Presented by
Other issues…
Marcus N. Beveridge Principal, Queen City Law – www.queencitylaw.co.nz
• Dealing with companies
Company related
– Normally, Lenders deal with the directors of the company – Any contract entered into with a company – it is essential that the contract is legally “VALID & BINDING”
• You must be satisfied that:
Company
– Company is validly established and registered – Company has adequate capacity and powers to enter into contractual obligations – The transaction does not breach any mandatory provision of the Companies Act 1993 – Company must have executed all necessary resolutions – The documents must be executed in accordance with the requirements of its constitution and the Act
COMPANY – Validly existing
• Search and obtain a copy of the Certificate of Incorporation – In such case, the Company: • A company is deemed to be in existence as a distinct legal person throughout the whole of the day mentioned in the certificate of incorporation: Jubilee Cotton Mills Ltd v Lewis [1924] AC 958 (HL). • BUT are other requirements of the Companies Act have been complied with? E.g. whether any liquidation application has been made? Whether a receiver or liquidator has been appointed?
COMPANY - Authority
• The company operation is managed by its board of directors. • The board must keep and maintain minutes and resolutions. • As a lender, you must ask the Company to produce certificates – as evidence that appropriate resolutions have been made. • If necessary, you must obtain evidence of the relevant approvals by the shareholder (if it is a major transaction)
COY – Capacity & Powers
• The company’s capacity and powers are determined by the Companies Act and its constitution. • Therefore, it is important to obtain a copy of the constitution and review to confirm the Company’s capacity and powers.
• When dealing with companies – you must check:
Checklist
– Execution - Whether documents have been executed in accordance with the provision of section 180 and the company’s constitution. – Resolutions – Check whether there is a certificate of a director confirming that appropriate resolutions have been made • Shareholder’s resolution, if necessary
• Dealings with trusts
Trust
– This is not a legal entity. – This is very common in New Zealand. – Unless liability is expressly limited by the terms of the contract, a trustee incurs unlimited personal liability. Not sufficient to put “as trustee” to limit his/her personal liability.
Checklist – Trust 1
• Parties – The name of each trustee must be recorded in each document – EACH trustee must sign personally
Checklist – Trust 2
• Power and Authority – Powers are provided in the trust deed – including power to borrow, guarantee and give security – Lender must examine the trust deed to check: • Within the powers of the trustees or not; and • Whether a breach of the trust or not.
Checklist – Trust 2
– Therefore, you must obtain a trustees’ certificate. – If you as lender receive funds from trust assets in the knowledge that there is a defect (e.g. no power or breach of trust) then you may lose the funds to the beneficiary.
Checklist – Trust 3
• Limitation of liability – Unless the trustees have expressly limited their liability – they are PERSONALLY liable. – Unless Professional or Independent trustees (e.g. lawyers or accountants) act negligently or fraudulently, their liability is limited to the assets of the trust
Checklist – Trust 4
• Any retiring trustees – Ensure the trustees – are precluded from retiring without your consent; and that; nd – New trustees may not be appointed without becoming liable under the relevant documents
• •
Recent update
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New powers for trustees of finance companies The law has been changed to strengthen the position of trustees of finance companies. The changes, which came into force in September, are intended to assist trustees in performing their supervisory roles in the interests of investors Summary of changes –
Finance companies must: • • • • • • •
–
provide the trustee with regular reports about the issuer's financial position; regularly certify compliance with the trust deed; keep the trustee informed on matters relevant to the trustee's duties; have the borrowing group's half-yearly financial statements audited (unless this requirement is waived by the trustee, in which case they must be reviewed); copy to the trustee the borrowing group's annual and half-yearly financial statements; consult the trustee on the appointment of auditors and advise the trustee if an auditor declines appointment or reappointment or resigns; and include specific conditions in the terms of appointment of auditors, giving the auditors responsibilities to the trustee.
The trustee will have power to: • • •
appoint an independent auditor; and appoint an expert to assist the trustee to determine the true financial position of an issuer. The changes automatically become part of all finance company trust deeds (including existing deeds).
Information - QCL
• These power points and attachments and sample are available at Queen City Law website: www.queencitylaw.co.nz THANK YOU!!!