NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
Section 107 Test The simplest, and least onerous, financial assis- tance procedure is pursuant to Section 107 of the Companies Act. The only two requirements are that: • all “entitled persons” of the company (being all the shareholders of the company and all other persons (if any) upon whom the con- stitution of the company confers any of the rights and powers of a shareholder) must agree in writing to the financial assistance being given; and • the board of the company must resolve that it is satisfied, on reasonable grounds, that the company will, immediately after the giving of the financial assistance, satisfy a modified solvency test. For most companies, the only entitled persons are the shareholders. The Section 107 method is used by wholly- owned companies, with the related documen- tation being fairly straightforward to prepare and quick to implement. Section 76 Test The Section 76 test requires that, prior to the financial assistance being given, the board must resolve that: • the company should provide the assistance; • giving the assistance is in the best interests of the company; and • the financial assistance was given on fair and reasonable terms and conditions. One of the following procedures must also be followed:
years but it may be renewed at or before the expiry of this period for an additional nominal fee. It is critical that the prescribed information recorded in a financing statement is correct, otherwise there is a risk of the financing state- ment (and security perfection) being invalid for perfection purposes. For example, if the debtor’s name has been incorrectly recorded, this will be deemed to be “seriously misleading” and the financing statement will be deemed to be invalid under the PPSA. Real Property See 5.1 Types of Security Commonly Used for a summary of the registration process in respect of mortgages over real property. 5.4 Restrictions on Upstream Security See 5.5 Financial Assistance and 5.6 Other Restrictions . 5.5 Financial Assistance The Companies Act 1993 (the “Companies Act” ) regulates a company giving financial assistance (which includes giving a loan or guarantee or the provision of security) to a person for the pur- poses of, or in connection with, the purchase of a share in the company, or its holding com- pany, whether directly or indirectly. This restric- tion is relevant in an acquisition finance context where members of the target group guarantee or secure the acquisition debt. Financial assistance is permitted where the Sec- tion 107 test or the Section 76 test are complied with and, in each case, a modified solvency test is also complied with. No whitewash standstill period applies under either option.
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