Operating a business is a challenging endeavour: you need to satisfy
your customers, manage your staff, pay your bills, collect your debts
and ultimately make a profit. You also need to comply with a wide
range of business laws and regulations. The number of laws and
regulations affecting your business can at times appear overwhelming.
However, like many business challenges, meeting your legal obligations
is a challenge that can be managed with careful planning.
Your business should have plans in place to ensure that it complies with
its legal obligations. There are a number of reasons why it is important
for your business to put a legal compliance plan in place. These
• Limiting your personal liability: you can become personally liable
if the business you own or operate fails to comply with its legal
• Avoiding penalties for non-compliance: penalties for noncompliance
can be severe. Individuals can face significant fines or
imprisonment and businesses can also face significant fines or can
be closed down;
• Avoiding unnecessary costs: the costs of defending any legal
action arising from non-compliance can be significant, both in
terms of the financial cost and the staff time which can be lost.
The first step when developing a legal compliance plan is to identify the
business laws that apply to your business. The purpose of this guide is
to assist with this process by providing a general outline of the business
laws that affect most New Zealand businesses. These business laws
• Setting up a business;
• Employing staff;
• Dealing with customers;
• Dealing with competitors;
• Dealing with land; and
• Dealing with the wider community.
In addition to these general business laws, there are a range of laws
that affect only particular businesses. As a result, the information in this
guide cannot replace the detailed legal advice you can receive from
your Lawlink lawyer.
Setting up your business
One of the first decisions you need to make when you decide to set
up in business is what legal structure you will use. Generally, the options
available to you are:
• Form a company under the Companies Act 1993;
• If you plan to trade on your own, trade personally; or
• If you are entering business with other people, trade through a
This section reviews each of these options.
Trading through a company
If you are setting up or operating a business, you should consider
trading through a company. Trading through a company limits your
Because a company has the ability to act and enter
into transactions like a natural person, business obligations are incurred
by the company itself. If the company fails to meet those obligations,
it will generally be the company itself, rather than the shareholders
or directors of the company, who will be liable for those defaults. In
contrast, if you operate your business in your personal name, you will be
personally liable for all of your business obligations.
Although a company structure limits the personal liability of the owners
and managers of the company, some personal liabilities remain.
Shareholders are liable to pay for their shares. Directors of a company
potentially face greater personal liability than shareholders as they
have obligations under the Companies Act 1993 which, if breached,
can result in unlimited personal liability. However, provided that they
comply with their obligations under the Companies Act, directors do
not have personal liability for the obligations of the company.
Requirements for forming a company
For a company to be formed it must have:
• A name;
• At least one share and one shareholder;
• At least one director, at least one of whom must be resident in
New Zealand or in an “enforcement country” (countries named in
• A physical address for service and for the company’s registered
office in New Zealand.
The constitution of a company establishes the rules by which a
particular company will operate. These rules govern such matters as the
appointment and removal of directors and the processes required for
the transfer of shares.
Companies do not need to have a constitution. A company without a
constitution will simply be governed by the standard provisions of the
Companies Act. By adopting a constitution a company has the ability
to modify, restrict or add to the requirements of the Companies Act.
Constitutions can be particularly useful if you want to:
• Set the minimum number of directors a company should have;
• Place restrictions on share sales;
• Permit insurance and indemnity for directors; or
• Allow company financing of share purchases.
Directors of companies are responsible for the day-to-day
management of the company. The Companies Act allows directors
flexibility to manage a company while at the same time ensuring that
they are personally accountable for their actions. The definition of
“director” not only includes those named as directors, but also those
who effectively exercise the powers of directors or those who influence
Directors have duties under the Companies Act to:
• Act in good faith in what they believe, on reasonable grounds, are
the best interests of the company;
• Exercise their powers for a proper purpose;
• Not act in a way that contravenes the Companies Act or the
company’s constitution (if it has one);
• Not allow the company’s business to be carried on in a manner
likely to create loss to creditors;
• Not agree to the company incurring an obligation unless the
company can reasonably meet that obligation;
• Exercise the care and skill of a reasonable director in the same
• Disclose any material financial interest or benefit that they (or their
relatives) have in any transaction with the company;
• Generally not disclose information they hold as a director;
• Disclose certain details if they buy or sell the company’s shares.
A director who complies with these duties should not be held personally
liable for their decisions and activities as a director.
Who can be a director?
The Companies Act provides that a person cannot be a director if they
• Under 18 years of age;
• An undischarged bankrupt;
• Prohibited from directing, promoting or participating in
the management of a company or of an incorporated or
unincorporated body under any statute;
• Prohibited from being a director or promoter of, or taking part in
the management of an overseas company;
• Subject to a property order made under the Protection of Personal
and Property Rights Act 1988; or
• Unauthorised to act as a director of the company by the
Directors are accountable to the shareholders of their company.
In some cases, such as when a company issues shares or is to be
amalgamated, directors must certify in writing that they have met
the requirements of the Companies Act. Companies must keep these
certificates and they must be available for shareholders to inspect.
Shareholders’ rights and remedies
Shareholders are the owners of the company. Shareholders’ rights
under the Companies Act include:
• The right to appoint and remove directors;
• The right to adopt, alter and vary a constitution;
• The right to be bought out: dissenting minorities can force a
company to buy their shares when they vote against major
transactions or certain amendments to the constitution or the rights
attaching to their shares;
• The right to information: a shareholder may make a written request
to the company for information;
• The right to inspect records: specified company documents must
be available for inspection;
• The right to question management: the board of directors takes
responsibility for managing the company but shareholders can
question management at shareholders’ meetings;
• The right to approve major transactions: a company must not enter
into a major transaction (as defined in the Companies Act) unless it
is approved by a special shareholders’ resolution;
• The right to sue a director: a shareholder may bring an action
against a director for a breach of duty owed to that shareholder;
• The right to a remedy for prejudicial or oppressive conduct:
shareholders have a right to a remedy for prejudicial or oppressive
conduct by the company.
The solvency test
The solvency test is one of the key features of the Companies Act. This
test provides that:
1. A company must be able to pay its debts as they become due in
the normal course of business; and
2. The value of the company’s assets must be greater than the value
of its liabilities.
A company must pass the solvency test when it:
• Buys out a minority shareholder;
• Gives financial assistance for the purchase of its own shares;
• Redeems or purchases its own shares;
• Approves discount schemes for shareholders;
• Amalgamates with another company;
• Makes distributions to shareholders; or
• Reduces shareholder liability.
If a company is going to take any of these steps, the directors must be
satisfied that the company will pass the solvency test immediately after
the step is taken.
Information required to be held by the company
The Companies Act requires that a company keep and maintain
various company records at its registered office. These records must
• The company’s constitution (if any);
• Directors’ resolutions and certificates;
• Shareholders’ resolutions;
• Financial statements;
• Accounting records;
• An interests register (where the interests of the directors in
company transactions are recorded); and
• A share register (the official record of all shareholding in the
company including any share transfers, issues, repurchases or
Every year a company is required to file an annual return with the
Companies Office. This is essentially a snapshot of the current structure
of the company including the names and addresses of the company’s
directors and shareholders and the number of shares on issue.
If a company issues shares, adopts a new constitution, or the names or
addresses of its directors change, these changes must be reported to
the Companies Office. Shareholding changes may be updated either
as they happen or at the time of filing the annual return.
Some companies are also required to provide annual financial
statements under the Financial Reporting Act 2013.
The Companies Office website provides a fast and user-friendly
service to assist with the online registration and maintenance of
various company documents and records. This includes such things
as company incorporations, annual returns, changes to directors,
shareholders and addresses, and changes to the constitution.
If you decide not to incorporate a company, you can carry out your
business in your own personal name. In this way you can avoid the
cost and administration required to form and administer a company.
However, if you trade personally, you will have unlimited personal
liability for all contracts that you enter into and for any claims made
against your business. This can be a significant risk and most businesses
therefore operate through a company structure.
Trading in partnership
If you are entering business with others you could consider trading
through a partnership. Trading through a partnership is generally similar
to trading personally. Partners in most partnerships accept unlimited
personal liability for all contracts entered into by the partnership and for
any claims made against the partnership business. If you are a partner
in a business you therefore become personally liable not only for your
own actions but for the actions of your business partners as well.
If you want to become a partner in a business without incurring
unlimited personal liability, you may be able to establish a partnership
under the Limited Partnerships Act 2008. This Act offers an alternative
to a standard partnership by allowing one or more partners to limit
their liability. It has been designed to facilitate the development of
New Zealand’s venture capital industry by allowing investors to enter
partnership arrangements without incurring unlimited personal liability.
Partnerships are generally governed by specific partnership agreements
and the Partnership Act 1908. Limited partnerships must have a
partnership agreement that meets the requirements of the Limited
Partnerships Act 2008.
If you want to enter into business in either a general partnership or a
limited partnership, you should speak with your Lawlink lawyer to ensure
that an appropriate partnership agreement is put in place.
If you are establishing a new business you need to decide how you will
structure your business ownership. You can operate your business
through a company or you can trade personally, either alone or in
partnership with others. You may also be able to trade as a limited
partnership. Although the company structure is the most common
ownership structure, you should consult both your Lawlink lawyer and
your financial and taxation advisers as they will be able to help you
decide what is the most appropriate structure for your business.
When you have established your business, you may need to employ
people to help your business grow and develop. If you employ people,
you will be subject to a range of laws which govern all employment
relationships within New Zealand. This part briefly outlines the most
important of these laws for you.
Employment Relations Act 2000
The Employment Relations Act 2000 (the ERA) governs employment
relationships in New Zealand. The ERA establishes the legal rules
covering the negotiation and enforcement of employment agreements
as well as the processes required to resolve employment disputes.
The ERA recognises that employment relationships must be built on
mutual obligations of trust and confidence. The overriding principle
established by the ERA is that employers and employees must act in
good faith when dealing with each other. This good faith principle has
a broad application. It applies, for example, where parties, including
unions, are bargaining for a collective employment agreement
or where an employer is considering a restructure of its business or
following a disciplinary process.
The ERA recognises that employment agreements can be governed
by collective agreements or individual agreements. Employees have
the freedom to choose whether they want to be party to a collective
agreement or negotiate their own independent agreement. The ERA
sets out the different rules which apply to the negotiation of such
Under the ERA, union membership is voluntary, but employers have a
legal obligation to provide new employees with information regarding
any relevant union the employee can join. Where a new collective
agreement is being negotiated, the relevant union usually commences
this process, with the ERA governing aspects of the negotiation process
as well as setting out the powers a union has (such as access rights to
the workplace). In respect of individual agreements, these cannot be
based too closely upon a collective agreement (if such an agreement
exists), but the parties to an independent agreement may agree to
such terms as they see fit.
The ERA requires employers to:
• Have a written employment agreement with every employee;
• Observe the terms of its employment agreements;
• Pay correct wages, including new payment methods as set out in
the Holidays Act 2003;
• Keep accurate wage records;
• Provide employees with written information regarding services
available from the Ministry of Business, Innovation and Employment
to resolve employment relationship problems;
• Ensure that discrimination within the workplace is not occurring;
• Act in good faith, including being active in communicating with
employees to maintain a productive relationship, and where a
proposal is contemplated that may negatively impact on the
continuation of employment, to consult with potentially affected
Penalties can be awarded against an employer who fails to
disputes correctly. It is particularly important that you advise your
employees of their rights under the grievance procedures in the ERA.
If you are an employer, you need to follow the correct procedures
when dealing with your employees. In particular, in matters of discipline
and redundancy, you must be able to prove that your actions are
justifiable and procedurally fair.
To manage your obligations under the ERA, you should formulate your
own compliance programme. Your Lawlink lawyer can assist you with
this process. The benefits of a comprehensive compliance programme
• Helping you to develop and evaluate your human resource
• Helping you to identify your labour requirements for running your
business efficiently and profitably;
• Helping you to ensure your employees are engaged on
appropriate and certain terms;
• Lowering the risk of employees bringing personal grievance
• Helping to ensure employees are treated fairly, and the relationship
between the parties is good, which leads to confidence between
• Increasing the level of confidence unions hold in an employer,
which will assist in ensuring that valuable labour hours are not lost
on protracted disputes with unions;
• Helping to ensure that the right person is employed in the right job;
• Helping with staff performance review procedures and disciplinary
• Helping you to end employment relationships with minimal risk.
The ERA is one of the most significant business laws affecting the dayto-day
operation of New Zealand businesses. It is therefore important
that you understand your obligations under the ERA and establish a
compliance programme to ensure that you meet those obligations.
Lawlink includes a large number of lawyers who specialise in providing
advice in this complex and significant area of the law. If you are an
employer or are planning on employing staff, you should contact your
Lawlink lawyer to discuss how the ERA will affect you and your business.
Health and Safety in Employment Act 1992
The Health and Safety in Employment Act 1992 (the HSA) also has
a significant impact on employers. It is designed to “promote the
prevention of harm to all persons at work”.
Your obligations under the HSA
If you are an employer you must:
• Have procedures for identifying and assessing hazards;
• Eliminate, isolate, or minimise significant hazards;
• Keep employees informed of existing hazards, emergency
procedures and where to find and use protective gear and safety
• Provide adequate training and supervision;
• Investigate the cause of any work accidents;
• Take all practicable steps to ensure employees’ actions or
inactions do not harm any other person in the workplace;
• Provide reasonable opportunities for employees to parti
• Avoiding adverse publicity.
Your health and safety compliance programme should include:
• A workplace health and safety manual; and
• Regular health and safety audits.
Your health and safety manual should clearly state that you give
health and safety in the workplace a high priority. It should also outline
the procedures for identifying hazards and eliminating, reducing or
minimising them, and should emphasise that this is the responsibility
of every employee. Your manual should also identify any particular
hazards and give warnings about those hazards, as well as setting out
emergency procedures, including how to deal with an accident.
However, it is not enough simply to have a good health and safety
manual. You should continually assess health and safety in your
workplace. The second element in every compliance programme
should therefore be regular health and safety audits. Audits will assist in
reducing the number of hazards in your workplace as well as minimising
Health and Safety reforms
The Health and Safety Reform Bill (“the Bill”) proposes a number of
significant changes to health and safety law. At the time of publication
it is expected that these changes will come into force in 2015. The Bill is
intended to reduce the number of workplace incidents by introducing
new definitions and widening the scope of responsibility with regard
to health and safety within an Employer organisation. There will also
be increased duties to identify hazards and risks. Prior to the Bill being
enacted, employers will need to ensure that any health and safety
compliance programme and policies provide for those increased
Employers who fail to meet their obligations under the HSA can face
significant fines and even imprisonment. If you are an employer you
should establish a vigorous health and safety compliance programme
to protect your employees from injury and to protect yourself from legal
liability. This programme should include developing a health and safety
manual as well as establishing a regular audit process.
If you have any questions about your obligations under the HSA,
establishing a health and safety compliance programme, or the health
and safety reforms, you should contact your Lawlink lawyer.
Other important legislation for employers
If you are an employer, you should also be familiar with the following
Minimum Wage Act 1983: Every employee aged 16 and over is
entitled to the prescribed minimum wage, regardless of whether a
lower wage is negotiated in their employment agreement. This Act
requires the Minister of Labour to review the prescribed minimum
rate each year.
Parental Leave and Employment Protection Act 1987: Employees
have minimum entitlements to parental leave, including paid
parental leave, and certain preferential rights to re-employment. If
an employment agreement gives lesser entitlements, that part of
the agreement will have no effect.
Holidays Act 2003: Every employee is entitled to a minimum of four
weeks’ paid leave each year, plus 11 specified statutory holidays.
An employer and an employee cannot agree to restrict or reduce
Immigration Act 1987: If you are an employer you must ensure that
all of your employees are New Zealand citizens or have residence
permits or work permits or limited purpose permits granted for the
purposes of employment.
Smoke-free Environments Act 1990: As an employer you must take
all reasonably practicable steps to ensure that no person smokes
at any time in your workplace.
Wages Protection Act 1983: If you are an employer you cannot
make any deduction from your employees’ wages or salary
without the written request or consent of the affected employee,
which that employee may revoke at any time.
KiwiSaver Act 2006: Employers are required to make compulsory
contributions towards employees’ KiwiSaver savings. An employer
can either elect to pay KiwiSaver contributions in addition to an
employee’s remuneration or can take a ‘total remuneration’
approach (total remuneration package is inclusive of KiwiSaver
If you employ staff in your business you need to understand your legal
obligations as an employer. You have significant obligations to your
employees under the Employment Relations Act 2000, the Health and
Safety in Employment Act 1992 and a wide range of other related
legislation. To ensure that you comply with these obligations you should
carry out a complete review of your employment practices and
establish a regular review process.
Dealing with your
Every business has customers. Just as your employment relationships are
regulated by the law, so too are your relationships with your customers.
This part will briefly outline the most important of these laws for you.
Consumer Guarantees Act 1993
If you are involved with providing goods or services to private
consumers (as opposed to other businesses) you need to understand
and comply with your obligations under the Consumer Guarantees Act
1993 (the CGA). The CGA gives private consumers remedies against
manufacturers, importers and distributors of goods (rather than just
against retailers). It implies statutory quality guarantees into the supply
of both goods or services.
The CGA establishes the minimum guarantees which you must provide
to your private customers. If you provide goods to consumers, these
guarantees include guarantees that:
• You have the right to sell the goods you are selling;
• You are able to give clear title to the goods (i.e. you guarantee
that the goods are not subject to any security interest);
• The goods are of an acceptable quality;
• The goods are fit for their purpose;
• The goods match any description or sample you have provided;
• The goods will be delivered as agreed with the consumer or, if no
time has been agreed, within a reasonable time.
If you provide services to consumers, you must provide a guarantee
that your services will be:
• Carried out with reasonable care and skill;
• Completed within a reasonable time;
• Fit for their purpose; and
• At a reasonable price where the price is not determined by, for
example, the contract.
These guarantees apply to all sales of goods and services covered
by the CGA, including sales by auction and internet transactions. If
you fail to meet your obligations under these guarantees you can
become liable for damages. These damages could include the cost
of replacement goods or services, incidental costs incurred by your
customer (e.g. travel expenses and costs of rectifying damage caused
by your defective goods), or the profits lost by your customer as a result
of the defective goods or services you supplied.
You cannot contract out of the minimum guarantees established by the
CGA except for certain business to business transactions. If you try to do
so you can face a fine up to $200,000 for an individual or $600,000 for a
company. You may be liable even if your attempt to contract out of the
required guarantees is unintentional.
Reservation of title clauses
Reservation of title clauses (sometimes called Romalpa clauses) are
a common feature of contracts for the supply of goods. Where a
purchaser is a consumer and the goods are of a kind covered by the
CGA, these clauses can only be enforced if certain procedures are
followed, including obtaining the consumer’s signature. Consequently,
if you want to include reservation of title clauses in your contracts
with customers, you need to ensure that your contract terms comply
with the CGA and are signed by your customers. You will also need to
consider registering your rights under the Personal Property Securities
Act 1999 (an Act considered elsewhere in this guide).
Your Consumer Guarantees Act compliance programme
If you manufacture, import, distribute or supply goods or services you
need to take steps to avoid or minimise the possibility of breaching
the CGA. The first step is carry out a compliance audit and a check of
your sales documentation. This includes checking your terms of trade,
labelling and packaging. If you are a retailer, you should also check
your “upstream” supply contracts to ensure you can pass liability for
defective goods back to the manufacturer or distributor. Your Lawlink
lawyer can assist you with carrying out these checks.
Establishing a compliance programme will also help to ensure that:
• If you can contract out of any of the provisions of the CGA, you do
• Any limitation or exclusion of damages clause you include in your
contractual documents is enforceable; and
• Any reservation of title clauses you need are effective.
What about goods or services you supply to other businesses rather
than private consumers?
The Sale of Goods Act 1908 applies to the sale of goods not covered
by the CGA. It implies conditions as to title, quality and fitness of goods
into contracts for the sale of goods. If you are selling goods to other
businesses you must have the right to sell the goods and the goods you
sell must be fit for their purpose and of merchantable quality. These
obligations are not as extensive as those imposed by the CGA but are
Fair Trading Act 1986
The CGA covers your obligations to private consumers who purchase
goods or services from you. The Fair Trading Act 1986 (the FTA) is much
broader in scope and governs your relationships with every person or
business you engage with in the operation of your business.
The FTA is designed to encourage fair business practices. It prohibits
misleading and deceptive conduct, false representations, and unfair
practices. More recent changes cover:
• online sales (traders must make clear when they are selling in
• additional disclosure obligations for businesses offering extended
• prohibition of unsubstantiated representations – these are
representations a person makes without reasonable grounds for
them irrespective of whether the representation can be proved to
be false or misleading; and
• prohibition of “unfair terms” in standard form consumer contracts.
A court may declare a term “unfair” if it is satisfied that the term:
– would cause a significant imbalance in the parties’ rights
– is not reasonably necessary to protect the legitimate
interests of the party who would benefit from it; and
– would cause some detriment (whether financial or
otherwise) to the other party.
The FTA also deals with consumer information, product safety standards
and the sale of unsafe goods and services. Businesses cannot contract
out of their obligations under the FTA in their dealings with consumers
but contracting out is sometimes possible for business to business
Enforcement and remedies
If you fail to meet your obligations under the FTA you can face
significant penalties. These include:
• Monetary penalties (up to $200,000 for an individual and $600,000
for a company);
• Management banning orders preventing persons from being
involved in management; and
• Court injunctions to prevent further infringements from occurring.
A business that is convicted of an offence may also have to:
• Publish information (e.g. to clarify misleading advertising);
• Publish corrective statements;
• Provide replacements or supply parts; or
• Refund money and return goods.
You can face these penalties following legal action by your customers
or business associates or following legal action by the Commerce
Commission (the legal authority established to enforce the FTA and
other related business laws). However, courts will often impose a lower
fine or penalty if they are satisfied the business has tried to operate an
effective compliance programme.
Your Fair Trading Act compliance programme
You are legally obliged to comply with the FTA. You also have a
commercial interest in making sure your competitors comply with it. It is
therefore important that your employees know what the FTA requires.
You should therefore establish a compliance programme to ensure that
your staff understand and comply with their obligations under the FTA
and can identify breaches of the Act by your competitors.
Privacy Act 1993
If you collect, store, use or disclose information about individuals in the
course of running your business you must comply with the Privacy Act
1993. This Act is designed to promote and protect individual privacy. It
affects every person or organisation that deals with information about
private individuals. No businesses are exempt.
The Privacy Act sets out 12 information privacy principles that must be
observed by anyone who holds information about private individuals.
These principles establish rules regarding:
• The collection, use, and disclosure of information relating to
• The rights that individuals have to access and correct that
Effects of non-compliance
Individuals can complain to the Privacy Commissioner if they believe
that an organisation holding information about them has interfered
with their privacy. The Privacy Commissioner may endeavour to settle
the complaint by conciliation or mediation. If this is unsuccessful, the
complaint may be taken to the Human Rights Review Tribunal. This
Tribunal has the power to make an order restraining an organisation
from continuing or repeating an interference, award damages and
costs up to a maximum of $200,000, or order the organisation to remedy
the interference. In addition, there can be a fine of up to $2,000 for
infringements in dealings with the Privacy Commissioner. It is also worth
noting that it is a criminal offence under the Crimes Act 1961 to use
or disclose personal information in order to obtain an advantage or
Your privacy compliance programme
If you or your organisation handles personal information, you will
need to consider your activities in the light of the information privacy
principles and other requirements of the Privacy Act. As a first step, you
should appoint a privacy officer. That person should then conduct a
privacy audit and set up your ongoing compliance programme.
A good compliance programme will:
• Ensure that your business complies with information privacy
• Enable your privacy officer to deal appropriately with requests from
the Privacy Commissioner or any other person;
• Enable you or your business to deal properly with any complaint.
Personal Property Securities Act 1999
If you supply goods to your customers before receiving payment, you
should ensure that your terms of trade allow you to retain ownership
of those goods until you receive payment in full. Such retention of
ownership clauses in your terms of trade (often referred to as reservation
of title/Romalpa clauses, or security interest clauses) provide some
security for you if any of your customers experience financial difficulty.
However, the benefits of these clauses can be lost if you do not register
your security interest on the Personal Property Securities Register (PPSR).
The PPSR was established by the Personal Property Securities Act 1999.
This Act provides a common set of rules to establish security interests in
personal property and to prioritise them, and sets up a single procedure
for their registration. The Act provides for registration of a wide range of
security interests, not only security interests created by reservation of title
rights. As a general guide, registered security interests take priority over
unregistered security interests.
If you need to secure payment from your customers, whether by way of
reservation of title provisions in your terms of trade or by a more general
security over your customers’ assets, you should investigate your options
under the Personal Property Securities Act 1999. Understanding this Act
is also important if you are granting security over your business assets to
any of your suppliers or lenders.
Securing payment from your customers is important for your business.
If you want to ensure that your business terms give you the best level
of security possible, contact your local Lawlink lawyer and ask them to
review your terms of trade and business contracts.
Credit Contracts and Consumer Finance
If you provide any type of credit or lease arrangement to private
individuals for personal, domestic or household purposes, you must
comply with the Credit Contracts and Consumer Finance Act (the
CCCFA). The CCCFA is designed to protect the interests of borrowers. It
does so by requiring lenders to disclose to borrowers the most important
elements of their credit arrangements. The CCCFA applies to credit
contracts and to some lease arrangements. It will also apply to layby
sales if credit fees or interest charges are payable.
You must comply with the CCCFA if:
• Your business provides credit or leases goods to a person (i.e. not a
company or a trust); and
• That credit or lease is provided for personal, domestic or household
• You charge interest or fees or take security for the credit provided
or, in the case of leased goods, the lease is for more than one year;
• This is part of your normal business activity.
It also affects businesses such as repossession agents and debt
If the CCCFA applies you must disclose to your customer in writing:
• The interest they must pay;
• The payments required;
• The interest rate; and
• The fees you will charge.
Changes to the CCCFA will shortly require businesses to make their
standard form contract terms, interest rates and fees publicly available
free of charge. A new Responsible Lending Code will require businesses
to act with care, diligence and skill in all dealings with borrowers.
Different disclosure rules apply depending on the type of contract
involved. Disclosure obligations for credit contracts are more onerous
than those which apply to consumer leases. There are specific
repossession rules governing when, how and what you can repossess
and rules regarding the type and amount of fees and charges which
can be imposed. The CCCFA also allows the Commerce Commission
to investigate claims and prosecute lenders who act oppressively or
do not meet their disclosure obligations. The matters which can be
taken into account will be consumer focused and include the relative
bargaining power of the parties and the actual circumstances in which
the consumer entered into the contract.
Maximum penalties under the CCCFA will align with the FTA ($200,000
for an individual and $600,000 for a company).
Insolvent transactions under the Companies
Sometimes businesses aren’t successful. When these businesses are
your customers, it can impact on you. If a company is placed into
liquidation and/or is unable to pay its debts, it is “insolvent”, and
there are a number of rules which set out the basis on which the
insolvent company’s assets are to be distributed. Broadly speaking,
secured creditors will be paid first, followed by particular categories
of preferential creditors (e.g. employees and the IRD) and finally
If a company is insolvent, it generally means that its liabilities exceed its
assets and there is not enough money to go around all the creditors.
The general rule provided for in the Companies Act 1993 is that creditors
of the same class (i.e. secured, preferential or unsecured) are to
receive a proportionate share of the company’s assets (once sold and
converted to cash). So, for example, if a company has assets worth
$100 and creditors totaling $200 (all unsecured) then the creditors will
each receive 50 cents per dollar of their debt.
Of course, what will often happen in the lead up to a company’s
liquidation is that some of the company’s creditors (often those who
complain the loudest or those who hold some leverage over the
company’s directors) will have their debts paid in full. Parliament
has decided that these sort of payments result in inefficiencies and
unfairness; these payments mean that some creditors receive full
payment for their debt, while others receive nothing (or at least much
The insolvent transaction provisions in the Companies Act 1993 are
designed to address this. These sections provide that a liquidator may
apply to the Court to set aside transactions occurring up to two years
prior to a company’s liquidation where:
• The transaction is entered into with a creditor of the company at a
time when the company was unable to pay its due debts; and
• The transaction allows the creditor to receive more than they
would have in the company’s liquidation;
In practice, what this can mean is that years after you have provided
goods or services to a customer, and been paid, a liquidator can
approach you and ask you to refund the payments you received
on the basis that they meet the above criteria and were therefore
“insolvent transactions.” In order to avoid being required to pay back
monies received, you need to be able to establish that when entering
into the transaction with the company:
• You acted in good faith; and
• You did not reasonably suspect and did not have grounds to
suspect that the company was insolvent; and
• You provided value or altered your position in reliance on the
The insolvent transaction provisions are not well known in the
commercial world and can result in unpleasant surprises for businesses
who may have all but forgotten about the insolvent company and the
relevant transactions. There are, however, a number of ways in which
you can minimise your risk, including:
• Insisting on cash on delivery, payment in advance or payment
from a third party (e.g. a director personally) for any customers
with whom you are unfamiliar or about whom you hold financial
• Insisting on personal guarantees or security (whether over the
goods supplied or other assets of the company) prior to extending
any significant credit to customers;
• Carefully managing your debtors to ensure that the extent of your
exposure to any particular customer is kept to a level at which
you are comfortable regarding the risk of non-payment and that
the further supply of goods and services is closely linked to the
payment of existing debt.
The law relating to insolvent transactions is complex. Please see your
Lawlink lawyer for specific advice relevant to your particular situation.
A wide range of business laws govern your relationships with customers.
Some of these laws, such as the Consumer Guarantees Act 1993 and
the Fair Trading Act 1986, apply to almost all businesses whereas others
such as the Privacy Act 1993, apply to some businesses only. You
therefore need to identify which of these consumer protection laws
apply to your business and then establish a compliance programme to
ensure that you comply with those laws.
Dealing with your
Competitors provide a constant challenge for most businesses. Healthy
competition is an essential part of modern capitalism. However,
competition can also lead to unfair business practices and be
prejudicial to the interests of consumers and society as a whole.
To avoid these problems, a number of business laws are designed
to promote healthy competition and prevent the misuse of market
dominance. These laws include the Fair Trading Act 1986 and the
Commerce Act 1986. The Commerce Act is the most important piece of
legislation governing competition in New Zealand.
Commerce Act 1986
The purpose of the Commerce Act is “to promote competition in
markets for the long-term benefit of consumers within New Zealand”.
One of the key concepts within the Commerce Act is the concept
of the market. Your business market may be as large as providing
telecommunication services nationwide or as small as the sale of
food in a small town. For you to understand your obligations under
the Commerce Act (and the obligations of your competitors) you first
need to understand the nature of the market or markets in which your
Your obligations under the Commerce Act
To promote competition the Commerce Act establishes a strict code
prohibiting certain practices within business markets. For example, the
Act prohibits businesses from:
• Entering into contracts, arrangements or understandings if their
purpose or likely effect (whether direct or indirect) is to substantially
lessen competition in a market;
• Using market power to restrict, deter or eliminate competition
within a market; or
• Engaging in price fixing or resale price maintenance.
The Commerce Act also prohibits business acquisitions that have or
are likely to have the effect of substantially reducing competition in a
market. Consequently, if you operate a business within a specific market
and you want to acquire another business within that same market, you
need to consider whether your acquisition of that business will have an
effect on competition.
If you are considering a business purchase that may have an impact on
competition in a particular market you may need to ask the Commerce
Commission to approve your purchase. The Commerce Commission
should approve the purchase if it is satisfied that the purchase will not
have a substantially anti-competitive effect. Even if the effect will be
anti-competitive, the Commerce Commission may still approve the
purchase if it is satisfied that the public benefits from the acquisition will
outweigh the harm from its anti-competitive effects.
It is your responsibility to seek the Commerce Commission’s approval
to any business purchase you propose that will have an impact
on competition within a market. If you do not do so and it is later
established that your business purchase has anti-competitive effects,
you may become liable for significant fines or face injunctions to
prevent or restrict your business activities.
Your competitors’ obligations under the Commerce Act
If you believe that any of your competitors are breaching their
obligations under the Commerce Act, you can apply to the court for an
injunction to restrain their activities. You could also make a complaint
to the Commerce Commission. However, in general the Commerce
Commission will only take enforcement action when a consumer issue
is involved, or some other public purpose is to be served by doing so.
Otherwise it will leave the protection of merely private interests to those
Penalties for breaching the Commerce Act
The penalties for breaching the Commerce Act are significant.
Courts may impose fines of up to $500,000 on an individual and up
to $10 million on a company. If a company has made an identifiable
commercial gain from its wrongdoing the fine may be even higher: up
to three times the amount of the commercial gain, or if that is too hard
to establish, up to 10% of the combined turnover of the company and
its associate companies.
Given the size of these potential penalties, you need to ensure that
you take steps to ensure that you meet all of your obligations under
the Commerce Act. If you breach the Act but have a compliance
programme in place designed to avoid breaches of the Act, this may
influence whether the Commerce Commission will take action against
you, particularly for minor breaches. Having a compliance programme
in place may also have an effect on the level of any fine and other
sanctions that a court is likely to impose.
Everyone who is in business needs to be aware of the Commerce
Act’s requirements. You also have a commercial interest in ensuring
that your competitors comply with the Act. To ensure that you
Dealing with land
Most businesses deal with land in one form or another, as owners,
developers, landlords or tenants. There are a wide range of laws
relating to the ownership and use of land. The purpose of this section is
to identify and summarise the most significant of these laws.
Resource Management Act 1991
If you occupy land in New Zealand, you will need to comply with the
Resource Management Act 1991 (the RMA). The RMA contains the
heart of New Zealand’s environmental law and is designed to promote
the sustainable management of New Zealand’s natural and physical
Sustainable management involves balancing the use of resources with
the need to protect the environment and to provide for the needs of
future generations. To achieve these goals the RMA sets up mechanisms
to control the effects that activities may have on the environment.
Regional and district councils administer resource management issues in
their areas through planning and resource consent processes.
Your business must comply with the rules and conditions that the
councils set in their plans and resource consents. Your business must also
avoid, remedy or mitigate any adverse effect its activities may have on
Effects of non-compliance
The impact of breaching the RMA can be significant. It can result in
a significant fine (up to $600,000 for a company and $300,000 for an
individual and more for a continuing breach). Individuals can also
face up to two years’ imprisonment. If the environment has been
damaged, huge clean-up costs could also be involved. If you breach
your obligations under the RMA you may be prevented from operating
until you have set up procedures to prevent a recurrence and obtained
new consents from the appropriate councils. Given these significant
penalties, you should establish a compliance programme to ensure that
you meet your obligations under the RMA.
Complying with your obligations under the RMA
Completing an environmental audit or assessment of your business
activities should be the first step in your compliance programme. If there
are any problems, the audit should reveal them. Your business will then
be in a position either to amend its operations or to obtain appropriate
consents for its existing operations. Your compliance preogramme
should also include training, monitoring, reviewing and planning to
ensure that your business continues to comply with its obligations.
Building Act 2004
If you are in the business of constructing buildings, you need to ensure
that you meet all of your obligations under the Building Act 2004. This
Act was passed in response to the leaky building issues, and to provide
greater regulation of the building industry generally.
The Building Act is designed to ensure that:
• People who use buildings can do so safely and without
endangering their health;
• Buildings have attributes that contribute appropriately to the
health, physical independence, and well-being of the people who
• People who use a building can escape from the building if it is on
• Buildings are designed, constructed, and able to be used in ways
that promote sustainable development.
The Building Act aims to achieve these goals by establishing:
• Strict guidelines for code compliance certificates, including
(with some exceptions) providing that new buildings cannot be
occupied until they have a code compliance certificate;
• A new licensing regime for building professionals;
• Strict requirements for commercial buildings;
• A new warranty regime for residential dwellings; and
• Penalties for failure to comply with the code compliance
Effects of non-compliance
The effects of breaching the Building Act can be severe. Fines can
be up to $200,000 and increase for every day the breach continues.
• Employers may be liable for offences committed by employees
and other agents;
• Directors may be personally liable for offences committed by their
• Landlords may be liable for offences committed by tenants; and
• Building owners can be liable for breaches committed by the
In addition to being able to impose fines, local authorities also have
powers to close down or condemn buildings that do not meet the
requirements of the Building Act. This can have a significant impact on
businesses connected with that building, including the loss of rent or
business profits and claims for breach of lease. Local authorities also
have the power to carry out remedial work on a building at the owner’s
cost, or issue a notice requiring work to be rectified and other work to
be stopped in the meantime. In respect to dangerous, earthquakeprone
or insanitary buildings, local authorities have the power to
attach to the building a notice that warns people not to approach the
Your building compliance programme
If your business owns, develops or occupies a building you need to
ensure that your business meets its obligations under the Building Act.
The first step is to review your business’s existing position. This should
involve checking existing consents, compliance schedules, leases,
management agreements and other documentation. You should also
establish a staff training and monitoring programme and incorporate
regular property reviews into your business procedures.
If you co-ordinate these procedures with your compliance review of
the Resource Management Act 1991 and the Health and Safety in
Employment Act 1992, you should have a comprehensive compliance
picture for your land and buildings. You will then be able to remedy any
problems and plan for the future.
Property Law Act 2007
If your business leases land, either as a landlord or tenant, you also need
to be familiar with the Property Law Act 2007 (the PLA). While your lease
will contain the terms of your agreement with the other party, the PLA
also contains rules and obligations that will be implied into the landlord
and tenant relationship unless the lease document expressly provides
Some matters that both landlords and tenants should be aware of
• As mentioned above, the PLA implies covenants into leases (such
as the right of the tenant to quiet enjoyment);
• If a tenant leases a property that is not in good condition at the
start of the lease, the tenant is not required to put the property into
good condition at the end of the lease term (as was sometimes
required before the PLA became law);
• Landlords bear the risk of damage to the leased premises and
must ensure that appropriate insurance is in place (most leases will,
however, provide that the tenant must meet the cost of insurance);
• Landlords may terminate the lease if the tenant negligently causes
damage to the leased premises in such a way as to prejudice the
landlord’s ability to obtain insurance;
• Under the PLA, landlords have lost their right to “distrain”; that is,
landlords can no longer take possession of a tenant’s chattels and
sell them to cover outstanding rent payments; and
• Landlords do not have the right to terminate a lease immediately
if a tenant fails to pay rent. Under the PLA a landlord must serve
the tenant with formal notice in a prescribed form, which must
contain a minimum notice period within which the breach must
be remedied, before the lease can be terminated. That minimum
notice period will depend on both the express terms of the lease
and the implied covenants in the PLA. There are a number of
specific requirements set out in the PLA, including the forms which
must be used and time limits which apply before action can be
taken. Consequently, if you are involved with any dispute involving
land, particularly a landlord/tenant dispute, you should contact
your Lawlink lawyer to ensure that you meet your obligations under
Almost all businesses deal with land in some way. There are a number of
laws in New Zealand which regulate and control how land can be used
and developed, the standards which apply to building developments
and the relationships between landlords and tenants.
Dealing with the wider
In addition to its legal obligations to its customers and competitors,
your business also has legal obligations to the wider community. Some
of these obligations have already been considered, such as the
obligations imposed by the Resource Management Act. This part of the
guide reviews some other business laws which impose obligations on
your business for the benefit of the wider community.
Income Tax Act 2007 and related legislation
All businesses need to comply with their tax obligations. Obligations
are imposed on businesses under tax legislation such as the Income
Tax Act 2007 and the Goods and Services Tax Act 1985. Significant
penalties can be imposed for failing to comply with these obligations.
All businesses therefore need to take active steps to ensure that they
understand and comply with all of their taxation obligations.
Human Rights Act 1993
If you deal with people in your business, you need to comply with the
Human Rights Act 1993. This Act deals with the issue of discrimination.
Discrimination is defined in the Act to mean treating people differently
because of their sex, marital status, religious belief, ethical belief,
colour, race, ethnic or national origins, disability, age, political opinion,
employment status, family status or sexual orientation. It is unlawful to
discriminate against someone on any of these grounds.
The Human Rights Act applies in a wide range of situations. To
comply with this Act, you need to ensure that your business does not
discriminate on any of the prohibited grounds. As examples, and this is
not an exclusive list, your business cannot discriminate when:
• Employing staff;
• Providing private superannuation entitlements;
• Providing goods or services;
• Regulating entry into places where members of the public have
general access; or
• Providing accommodation.
One of the most likely areas of non-compliance for businesses is
employment procedures. This includes not just the obvious areas of the
engagement, appraisal, promotion and discipline, but also general
day-to-day dealings with and between staff. Your business can be held
liable for breaches of the Act by its employees. To avoid liability your
business must show that it has taken all reasonably practicable steps
to prevent such conduct occurring in the workplace. Employment
application forms, employee records and employment agreements
also need special attention.
Effects of non-compliance
If your business breaches the Human Rights Act, it can be liable for a
wide range of penalties, including:
• A declaration that you or your business has breached the Human
• An order that any offending activity cease;
• An order that you or your business take action to remedy the
• Damages not exceeding $200,000 in a proceeding before the
Human Rights Review Tribunal and in excess of that sum in the High
• Compensation or a variation of the contract where an contract
has been entered into in breach of the Human Rights Act;
• An order that you or your business undertake training to ensure that
you comply with the Human Rights Act in the future.
Complying with the Human Rights Act
Human rights are a high profile public issue. Any suggestion that your
business has breached the Human Rights Act could result in significant
negative publicity. However, you can generate considerable goodwill
for your business by establishing a reputation for dealing fairly with your
staff and customers. Ensuring that you comply with your obligations
under the Human Rights Act can therefore not only help you to avoid
significant penalties and negative publicity but can also positively
develop the goodwill of your business.
Financial Transactions Reporting Act 1996
If your business involves borrowing, lending, investing or managing
money on behalf of others, you may be a financial institution that is
required to comply with the Financial Transactions Reporting Act 1996
or the Anti-Money Laundering and Countering Financing of Terrorism
Act 2009. These Acts require various businesses (called “reporting
entities”) to do such things as verify the identity of individuals, establish,
maintain and regularly audit an Anti-Money Laundering and Countering
Financing of Terrorism (AML/CFT) programme, appoint an AML/CFT
compliance officer, undertake ongoing due diligence and account
monitoring, and report certain suspicious transactions.
If your business is involved in borrowing, lending, investing or managing
money on behalf of others you should contact your Lawlink lawyer who
will be able to determine whether your business is required to comply
with these Acts and, if it is, what steps you need to take to comply.
Compliance may also be required with the Financial Service Providers
(Registration and Dispute Resolution) Act 2008 and the Financial
Advisers Act 2008.
Hazardous Substances and New Organisms
If your business imports, possesses or uses any hazardous substance or
new organism, it will need to comply with the Hazardous Substances
and New Organisms Act 1996. This Act is designed to protect the
environment and the health and safety of people and communities by
preventing or managing the adverse effects of hazardous substances
and new organisms. The Act imposes a general duty on every person
who imports, possesses, or uses a hazardous substance or new organism
to ensure that any adverse effect in relation to that substance or
organism on any other person or the environment is avoided, remedied,
The examples provided in this part show the wide range of laws that
can have an impact on you and your business. Your Lawlink lawyers
will be able to assist you with identifying which of these and other
laws affect your business and help you to develop a compliance
programme to ensure that you meet all of your legal obligations.
Where to from here?
Lawlink lawyers understand that you don’t want to run through red
tape, you just want to run your business. Although it is important that you
have an understanding of the laws affecting your business and establish
a plan to comply with those laws, you do not need to deal with these
legal challenges alone. Lawlink lawyers have the training, experience
and contacts to help you meet all of your legal challenges.