You've worked hard to make your business what it is, but
you're now ready to move on. So you list it for sale, accept an offer, receive
the funds and hand over possession. Sounds simple, right? Not always.
There are many things you should consider if you want to achieve the best
price, minimise your ongoing risk, and ensure your business will have the best
opportunity to thrive once sold. As each business is different there is no
'one size fits all' approach. Things to consider include:
* Why are you selling? Probably the most important question, this can affect
how the transaction is structured and timing.
Are you replaceable? Many business owners have unique and integral knowledge
and skills that may be difficult for a purchaser to learn or replicate. Remove
that key person, and the business suffers. It can be important therefore to
devise an exit strategy, perhaps by employing and training a potential new
owner for some time (often years) before the business is eventually offered to
them. Depending on your business structure, a shareholders' agreement could
record that the shares of the business are transferred to your successor in
parts over time.
* Are you selling the shares in your company, or just the assets of the
business? Selling shares can be simpler, but can include more risk.
* Your business accounts and turnover figures should be up-to-date and
accurate. You will usually be asked to provide a warranty that the turnover
figures for the last 12 months are accurate.
* Landlords and tenants on good terms sometimes overlook completing the proper
paperwork to renew a lease. It is important to ensure you have signed copies
of the lease together with any deeds of assignment, renewal and rent review. A
purchaser will typically want to ensure there are several rights of renewal
available so they can be confident they won't be forced to relocate shortly
after purchasing (especially if there is goodwill tied to the business
* Your landlord can usually stop a sale transaction if they are not reasonably
satisfied that the new purchaser will be a good tenant. Also, your liability
under the lease often extends beyond settlement if the new purchaser turns out
to be a bad tenant.
* Do you own everything your business needs to operate? Is any plant or
equipment leased or owned by the landlord? If so, these need to be disclosed
and you need to ensure that they can be assigned to the purchaser (if they so
* What is happening with your employees? Do you
have employment agreements in place? Do you expect the new purchaser to take
over all existing employees? If not, will you need to make redundancy
* Do you have all the consents, licences, permits, certificates or
authorisations required to carry out your business?
Inside this edition
Selling a business - things to consider
Trusts and relationship
property - what does Clayton v Clayton mean for me?
Tax changes for settlements and the
proposed "bright-line" test
Modernising Child, Youth and
Family Services - Interim Report
How to obtain a Limited Licence
Trans-Pacific Partnership Agreement update
* What is your business actually worth? Have you valued the
assets? What is the goodwill in the business worth, and how much of that is
tied to the business itself, to you as the owner, or to the physical location?
With that knowledge, what can you do to ensure you can sell as much goodwill
as you can to the new owner?
Finally, when do you need to sell? A common theme here is that there are many
things you can do to make your business more attractive (and therefore more
valuable and easier to sell), but they can take time. Seek advice early to
ensure you are on the right track.
Clayton v Clayton  NZCA 30
('Clayton') considers whether property owned by a particular Trust is
relationship property for the purposes of the Property (Relationship) Act 1976
Mr and Mrs Clayton separated in 2006 after 17 years of marriage. During the
marriage, Mr Clayton established a number of Trusts, including the Vaughan
Road Property Trust ('the Trust'). The discretionary beneficiaries of the
Trust were Mr Clayton and Mrs Clayton, together with their two children, who
were also the Trust's final beneficiaries. The Trust Deed nominated Mr Clayton
as the 'Principal Family Member', which conferred on him certain powers
including: exclusive powers of appointment and removal of trustees and
beneficiaries, wide powers that permitted the Trustees to act contrary to the
benefit of the Trust's beneficiaries, and the power to distribute Trust assets
Family Court decision
The Family Court held that the Trust's assets were relationship property for
the purposes of the Act, as the Trust was "illusory". It was held to be an
illusory Trust because the powers conferred upon the Trustees hamstrung the
ability of the Trust's beneficiaries to hold the Trustees to account. This
type of administration over the Trust was described as a "convenient structure
for commercial purposes, carrying few hallmarks of a Trust".
High Court decision
On appeal, the High Court also held that the Trust was "illusory" but for
different reasons. The High Court held that the powers conferred on Mr Clayton
were analogous to ownership over the Trust's assets, allowing Mr Clayton to
manage the Trust's assets, as though the Trust itself did not exist. As a
result the High Court held that the Trust's assets were relationship property
for the purposes of the Act.
of Appeal decision
On appeal, the Court of Appeal disagreed that the Trust was "illusory" and
concluded that the Trust was valid. However, the Court considered the wide
definition of property in the Act, which defines property to include "any
other right or interest". The Court held that Mr Clayton's power to appoint
and remove beneficiaries met that definition. As a result the Trust's assets
were relationship property for the purposes of the Act. The Court went on to
hold that the value of Mr Clayton's powers would be equal to the value of the
The Supreme Court is yet to deliver its judgement; however, the Family Court,
High Court and the Court of Appeal all reached the same conclusion; that the
Trust's assets were relationship property for the purposes of the Act, but for
The Court of Appeal's decision means that Trust powers may now be possibly
defined as relationship property for the purposes of the Act, despite being
sheltered behind a validly constructed Trust.
While the implications of Clayton are fact specific, it is a current reminder
of the critical importance of both effective asset planning and Trust
drafting. Clayton compels those drafting Trust Deeds to carefully contemplate
the nature and extent of Trust powers. If you think your situation may be
effected by the decision of Clayton it is recommended that you seek
professional legal advice.
With effect from 1 October 2015, there
are new requirements around disclosure of tax information when buying, selling
and transferring New Zealand property. There is also a new proposed
"bright-line" test that will apply solely to residential land transactions to
clarify and supplement the existing laws around taxation of property
disclosure changes (which do not apply when the party is dealing with their
"main home") require parties to a property transaction to provide their IRD
numbers, and where applicable, their taxpayer identification number from any
overseas countries where they have to pay tax on their worldwide income.
Where a Trust is dealing with property, the IRD number to be supplied must be
the IRD number for the Trust itself - not the trustees' personal IRD numbers.
One effect is that entities involved in property transactions (other than in
some specific exempt transactions, for example where the property sold
satisfies the requirements of the "main home" exemption) will need an IRD
number to complete the transaction. It is therefore advisable to consider the
time it may take for you to obtain an IRD number when agreeing to timeframes
in any property transaction.
Tying into the new disclosure requirements
is the proposed bright-line test that will apply to residential property
transactions entered into on or after 1 October 2015. This proposed test
(which has not as yet been enacted and may be subject to changes before being
passed) is intended to complement our current property tax rules.
The bright-line test is expected to require income
tax to be paid on any gains made from the sale of residential property within
two years of purchase. The current proposed exceptions are if the transaction
relates to the "main home", to a relationship property transfer, or to
Under existing law, gains from the sale of land can already be taxed as income
if that land was acquired for the purpose or intention of disposing of the
land. This law remains unchanged, but has proved problematic for the IRD to
implement as the IRD cannot always prove intention on the part of the
taxpayer. The proposed bright-line test was introduced in part to resolve this
problem for the IRD.
As the bright-line test is only intended to apply to residential land, there
is also an associated definition of residential land. Residential land means
land that has a dwelling on it, or for which there is an arrangement to build
a dwelling, or bare land that is capable of having a dwelling on it due to its
area and nature.
If you are involved in or anticipating entering into a property transaction in
the near future it is important that you make sure you can comply with these
new disclosure requirements and have considered the bright-line test and its
In April 2015, Hon.
Anne Tolley, the Minister for Social Development, established the Modernising
Child, Youth and Family ('CYF') Expert Panel ('the Panel'). The Panel was
tasked with reviewing and analysing the current issues facing the care,
protection and youth justice systems. It is the latest in a long line of
almost continuous reviews stretching back to the introduction of the Children,
Young Persons and Their Families Act 1989. The panel's interim report ''the
report') was released 24 September 2015.
It is unlikely to come as a surprise to many that the report has in effect
given a failing grade to the current CYF system. A key finding of the report
is that CYF, in its current operational state, is failing to adequately
protect children from harm.
In line with the numerous previous reviews, the report has identified that the
challenges facing CYF must be addressed through fundamental legislative and
systemic changes. Of particular note was the identification that the current
system as a whole focusses on managing immediate risk, leaving little in the
way of resources to focus on successful long-term outcomes for our vulnerable
children and young people. Although there have been opportunities for change
in the past, the report proposes changes not only within CYF but also across
agencies, providers and the community.
Key areas identified
In formulating a plan for the modernisation of CYF, the panel has set out four
key areas that would underpin a new operating model:
* A child centred system that hears and incorporates the voices of
children and young people and their families,
* An investment approach encouraging earlier intervention with an eye
on lifetime costs and benefits,
* A professional practice framework that states clearly the mandatory
tasks for front line workers to ensure the safety and wellbeing of vulnerable
children and young people, and
* Greater engagement with all New Zealanders by encouraging New
Zealanders to take action and be supportive of vulnerable children and young
people and provide them with safe, loving and stable family care.
The panel propose that CYF improves its tracking
of children in state care and contracts out to other organisations where
appropriate. The finer details of the proposed restructuring and how it will
be implemented are expected in the final report, due to be released December
Where to from here
While the final report is due in December 2015, there will be no short-term
quick fix of such a large, complex and important government department. Change
on this scale is likely to take years and will be inherently costly. A clear
strategic direction is required to reverse the current and distressing
patterns of repeat abuse, poor life outcomes and the overuse of custodial and
institutional responses facing too many of our children and young people.
A significant number of New Zealand children continue to experience disturbing
levels of harm, abuse and neglect. While any attempt to keep our children safe
must be applauded, it remains to be seen whether this latest review will
deliver on promises of a better future for our children and young people now
and into the future. This review is yet another opportunity to make a
difference to our vulnerable children and young people. Lives depend upon it
John is the owner and sole driver of a local
courier business in Hamilton. John is also a single father to a son aged six
years. One afternoon, John is breath tested following a friendís barbeque
where he has consumed three bottles of beer. Unfortunately, John records an
alcohol level of 479 micrograms of alcohol per litre of breath. Despite 250
micrograms per litre of breath being the new legal limit for drivers over 20,
John will only face criminal conviction if he registers a failed result of
over 400 micrograms per litre of breath. Four weeks later at the Hamilton
District Court John is found guilty of driving with excess breath alcohol, and
he is disqualified from driving for six months.
What are Johnís options?
John's only source of income for him and his son is his business. John may be
able to apply to the District Court for a Court Order authorising him to
obtain a Limited Licence. If the District Court grants John this Order he will
be able to apply to the New Zealand Transport Agency ('NZTA') for a Limited
Licence. A Limited Licence permits a person to drive while they are
disqualified from driving under limited situations, times, or areas.
How does the District Court decide whether or not someone may obtain a Limited
The District Court must be satisfied that John will suffer "extreme hardship"
or someone else will suffer "undue hardship" as a result of the
disqualification. If John is unable to drive he may lose his business and
livelihood, which could be determined as "extreme hardship". This may cause
"undue hardship" to Johnís son where he needs to be picked up and dropped off
Step 1 - Application
John must apply to the District Court for a Court Order authorising him to
obtain a Limited Licence. This includes the application form, an affidavit,
and where applicable an affidavit in support of his application, letters in
support of his application, and a draft Court Order. Although John can prepare
all of this paper work himself, he decides to see a lawyer who will ensure the
application is strong and filed quickly.
Step 2 - Documents
John must deliver his application and supporting documents to the court that
imposed the disqualification and also the local police station.
Step 3 - Court hearing
The Judge evaluates John's application at the District Court hearing,
questioning John about his affidavit and application. John is able to
demonstrate that he will suffer "extreme hardship" and his son will suffer
"undue hardship" because of his disqualification from driving. The Court Order
is granted and he is now authorised to obtain a Limited Licence.
Step 4 - Applying to the NZTA
Getting a Court Order does not necessarily mean that John is able to drive.
John now has to make an application to NZTA, which involves:
* paying the Limited Licence application fee,
* giving the agent (an NZTA staff member) a copy of the Court Order, and
* completing an application form.
John has to wait and see if NZTA will approve his application. If John is
approved then he will receive a temporary licence while his photograph licence
is being issued. If John is unsuccessful, for example, if he is found to have
pre-existing driving offences, then he will not be permitted to drive during
his disqualification, and he will have to wait three months until he can
reapply for a Limited Licence.
It is not an offence per se to
have alcohol in a public place.
It is however an offence to breach council bylaws. Each council makes their
own alcohol control rules that best suit their circumstances. You might
therefore find each holiday hotspot applies liquor bans differently.
Tauranga as a famous example, parts of Papamoa are liquor-free from 9pm to 7am
each night, while other popular public areas are liquor-free permanently, such
as Mount Maunganui, Mount town and main beach, and Tauranga CBD. From 26
December to 6 January the ban in these public areas is significantly extended
to cover other past problem areas, including Pilot Bay, Marine Parade and its
adjacent beach, and Papamoa beach.
Alcohol in an unopened container can typically be transported through a
liquor-controlled area to a private residence, although this should be prompt
- storing alcohol in a vehicle will not protect you. Recent changes mean a
breach of a liquor ban will likely mean an instant $250 fine and your alcohol
Partnership Agreement update
In October 2015 the final form of the
Trans-Pacific Partnership Agreement ('TPPA') was agreed upon in principle by
the trade representatives for each of the 12 member states - although this
does not mean it has yet become law.
The TPPA process has proved to be controversial, with the secrecy of
negotiations and contents of the leaked TPPA text being criticised in some
a rule set by the US, the full text of the TPPA should be released to the
public within 30 days, and the TPPA cannot be ratified by any country within
90 days of conclusion of negotiations. The Ministry of Foreign Affairs and
Trade advises that the final text may however be delayed due to ongoing
discussions as to the interpretation of some the terms of the agreement
between the negotiators, which has affected preparation of a complete text.
Once the TPPA text is released it is expected to go through the parliamentary
treaty examination process. Being an international treaty it is, if approved,
ratified by Cabinet and not Parliament.
S J Scannell & Co
Would like to wish you and your
family a Merry Christmas and prosperous New Year
our offices will be closing on Tuesday, 22nd December 2015 at 5pm
14th January 2016 at 8.30 am
If you have any questions about the newsletter items,
please contact me, I am here to help.
Phone: (021) 439 567
Scannell & Co - 122
Queen Street East, Hastings
(06) 876 6699 Fax: (06) 876 4114 Email:
information in this newsletter is to the best of the authors' knowledge true
and accurate. No
liability is assumed by the authors, or publishers, for any losses suffered
by any person relying directly or indirectly upon this newsletter. It
is recommended that clients should consult S J Scannell & Co before
acting upon this information.
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