If you’ve looked at your Companies Office registration since December 2013 you’ll have seen that (without having to do anything) your company now has a 13 digit New Zealand Business Number (NZBN) as well as its usual company registration number. The Companies Office allocated the NZBN to all New Zealand companies as part of the Government’s Better Public Services programme. Ultimately, the NZBN system is designed to apply to all businesses and government agencies and assist them in interacting efficiently, although currently the NZBN only applies to limited liability companies.
The 13 digit NZBN is derived from GSI NZ, a not-for-profit organisation. The Government has purchased 10 million Global Position Numbers using the GS1 global number standards for issue by it, not by GSI NZ. The NZBN primarily identifies the business or entity. When used for New Zealand limited liability companies the first two digits are 94, identifying the company as a New Zealand entity, the next ten digits are the business entity id and the last digit is a system check.
Looking ahead, the rationale for the NZBN is to remove the need for New Zealand business entities to have separate accounts with Government agencies so that across their data bases the business will have a common identifier. As a company updates its details for the purposes of one data base it will automatically update other Government data bases. The NZBN is a first step in that direction but is limited. Taking the IRD as an example, the NZBN only applies to companies not other business taxpayers and it does not replace IRD, GST and ACC numbers.
Globalisation is forcing an extension of information sharing between Government departments and agencies in New Zealand and internationally. With the continuing expansion of electronic communications across all media, this trend can only continue, with the NZBN being simply the first step towards one number fitting all business operators whatever entity or form that they may use.
Public Consultation
Around half of New Zealand businesses are sole traders, partnerships and trusts. Legislative change is needed to extend the NZBN to these other entities. Some of the questions the Government is seeking feedback on include:
Consultation opens on 11 March 2014 and closes at 5pm on Friday, 11 April 2014. Go to http://www.mbie.govt.nz/what-we-do/better-public-services/nzbn/nzbn-consultation
For more information on this see the Companies Office website, www.business.govt/companies, the Ministry of Business, Innovation & Employment website, www.mbie.govt.nz, and the GS1New Zealand website, www.gs1nz.org.nz.
The cry is for the New Zealand to move from a commodity to a research and development based economy. There are some signs that this is happening (see the latest Research and Development Survey from Statistics New Zealand (www.stats.govt.nz). Although they are often lumped together, research and development (R & D) are different concepts, research being in the nature of a discovery and development being its pre-commercial “polishing”. R & D is driven by demand for new products and services and to prevent obsolescence.
R & D is expensive. Who should do it and who reaps its benefits is sometimes controversial. In practice, governments recognise that when businesses spend money and create private R &D benefits they enter the knowledge pool through disclosure or the expiry of protection.Therefore, one policy behind R & D incentives is to compensate for those spillover effects.
There are tax incentives for R & D. An example is the deduction of research or development expenditure under s DB 34 of the Income Tax Act 2007 (ITA 2007) using an international accounting standard to define R & D (NZIAS 38). The deduction is only useful if the expenditure is offset by delayed or non-existent income. .This is the usual case for start-up companies.
Another example was the R & D tax credit under subpart LH of the ITA 2007. Broadly it followed Australian, Canadian and United Kingdom models in giving a 15% tax deduction for R & D qualifying expenditure or an equivalent cash payment if income did not exist. Defined eligible activities had to follow the scientific method of hypothesis tested by experiment involving the resolution of a scientific or technological uncertainty or novelty and resulting in a new product or service. Some supporting activities were included. Other activities were expressly excluded.
The tax credit was only in force for a short time and was discontinued, apparently, for fiscal reasons and disquiet about the underlying policy of incentivising R & D on a broad basis.
The government then moved back to direct funding models through government agencies. They require applicants to pre-apply for and justify R & D funding rather than applying for assistance after R & D costs have been incurred.
Very recently, the government has floated a new mode “all comers” model (see www.taxpolicy.ird.govt.nz, officials’ issues paper, R & D Tax Losses, July 2013).The key points of the proposal are:
Rules around how the R & D definition is applied link back to the older tax credit scheme which excluded certain expenditures and activities.
Some expenditure (such as interest) is excluded for the purposes of determining total qualifying R & D expenditure. Likewise, some activities are also excluded such as research in social sciences, arts or humanities, marketing activities, compliance related work and cosmetic or stylistic product changes, to give only a few examples. However, even though the proposed R & D activity is based around a wider NZIAS standard, as with supporting activities under the previous tax credit, there still could be a problem in determining whether wage and salary expenditure truly relates to R & D.
Notably, the new proposal excludes “the late stages of software development (for example coding)”. This is important given current emphasis in New Zealand upon developing “weightless” businesses based on software rather than the exploitation of natural resources. Software R&D has caused serious issues in overseas tax jurisdictions and this is probably the reason for referring to coding as non-core research activity.
Software development wage and salary expenditure that comes within the R & D definition would still seem to qualify. The extent to which wage and salary expenditure on computer science or information technology that supports qualifying R & D might be an issue (as for the previous tax credit around core and supporting activities).
The proposal is intended to be simple. But any scheme will require the applicant to provide significant validating information to the IRD. The direct and indirect costs of doing so are high. Chapter 6 of the proposal outlines a screening process.
However, this is after the event. Should a precondition to screening and accessing the cashout be evidence of significant planning and record-keeping disciplines? These are key indicators of real R & D using standard scientific methodologies.
The Court of Appeal recently decided Strategic Finance Limited (in receivership and liquidation) v Bridgman & Sanson and CIR [2013] NZCA 357, 9 August 2013. It defines the meaning of accounts receivable under Schedule 7 of the Companies Act (“CA 1993”). It also has implications for the approval of corporate compromises under Part 14 of the CA 1993.
The Commissioner as a creditor
Under ss 6 and 6A of the Taxation Administration Act 1994 the Commissioner has a general obligation to collect tax debt from a taxpayer company (see generally, IS 10/07, Care and management of the taxes covered by the Inland Revenue Acts). The Commissioner is a creditor who is involuntary (tax is an imposed obligation, see CIR v Atlas Food and Beverage Limited (2010) 24 NZTC 24,096, 24,103 at [24]): implacable (the Commissioner must collect tax); and unsecured (tax debt cannot be secured in advance).
The Commissioner is an unsecured creditor for income tax debt. For GST and PAYE debts the Commissioner is also a preferred creditor.
The Commissioner’s statutory preference
Her statutory preference is set out in cl 1(5) of Schedule 7 of the Companies Act 1993 (“CA 1993”).
Under cl 2(1)(h)(i)(A) of the Schedule, the Commissioner’s GST and PAYE claims have, by virtue of that statutory preference, effective priority in a limited asset pool of accounts receivable and inventory. The priority is over any secured creditor’s security interest under the Personal Property Securities Act 1999. However, the stautory preference does not confer an effective priority on the Commissioner ahead of any security interest under the PPSA held over those assets by (1) a trade creditor as a purchase money security interest (or PMSI) or (2) a financier under a debt factoring arrangement.
The statutory preference and the preferred asset pool
In respect of inventory (finished stock or raw materials) a PMSI may be over discounted assets if sold on a fire sale basis.
In respect of accounts receivable, is the term a narrow, “book debts” concept or does it go further and include “all money”, from whatever source and however held, owed to the company at the time of liquidation?
The “book debts” approach was taken in CIR v Northshore Taverns (in liquidation) (2008) 23 NZTC 22,074 (HC). The “all money” approach was taken in Burns & Agnew v. CIR (2011) 10 NZCLC 264,885 (HC). (For a convenient summary see Barrett, “Defining Accounts Receivable” NZLawyer, Issue 54, 20 July 2012).
Accounts receivable and the Strategic Finance case
The issue in the Strategic Finance was whether the following four categories of funds were a company’s accounts receivable: refunds, solicitors’ trust account money, bonds and a GST refund. (There were no PMSI interests, see [4], [9] and [34], fn 39):
The Court held that:
The practical points from the case for the Commissioner’s preference are that while the company may have inventory of little or no value it will have accounts receivable rights over any money owed to it when it goes into liquidation, such as bank accounts ([102]).
Part 14 of the Companies Act 1993
Corporate compromises under Part 14 of the CA 1993 allow an insolvent taxpayer company to repay some of its debt on a final basis by agreement with the majority of its creditors. (For background or more detail on the procedural and related aspects of what follows see Finnigan, “An alternative to bankruptcy – Part 5 proposals” NZLawyer, Issue 182, 20 April 2012; Brennan, “Alternatives to liquidation and bankruptcy” ADLS Seminar Paper, September 2011 available on the Blackwells website, www.blackwells-law.co.nz, under Resources; and the detailed material of Robert Walker, “Part XIV of the Companies Act: Compromise Theory and Practice”. www.robertwalker.co.nztechnical_material).
The board of directors, or the liquidator, receiver or a creditor of the company can initiate the compromise and in doing so encourage the Commissioner to do a deal with the taxpayer inside or outside the compromise. If so, some tax debt is collected by the Commissioner and the company lives to fight another day as a compliant taxpayer. (For a critical view of the Commissioner’s ability to do a deal and the balance between individual taxpayer rights and wider taxpayer consistency principles see Denham Martin, “Honest taxpayer need advocates and real rights” NZLawyer, 12 July 2013, Issue 212).
Creditor classes for corporate compromises
If a class is identified, the compromise is conditional upon both the majority in number and a supermajority of 75% in value of all creditors in that class (s 230 and Schedule 5, cl 2 CA 1993).
The class identification test is whether there is a community of interest compelling the separation of creditors so that they are fairly reflected in the votes on the compromise. (For more detail see Heath & Whale on Insolvency Law (LexisNexis on line), Chapter 15, part 14 and Whale, Josling, “An Analysis of the Rights Test in Determining Classes of Creditors” (2010) 18 Insolvency LJ 110. For a convenient discussion see Wilder Transport Limited v CIR (1999) 19 NZTC 15,120 (HC) at 151,124-151,126).
Commissioner’s effective veto power over the compromise
As noted, the Commissioner is a preferred, unsecured creditor for GST and PAYE. The Commissioner has an effective veto power over the compromise in cases where the Commissioner is recognised as the sole or largest by value preferential creditor if the compromise is made conditional upon the approval of all classes .
But how real is the preference justifying the Commissioner’s treatment as a separate preferential creditor class member if in substance the Commissioner’s economic position is no different from that of unsecured, unpreferred creditors?
Atlas Food and Beverage
In CIR v Atlas Food and Beverage Limited (2010) 24 NZTC 24,096 (HC) those designing the compromise placed the Commissioner in the secured creditor class on the basis that the preference over accounts receivable and inventory meant that she was effectively a secured creditor. In dealing with the contrary argument the Court said at 24,104:
[30] I find it difficult to assess the value of prior position in relation to the receivables and inventories of those companies [the companies subject to the proposals]. Atlas, as the holding company, was unlikely to have significant stock or receivables, and I would expect the three bar/restaurant companies to operate on a cash basis. The stock, liquor in particular, would ordinarily be subject to tight ownership provisions in favour of the supplier. This indicates that the Commissioner’s prior claim was of limited significance or value. This in turn suggests that he lacked any community of interest sufficient to be grouped with secured creditors. If placed alone in a preferential class the Commissioner would have recorded a no vote. I am least tentatively of the view that the submission for the Commissioner is right-but as will become apparent there was material irregularity in other respects in any event. [Emphasis added]
This suggests that the accounts receivable and inventory were not a real security. If so, there should be no separate class for the Commissioner. If “inventory” is illusory and “accounts receivable” is defined restrictively, then that argument gains strength.
The importance of Strategic Finance
But the wide interpretation of accounts receivable by the Court of Appeal in Strategic Finance summarised above weakens that argument.
As a result of the decision, “accounts receivable” is now a greatly expanded asset pool. The Commissioner’s interests diverge from those of both unsecured creditors (who lack any preference or security) and secured creditors, other than PMSI holders and debt factoring financiers, (who effectively rank behind the Commissioner). Therefore, as a result of the Strategic Finance decision, there is a greater economic justification for distinguishing the Commissioner from both unsecured and secured creditors and identifying her as a member of a separate class with potential veto rights over corporate compromises.
The preceding comments are all based on the existence of the Commissioner’s preference for tax debt. If it did not exist the class problem would go away. However, that’s a question for another day (see the Law Commission’s recommendations on the abolition of the preference in Study Paper 2, Priority Debts in the Distribution of Insolvent Estates, October 1999).
1,501 Words
Richard Osborne, Consultant, Wynyard Wood, Lawyers and Notaries
My thanks to Rob Brennan, Consultant, Blackwells for helpful comments on this article. Errors and omissions are my own.
Most people agree recording an agreement in writing at the outset of an arrangement is pragmatic. The Residential Tenancies Act 1986 (“the Act”) requires landlords and tenants to have a written tenancy agreement. If a written agreement does not exist a verbal agreement may be agreed by the parties, or failing that the Act sets out minimum rights and responsibilities of a landlord and tenant.
Tenancy agreements can be for a fixed period or an indefinite period of time (a periodic tenancy). Tenancy agreements most commonly allow a family the exclusive use of an entire house, however, boarding house tenancies grant an individual or couple the exclusive right to sleep in specific room of a house for a period greater than 28 days and record the services provided by a landlord to a boarder, i.e. internet access, meals, washing etc.
A tenancy can end by mutual agreement between a tenant and landlord at any time, however, agreements also end because of unforeseen circumstances, a breach of the tenancy agreement, or breakdown in the relationship between landlord and tenant.
If a tenant wishes to end a periodic tenancy they can write to the landlord and end the tenancy on 21 days notice, or shorter period if the landlord agrees. A fixed period tenancy cannot be terminated by a tenant, although it can end by agreement with the landlord or an assignment of the tenancy to another person (with the landlords consent).
Any notice to end a tenancy should include the address of the property the tenant wants to vacate, the date they want to move out, and be signed. As the Act was written in 1986 it does not allow for email notification, however, those are widely accepted by landlords these days.
In most cases a landlord will not be able to terminate a tenancy with less than 90 days notice in writing. A landlord can provide a tenant with notice to vacate a property in 42 days if they are selling the property and the purchaser does not want tenants living in the property, the landlord or a member of the landlords family are going to live in the property, or the property is normally used for employee accommodation and is needed for that purpose again.
If a tenancy relationship breaks down, or a dispute about the terms of a tenancy arise the matter can be referred to the tenancy tribunal where parties normally represent themselves. Each party may have support people, evidence and witnesses to present to an adjudicator who will make a possession, monetary, or work order recorded in a “Tribunal Order”.
Residential tenancy issues are administered by the Department of Building and Housing. Their website is a useful resource to obtain standard tenancy agreements, tenancy tribunal forms, and general advice about tenancy relationships. If you have unanswered questions about your situation contact your local solicitor to discuss.
One of the more interesting employment relationship issues played out in the media recently was Ms Parata “the bible carrying employee” and Sky City Casino.
Employment law can be very colorful, employees have been fired for having sex with co-workers on overnight business trips, and liberties taken under the mistletoe at work Christmas functions. Despite the sensationalist media coverage around this case, however, the legal issues are quite ordinary and a common occurrence for business owners.
Ms Parata worked in Sky City Casino’s front-of-house and allegedly breached Sky City’s uniform standards by carrying a non-work item while she was working. Sky City’s uniform standards prohibit employees in customer service roles from carrying personal items such as iPods, books, and mobile phones which might interfere with their full engagement with customers.
Ms Parata was observed by another employee carrying her bible in the workplace and Sky City sent her a letter informing Ms Parata that “the company is considering disciplinary action” in relation to the alleged incident.
Employers are able to require their employees to comply with reasonable standards of behavior in the workplace. Those standards are typically outlined in an employment agreement. Workplace policies can also outline expected behavior. When an employee breaches the terms of their employment their actions are classified as misconduct or serious misconduct.
The media made a lot of column inches out of the fact that Ms Parata may have lost her job at the conclusion of any disciplinary action that transpired. That is illusionary, Ms Parata’s actions were always misconduct. Misconduct is typically behavior that is less serious, but can still result in the loss of employment if the employee does not change their behavior after receiving numerous warnings by an employer that their conduct is unacceptable. Typically employees receive one warning; a second, final warning, and if the misconduct continues may face a disciplinary process that could result in the loss of employment.
Serious misconduct goes to the core of an employment relationship and can result in the immediate loss of employment if the employer finds that the alleged behavior did occur after a fair disciplinary process is carried out. Examples of serious misconduct are normally listed in an employment agreement and may vary from employer to employer. Common examples include theft, sexual harassment, and willful damage to company property.
While the parties have recently resolved their dispute by Sky City “folding” its disciplinary action and making an exception to its front-of-house uniform policy in Ms Parata’s case, this is can be seen more as a response to the bad publicity Sky City was receiving than the strength of its legal position.
It looks like Sky City has correctly understood that, even in an employment relationship, you got to know when to hold ‘em and know when to fire em’.
Phone: 09 969 0126
Email: manager@wynyardwood.co.nz