NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
As to financial assistance, see 5.4 Restrictions on the Target . 5.4 Restrictions on the Target The Companies Act regulates the giving of financial assistance (including the giving of a loan, guarantee or security) to a person for the purposes of, or in con - nection with, the purchase of a share issued or to be issued by the company, or its holding company, whether directly or indirectly. This restriction is rele - vant in an acquisition finance context where members of the target group guarantee or secure the acquisition debt. The simplest – and least onerous – procedure under which financial assistance may be given is pursuant to Section 107 of the Companies Act. The only two requirements are that: • all “entitled persons” of the company (usually this means all shareholders) must agree in writing to the financial assistance being given; and • the board of the company resolves that it is satis - fied, on reasonable grounds, that the company will, immediately after the giving of the financial assis - tance, satisfy the solvency test, namely that: (a) it is able to pay its debts as they become due in the normal course of business; and (b) the value of its assets (excluding amounts of financial assistance given by the company in the form of loans) is greater than the value of its liabilities, including contingent liabilities. This method is used for wholly owned companies, and is very straightforward and quick to implement. Other methods are available to approve financial assistance if the Section 107 test is not available, but they are not typically required in an acquisition finance context. 5.5 Other Restrictions See 7.6 Transactions Voidable Upon Insolvency . A secured financier’s security may also be subject to any prior ranking security interests – see 5.7 Rules Governing the Priority of Competing Security Inter- ests and/or Claims .
in order to give the secured party the best protection possible for their collateral. A PPSR registration includes the names and address - es of the debtor and the secured party, and a descrip - tion of the collateral. The registration can be made instantly online and costs NZD16.10. The maximum registration period for a financing statement is five years, but it may be renewed at or before the expiry of this period for an additional NZD16.10. 5.2 Floating Charges and/or Similar Security Interests All-asset security can be taken by a single general security deed. The introduction of the PPSA removed the distinction between fixed and floating charges. 5.3 Downstream, Upstream and Cross- Stream Guarantees Typically, private credit providers will require down - stream, upstream and cross-stream guarantees from obligors. There are no legal limitations or restrictions on entities providing these guarantees, subject to compliance with corporate benefit and financial assis - tance rules. As to corporate benefit, a director of a New Zealand company has a number of duties. These include the duty to act in the best interests of the company or, if the constitution of a wholly-owned company provides, in the best interests of the company’s holding com - pany, even though it may not be in the best interests of the company. Directors need to turn their mind to this duty when entering into financial transactions, particu - larly when contemplating subsidiaries of a borrower who make up part of the security package. From a practical perspective, lenders will typically require a corporate certificate from a director of each New Zealand guarantor that confirms, among other things, that the guarantee is in the best interests of the company (or, where relevant, its holding compa - ny), and that all shareholders of the guarantor have approved the transaction.
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