NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
• all shareholders must have consented in writ- ing to the giving of the assistance; • the board resolves that the giving of the financial assistance is of benefit to the shareholders not receiving the assistance and that the terms and conditions under which the assistance is given are fair and reason- able to those shareholders not receiving the assistance. Under this method, a disclosure document must be sent to each shareholder and the assistance cannot be given less than ten working days or more than 12 months after the disclosure document has been sent to each shareholder; or • the financial assistance is given under Sec- tion 80 of the Companies Act, which permits an aggregate amount of financial assistance under this Section up to 5% of the aggregate amounts received by the company in respect of the issue of shares and reserves, as dis - closed in the most recent financial statements of the company. The company must also receive fair value in respect of the assistance and must circulate a disclosure notice to all Before financial assistance is given under either of these tests, the board must be satis - fied on reasonable grounds that the company will, immediately after the giving of the financial assistance, satisfy a modified version of the statutory solvency test found in Section 4 of the Companies Act. A company will satisfy the solvency test if: • it is able to pay its debts as they become due in the normal course of business; and • the value of its assets is greater than the value of its liabilities, including contingent liabilities. shareholders. Solvency Test
In the context of financial assistance, the test is modified so that “assets” excludes all amounts of financial assistance given by the company at any time in the form of loans and “liabilities” includes the face value of all outstanding liabili- ties, whether contingent or otherwise, incurred by the company at any time in connection with the giving of financial assistance. This requires careful analysis, including the treatment of rights of contribution in the case of cross-guarantees. 5.6 Other Restrictions A director of a New Zealand company has a number of duties. These exist in common law by way of fiduciary duties, and in most instances have been codified under the Companies Act. These duties include the duty to act in good faith and in the best interests of the company under Section 131 of the Companies Act. Directors should turn their mind to this duty when entering into financial transactions. This becomes particularly important when contem- plating subsidiaries of a borrower who make up part of the security package. If the borrower is a subsidiary of another company, it is permis- sible under Section 131 of the Companies Act for directors to act in the best interests of the company’s holding company if this is expressly permitted by the company’s constitution. How- ever, if the company is not a wholly-owned sub- sidiary, the prior agreement of the shareholders must also be obtained. Similarly, where a com- pany is carrying out a joint venture the directors may act in the best interests of the shareholder if they are permitted to do so by the company’s constitution. 5.7 General Principles of Enforcement A lender’s right of enforcement under a financ- ing transaction is governed by the contractual arrangements agreed with the borrowing group
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