities
with Harkness Henry, outlines the that were most frequently prosecuted.
consequences for farmers who pollute. 2. If prosecuted, there is a strong likelihood
of conviction – 93% of the 260 prosecutions
No farmer has the right to pollute in 2005-2008 resulted in convictions.
‘No farmer has the right to pollute.’ That was
the message delivered by the Minister of 3. During the 2005-2008 survey period,
the Waikato Regional Council was the Nikki Edwards
Agriculture on 30 July 2009 at the Farmers’
most active local authority, bringing Solicitor,
Mutual Group Annual General Meeting.
17.4% of all prosecutions (followed by the Harkness Henry
It is a message that is being reinforced by
Fonterra which announced earlier this Canterbury Regional Council and the
year its plans to introduce a milk payout Otago Regional Council).
Act 2009 (‘Act’) to $300,000 for individuals
deduction system for those who pollute. 4. The average fines imposed for RMA
and $600,000 for companies. The courts will
prosecutions have increased significantly.
Our experience with clients in the Waikato also have the power under the Act to review
region is that Environment Waikato is 5. While a fine is the key punishment for consent conditions in this punitive context.
vigilant in its detection and enforcement non-compliance with the RMA, the
courts have shown a willingness to While the largest fine imposed to date
of effluent offences. This is supported by the
impose other forms of punishment with under the RMA is $86,500, the recent
statistics, which show that prosecutions in the
38 enforcement orders, two prison increase in the maximum penalty is likely
agricultural sector are increasing significantly.
terms (six and eight months), and 12 to signal to sentencing judges a need to
The message to farmers is clear – you community work sentences imposed increase the fines imposed. If the increase
should ensure that you are complying in the 2005-2008 period. in maximum penalties is reflected in
with the Resource Management Act 1991 fine levels proportionally, considerably
(‘RMA’) because failure to comply has Penalties for effluent offences increased fines can be expected.
significant consequences. The current maximum penalty under the RMA
is $200,000. Recent cases have determined Conclusions
Prosecution statistics the appropriate fine for effluent discharges In no circumstances does a farmer have
Recent statistics released by the Ministry for by categorising the offence into one of the the right to pollute. The RMA is a strict
the Environment (MfE) show that regional following categories: liability statute, so even unintentional
councils are taking a firm approach towards discharges may attract prosecution unless
non-compliance by the agriculture sector. Categorisation of effluent offences the limited defences available apply.
The MfE surveyed RMA prosecutions for the Seriousness of offence
From our experience, the circumstances
period 1 May 2005 to 30 June 2008. The and description Range
that have commonly led to unauthorised
table below compares this survey period
Level 1 – less serious discharges have included:
against the previous two survey periods. Unintentional one-off $0 to
incidents, system failure $15,000 • an increase in herd size without
RMA prosecutions
Level 2 – moderately serious a corresponding system upgrade;
Statistic 1991- 2001- 2005- Unintentional but careless $15,000
2001 2005 2008 • operating at the margins (no tolerance
discharge, recurring over to
for unusual weather events);
Total prosecutions 375 171 260 period of time $30,000
Level 3 – serious • inadequate systems maintenance;
Agriculture sector
prosecutions 18 64 110 Deliberate or extremely $30,000 • delegation without appropriate
(% of total prosecutions) (5%) (37%) (42%) careless, multiple discharges and
supervision; and
or one large event above
Highest fine $50,000 $55,000 $86,500 • unfamiliarity with relevant rules
Average fine $6,500 $8,167 $12,463 Source: Waikato Regional Council v Chick Limited (eg Waikato Regional Plan Rules).
(27/09/07, Judge Whiting, DC Thames CRN0707950094)
Average of 30
highest fines $20,367 $20,307 $37,142 Our advice to farmers is to ensure familiarity
Judge Thompson has recently criticised the
with the relevant regional council rules,
level of fines imposed to date for not having
Source: Ministry for the Environment: ‘Study into the educate staff and ensure systems are
use of Prosecutions under the RMA 2005/2008’ ‘enough sting … to be really felt on the
properly operated and maintained. Failure
offenders financial bottom line’ (Hawke’s
to do so significantly increases the risk of
The key messages from the statistics are: Bay Regional Council v Stockade Pastoral
being prosecuted and the fines that are
Farms Limited (20/03/09, DC Napier, CRI-
1. Prosecutions in the agriculture sector likely to follow are significant.
2008-081-000096, paragraph 16)).
are rapidly increasing. For the most © Harkness Henry
recent period they represent 42% of The maximum penalty has recently Email nikki.edwards@harkness.co.nz
all RMA prosecutions. Within that sector increased under the Resource Management Website www.harkness.co.nz
unlawful discharges to water, or to land (Simplifying and Streamlining) Amendment
14 Connect Summer 2009You can also read
