LawBrief October 2019

The government has recently made changes to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the “Act”) to prevent money laundering and terrorism financing within various businesses and professions (including lawyers, accountants and real estate agents).

The Act aims to enhance the reputation of New Zealand businesses and maintain the view that New Zealand is a safe place to run a business.

Money laundering is the process of disguising the origins of illegally obtained money. Financing of terrorism is where financial support is provided to individual terrorists or terrorist organisations.

The Department of Internal Affairs (“DIA”) regulates and monitors compliance with the Act and is responsible for reporting any breaches.

The Act imposes preventative measures to ensure services provided by businesses are not used by criminals to hold and move funds anonymously.

Compliance with the Act for lawyers came into place on 1 July 2018. This involves lawyers completing customer due diligence (“CDD”) on clients before acting for them even where they are long-standing clients’ or the lawyer knows them personally.

The level of information required to complete the CDD will vary depending on the matter type, but as a minimum, lawyers are required to obtain and hold for each client involved: evidence of full legal name, date of birth, and address. Evidence can be a driver’s licence or passport, and a utility bill, or a government-issued letter or a bank statement recording the client’s address.

Depending on why you have instructed a lawyer to act for you, further information may be required. For example, if a lawyer is paying funds to you from their trust account, the lawyer must also confirm with you the bank account number that the funds are being paid to. This usually involves obtaining a bank deposit slip, bank statement or online screenshot showing the account number and your name. Alternatively, where lawyers receive funds into their trust account, particularly from overseas accounts, they may require verification of the source of the funds. This is particularly important in property transactions as the DIA has identified overseas money being laundered in this manner.

This information is not only required for individuals, but also for trusts, companies and partnerships. So, if we are acting for your family trust for example, we will require proof of address and ID for each trustee. In the case of a company, we will require the same information for all directors and shareholders.

If you require a real estate agent, a lawyer, and your bank for a single transaction, all three entities will ask for the same information (where they do not have the information already). So if you can provide the required information to all parties from the outset of your matter, it will ensure your matter progresses smoothly and may result in reduced CDD compliance fees.

While the Act has imposed further compliance requirements and administrative work on lawyers and other professionals, its aim is to reduce money laundering and prompt people to question red flags to ensure that New Zealand is a desirable and safe place for business.

Building a house can be a stressful, expensive and intimidating prospect for both new and experienced customers. As such, ensuring you are aware of not only your rights and obligations, but also those of the builder, is crucial.

Prior to even hiring a builder, you should complete your own due diligence on:

The builder
Your financial position
The requirements of your lender during the build (if any)
What consents are required and when they should be applied for
Whether the building quote encompasses all aspects of the build (consents, labour materials, mark-up, subcontractors, architects input and final designs etc.)
The time intended to complete the build

If you can be thorough with your due diligence before entering into a building contract and starting the build, it can help to reduce costs, aid the builders and ensure that no unnecessary delays/costs are incurred.

If you are using a builder, and the cost of the build is expected to be over $30,000 then the builder is required to provide you with a building contract. There are four groups of documents your builder needs to provide you with:

A written building contract to be signed and dated before the work is carried out
A Ministry of Business Innovation and Employment (“MBIE”) consumer protection checklist
An MBIE disclosure document
Copies of the various documents to be given to you at the end of the job (insurance policies, guarantees, warranties, maintenance requirements)

Your builder should advise you to review the documents before signing and you should also take the documents to a legal professional to review. Given the size of the documents and language that can be used, some of the terms and conditions can be hard to grasp if it is your first time. As such, the documents should be reviewed by an expert who can explain the contract to you and advise whether the contract terms are beneficial or detrimental to your intentions.

A building contract can vary depending on the builder. Therefore it is important for the contract to be reviewed to ensure compliance with building regulations and to ensure that the contract contains the necessary clauses to protect your interests. The http://www.building.govt.nz website has a standard checklist for you to review, which lists all the clauses you should expect to see in your own contract. This is subject to the type of role played by the builder.

Issues that arise in a building dispute are usually to do with the cost, miscommunication and cost of variations, quality of the finish and what responsibilities each party had during the build. These issues are often a result of poorly drafted contracts that lack key details and the necessary clauses. Taking your time to understand and amend (if needed), any documents required for the build will go a long way to avoid such issues.

Given the investment made in a build, it is highly recommended that you review the contract with us so we can raise any red flags in the contract before it is signed. “Plan for the worst, hope for the best”.

Following the Christchurch Terror Attack of 15 March 2019, changes to the gun laws in New Zealand have been made. The Arms (Prohibited Firearms, Magazines, and Parts) Amendment Bill came into force on 12 April 2019. The aim of the Bill is to tighten gun control in New Zealand by amending the Arms Act 1983.

The most significant change the Bill makes is to prohibit semi-automatic firearms, magazines, and parts that can be used to assemble prohibited firearms. Semi-automatic firearms (other than those that are capable of only firing up to 0.22 calibre cartridges and hold no more than 10 cartridges), as well as semi-automatic shotguns that can hold no more than five cartridges, are now prohibited. The Bill also classifies pump-action shotguns that can hold more than five cartridges and those that can be used with detachable magazines as prohibited firearms.

An amnesty from prosecution is in place for the possession of prohibited parts, magazines, and firearms until 20 December 2019. This allows anyone in possession of these now prohibited items to hand them in to the Police. This can be done anonymously, although anonymous handovers will not be eligible for the buy-back offer in place throughout the amnesty period. The amnesty period also allows for handover of prohibited firearms, and non-prohibited firearms if desired, even if a valid firearms licence is not currently held.

Applications can be made to the Police for permits to possess prohibited items. The limited exemption categories include employees of the Department of Conservation involved in operations for the control of wild animals or wild pests and persons who hold a concession granted by the Minister of Conservation to undertake wild animal recovery operations. You may also apply for a permit to possess a prohibited firearm if the item has special significance as an heirloom or memento.

With the Bill being introduced to Government on 1 April 2019, just over two weeks on from the terror attacks, and Royal Assent being granted on 11 April 2019, concerns were raised at the speed at which the Bill was progressed. In fact, the reason behind the sole opposing vote to the changes was because of the speed at which the law was being rushed through. Politicians in reply to this concern have promised that there will be further laws and changes to come.

A sole trader is a common ownership structure that can be used to operate a small business. The main operator of the business may be one person, supported by a family member such as a spouse. Operating a business utilising this structure may be risky if the right asset protection and insurance are not in place to support the sole operator. This is because the sole trader is personally liable for any business debt or loss, including taxes.

For debt owing to a creditor, a claim can be made against the personal assets of the sole trader, including funds in bank accounts, and the personal family home. Liability on behalf of the sole trader will end when the sole trader has passed away unless a Will provides for the business to carry on.

Should the sole trader cease to operate their business, the Limitation Act provides that creditors have between six to 15 years to make a personal claim depending on the specific circumstances.

When borrowing funds there may be a linked personal guarantee from the sole trader. When the debt is repaid to the bank, the guarantee will remain in place unless the lending organisation agrees in writing for its release. Liability under the guarantee can continue onto the sole trader’s executors and assignors under their Will.

The difference between a sole trader and the structure of a limited liability company is that the latter is seen to be a separate legal entity from the shareholders of the company, who are its owners.

Liability on behalf of the shareholders of the company is limited to the amount of debt belonging to it in ratio to the shares held. If the shares haven’t yet been paid for in full, there is an element of exposure of liability on the unpaid amount. If the company goes into liquidation and assets are sold, creditors are paid back first. Shareholders have a right to a share in the balance of funds remaining.

Directors can still be held personally liable for the company debt in certain circumstances including if the company has been trading while it is insolvent or if the directors have given personal guarantees.

It is important for directors and shareholders to remember to have personal guarantees released in writing when changing lending institutions or retiring from the company.

Personal liability on behalf of directors may also apply where the director(s) have not acted in the best interest of the company and may have failed to act in accordance with the Companies Act.

If the company is acting in the capacity as an independent trustee of a family trust, the company’s liability can be limited to an amount equal to the value of the assets of the trust that are in the hands of that trustee company available to meet the trustee company’s liability from time to time. The relevant time for the purposes of assessing the value of the assets of the trust will be the time of enforcement of any judgment or order against the trust.

It is important when going into business to receive proper advice regarding the ownership structure and consider how much risk and liability you are willing to accept when deciding to become a sole trader, director and or shareholder of a limited liability company. Please contact one of the team at Gault Mitchell who will be able to assist you with navigating these issues.