On 26 March 2020, the government shut down large sectors of the New Zealand economy in response to the coronavirus. The full ramifications of the lockdown are not yet clear, but the effect on businesses will be severe. Most will struggle through, some will not and many more will have to reduce staff in order to survive. Sacrificing employees to rescue a business can be a highly emotional experience for an employer. The impact of redundancy on families and the predicament of older employees forced to seek alternative employment in a depressed economy through no fault of their own is obvious. No employer wants to be responsible for this and it can affect them deeply. The fact that it was forced upon them by factors beyond their control is little solace. Most employers will go to great lengths to avoid laying off staff, but sometimes it is the only option. If redundancies are unavoidable as a consequence of the coronavirus, here are some factors that need to be taken into account. The first thing to note is the government’s Wage Subsidy Scheme. Check the conditions you agreed, as these changed from time to time. In general, no employee can be made redundant while the business that employs them is taking the subsidy, but the moratorium ends with the cessation of the Scheme, currently scheduled for June 9. Businesses will then regain their legal rights, including the power of dismissal on economic grounds. Businesses that did not enter the Scheme can act immediately. Justification At one time, reduction of staff on non-disciplinary grounds was only justifiable if it was necessary to avoid insolvency. That is no longer the position and staff can be made redundant to regain the profitability or efficiency of the business. The redundancy decision must, however, be reasonable. The statutory test is “what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred”. A business seriously damaged by the shutdown and forced to lay off staff is unlikely to be held to have acted unreasonably. A business that emerges relatively unscathed but which then attempts to exploit the economic downturn to shed inconvenient staff might be regarded in a different light. Procedural Fairness Even if a dismissal is economically justified, it must still be carried out in a procedurally fair manner. Section 4 of the Employment (Relations) Act 2000 requires the employer to act in good faith and to provide – access to information, relevant to the continuation of the employees’ employment, about the decision; and an opportunity to comment on the information to their employer before the decision is made. It is not sufficient, therefore, to inform the employee that they have been made redundant and to state the reasons for the decision. The matter must be discussed and the employee must be provided with enough information to develop and present alternative proposals. The most important information in the current context may be the firm’s revised operating budget. This could lead to discussions about paid or unpaid leave or temporary wage reductions. Only if there is no viable alternative should notice of redundancy be given. Redundancies necessitated by factors other than personal misconduct must always be handled with care, but the suddenness and severity of the current crisis has placed employers in a very difficult position. If the candidates for redundancy have similar functions, productivity and length of service, selecting between them on objective grounds could be all but impossible. If the employer then resorts to personal factors to break the deadlock, it could lay them open to claims of irrelevant considerations, inappropriate assumptions or even damage to the employee’s reputation and consequent worth in the labour market. An employer who attempts to avoid this by glossing over or misrepresenting the reasons for the redundancy would breach his or her statutory duty of good faith, again with adverse consequences. It’s a delicate balance. For further information call us on 03 477 8080.

There is a lot of discussion going on at the moment about what a ‘fair’ proportion means. When the Government declared a state of emergency and ordered all non-essential businesses to close their doors and vacate their premises, this raised numerous legal issues, but the most pressing for commercial tenants is whether it has released them from their obligation to pay rent for the duration of the lockdown. Much (but not everything) turns on the terms of the lease. Leases with a “No Access” clause Commercial leases in New Zealand are not standardised, but most are based on the Auckland District Law Society (“ADLS”) Deed of Lease precedent. This precedent underwent a significant change in 2012 with the introduction of clause 27.5, which relevantly reads: If there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or the need to prevent reduce or overcome any hazard, harm or loss that may be associated with the emergency including … (c) restriction on occupation of the premises by any competent authority, then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases.” “Emergency” is defined in clause 47.1 as – … a situation that … is a result of any event, whether natural or otherwise, including … plague, epidemic … and causes or may cause loss of life or serious injury, illness or in any way seriously endangers the safety of the public …; and the event is not caused by any act or omission of the Landlord or Tenant. Every edition of the ADLS lease since 2012 contains this clause and it does appear to apply to the covid-19 lockdown, which: is an “emergency” within the terms of the lease; was imposed “to reduce or overcome a hazard or hazard associated with the emergency”, and which has resulted in most commercial tenants being currently “unable to gain access to the premises” as a consequence of a “a restriction on occupation by a competent authority”. Opinion is divided, however, on two critical issues: What constitutes “a fair proportion of rent and outgoings”, and Does the phrase “to fully conduct the Tenant’s business” exclude the providers of essential services who have retained partial access to their premises. Leases without a “No Access” clause Tenants should not assume that they are obliged to continue to pay full rent and outgoings just because their lease does not contain clause 27.5. Other lease terms can have much the same effect. These include “change in law” clauses, clauses that allows an extension of deadlines in certain circumstances and clauses which excuse breaches caused by events outside the reasonable control of the parties. Another important consideration is this: The legal structure of most commercial leases extends beyond the immediate parties. Guarantors and banks are also generally involved and all must agree to the terms of any compromise arrangement between landlord and tenant. It is vital therefore that any compromise be recorded in writing and only signed after legal advice has been taken. If you want help reviewing your lease agreement and/or with determining how to strike the right balance between a ‘kind’ and fair proportion of your rent, please call us on 03 477 8080.

The key requirement for transactions affected by the lockdown right now is to ‘make things work’. This is a time when the practical solution must often trump theoretical rights. As the Law Society acknowledges that ‘the vast majority of transactions due to settle over the next four weeks of Level 4 lockdown will most likely have parties that are not in a position to settle. Even if the prerequisite documentation has been attended to, moving companies will not be operating so vendors will be unable to give vacant possession; equally purchasers will have no means of moving their own furniture. Any such relocation will likely be a breach of the Level 4 lockdown requirements.’ For these and other reasons, the Property Law Section of the Society recommends using the following clause to amend existing Agreements for Sale and Purchase or Auction Agreements due to settle during the Level 4 lockdown: “The parties agree that settlement is hereby deferred to the 10th working day after the Government reduces the Covid-19 Level to Level 2 or below, or to such other date as may be mutually agreed. For the sake of clarity neither party shall have any claim against the other in relation to this deferral.” If you have an issue with a settlement or for further information contact us or call (03) 477 8080

Why we need to ask you for information New Zealand has passed a law called the Anti-Money Laundering and Countering Finance of Terrorism Act 2009 (“the AML/CFT law” for short). The purpose of the law reflects New Zealand’s commitment to the international initiative to counter the impact that criminal activity has on people and economies within the global community. Recent changes to the AML/CFT Act mean that from 1 July 2018 lawyers must comply with its requirements. Lawyers must do a number of things to help combat money laundering and terrorist financing, and to help Police bring the criminals who do it to justice. The AML/CFT law does this because the services law firms and other professionals offer may be attractive to those involved in criminal activity. The law says that law firms and other professionals must assess the risk they may face from the actions of money launderers and people who finance terrorism and must identify potentially suspicious activity. To make that assessment, lawyers must obtain and verify information from prospective and existing clients about a range of things. This is part of what the AML/CFT law calls “customer due diligence”. Customer Due Diligence Requirements Customer due diligence requires a law firm to undertake certain background checks before providing services to clients or customers. Lawyers must take reasonable steps to make sure the information they receive from clients is correct, and so they need to ask for documents that show this. We will need to obtain and verify certain information from you to meet these legal requirements. This information includes: • Your full name; and • Your date of birth; and • Your address. To confirm these details, documents such as your driver’s licence and your birth certificate, and documents that show your address – such as a current bank statement – will be required. If you are seeing us about company or trust business, we will need information about the company or trust including the people associated with it (such as directors and shareholders, trustees and beneficiaries). We may also need to ask you for further information. We will need to ask you about the nature and purpose of the proposed work you are asking us to do for you. Information confirming the source of funds for a transaction may also be necessary to meet the legal requirements. If you cannot provide the required information If we are not able to obtain the required information from you, it is likely we will not be able to act for you. Because the law applies to everyone, we need to ask for the information even if you have been a client of ours for a long time. Before we start working for you, we will let you know what information we need, and what documents you need to show us and let us photocopy. For further information contact us or call (03) 477 8080

What is an Enduring Power of Attorney and what does it actually do? Enduring Powers of Attorney were first introduced in New Zealand in 1988, and they have made a big difference to the way we approach elder care - for the better! By having these in place it allows other people to make decisions on your behalf. Why is it called an “Enduring” Power of Attorney? They are called “enduring” powers of attorney because they continue to have effect even after a person loses mental capacity. This is the very time when people need care. Do I need Enduring Powers of Attorney? For most people the answer will be a simple “YES”. It is always good to have your affairs in order and to have proper arrangements for the future. Enduring Powers of Attorney give you control over who will look after you and how your affairs could be managed. It’s all about peace of mind. Enduring Powers of Attorney assume more importance today because organisations have burgeoning legal concerns about respecting privacy. You do not ever want your “privacy” getting in the way of the right people being informed and listened to. Another reason for having Enduring Powers of Attorney is that this gives your family a focal point for decision making. We are often asked about whether other family members can be consulted, and of course they can. But it is important to have someone to act as the decision maker too. What kind of decisions could be made on my behalf? There are two types of Enduring Powers of Attorney, and most people have both. One type is for Personal Care and Welfare – Your attorney can make decisions about your welfare, care and wellbeing if you lose mental capacity. The most common decisions relate to living arrangements and health care treatment. The other type is for Property – Your attorney can look after your property and finances. Commonly this involves managing bank accounts, paying bills, and committing to a suitable residence for you. You can decide whether you would like your attorney to have immediate power or only if you lose mental capacity. How many attorneys can I have? You may only appoint one attorney to act at any one time for Personal Care and Welfare. However you can appoint as many successor attorneys as you wish. For Property, you can appoint any number of attorneys and successor attorneys. If you appoint more than one attorney you can also instruct that they have to act together. There are some matters that you attorney cannot decide for you, for example they cannot make decisions for you on marriage or divorce, or consent to you being part of a medical experiment. Who should I appoint as my Attorney? Your attorney should be someone you can trust, someone who understands you, and someone you know will act upon your best interests and wishes. If you are married or have a partner, it is permissible to choose each other, and most people do that. Otherwise you can choose a family member or a close friend. When should I make an EPOA? Most people make Enduring Powers of Attorney nowadays when they see us about making a Will. That begs the question, when should I make a Will. Any time is a good time for both, and the sooner the better! What happens if I don’t make Enduring Powers of Attorney and I can’t manage my own affairs? Someone may have to apply to the Family Court on your behalf. If this is needed, a welfare guardian and/or property manager will be appointed by the Judge. The biggest issue with not having Enduring Powers of Attorney is creating avoidable stress for family members or loved ones trying to look after you. Moreover, applying to the Family Court can be a very costly exercise, and it takes TIME. While you wait for a court order to come through it is difficult for anyone to act. Even simple tasks like paying your bills can become a headache. What other matters do I need to ensure my personal affairs are in order? The usual things that people review are Wills, Enduring Powers of Attorney, and any Trust documentation. An asset planning issue could be whether there is any possible claim against your estate. Another concern for many people, especially as they age, is eligibility for rest home care subsidies. If you are married or in a relationship it is often a good idea to consider the combined effect of both your Wills, particularly where one or both of you are in a second relationship. Some couples choose to enter into contracting out agreements. Such agreements obviously set out what happens in the event of a relationship breakdown. Furthermore, they can impact significantly on what happens when each person dies. For anyone looking at their personal affairs it is important to address any potential clashes of interest between family members. Family trusts often play a role in helping parents preserve assets for their children. If you control a family trust, you can and should review what will occur on your death. One of the issues is who the trustees will be and how they will be chosen. Another question is whether the trustees who come after you have enough of an understanding to administer the trust. Most settlors will leave a memorandum of wishes, and documents of that kind should be reviewed from time to time. For further information contact us or call (03) 477 8080

Trustees can find it extremely annoying when they want to resign but no one will cooperate. This can be a really tricky situation to work through. In one case, a trustee decided he wanted to resign because the family politics were getting heated. He had originally agreed to get involved as a favour to a cousin. Now the whole thing was turning into a major hassle. Trustees must know what is going on, and it’s unsettling if you feel that you can no longer trust the other trustees. No one wants to end up in a pickle over someone else’s affairs. Going to court to get out of being a trustee was a really daunting prospect for our client. However, we guided him through the process and he was able to be replaced. And, the court also ordered the other party pay our costs. A very good outcome for our client! For further information contact us or call (03) 477 8080

Lucas and Lucas advise all our clients that a Will is one of the most important legal documents you can have, especially if you have assets such as a house, or KiwiSaver. If you don't have a Will the law will determine how your estate is divided, and this could be very different to what you want to happen - read more. Your Will stipulates what you want to happen to your property and possessions after you’re gone. Having a Will ensures that the people and things that matter most to you are taken care of later on. For further information contact us or call (03) 477 8080

Tell your advisors exactly what you want to achieve out of the deal. If you want ensure that a shareholder-employee will stay, then make sure your advisors know this so they can be thinking about how to ensure that objective. If you are looking for a source of capital, your advisors need to be thinking about what strings will be attached. If you are looking to start a succession plan, your advisors need to be thinking about how this sale might fit into the broader picture.   We spend time listening to what clients want, and then we so we are better able to offer insights from our experience about what can be done to get there. Clarify precisely what you expected from the new shareholder. Misplaced expectations are a huge catalyst for disputes. It is a great idea to write all the important things down in your agreement. We like to record the parties’ background, how they got to this point, what they ‘expect’, and how they envisage the relationship will pan out in the future. That way, the agreement becomes a useful reference point for ‘what we did say at the start’. There are three big issues that any Shareholder’s Agreement must cover: i) Who is going to be in charge?                                Who will the directors be? Who can vote in new directors? What is the formal chain of command? How much ‘say’ can the newcomer expect? ii) How will you cope with a dispute?                                Methods include court resolution, arbitration, and mediation. Mediation, arbitration and court resolution. See point 4 below for more on this. iii) How will (either of you) get your money out?                                In a practical sense, having ‘liquidity’, i.e. the ability to sell, adds real value. When people go into business together, the mood is often euphoric. The parties just want to get on, and get the deal settled. They will say ‘Disputes? What disputes? We will get along fine.’ The trouble is that when a dispute arises, trust usually breaks down, and then one side will try to hold the other to ransom. Often it is just too expensive to go to Court, or to arbitrate, and the parties are left having to accept the status quo. One way to avoid this is to have a mechanism that allows a buy-out on an agreed formula. Having an ‘out’ if things don’t work out is the best insurance that you will actually get along fine. For further information contact us or call (03) 477 8080

You will need to give some consideration to a dynamic price formula. The pricing mechanism has to work for now, and also into the future as you sell more shares. The price formula is the most critical part of the equation, and ideally it shouldn’t be too complicated. From the seller’s perspective, it is important to get a fair return. From the purchaser’s perspective, the opportunity must stack up, and it must be financially viable. And from the company’s perspective, the formula must be right so that the business continues to do well. It is important to identify the true stakeholders.   Ensure that your employee’s spouse or partner is on board. We often find it is useful to arrange an informal meeting with a purchasing ‘couple’ early in the process. This helps identify all their expectations and it allows an opportunity to talk through ‘fears’. Early meetings can build trust and help purchasers get their heads around the basic ‘give and take’ of what is on offer. Often financial risk is a part of the deal that they don’t like, but need help accepting. Talking about the risks helps. Another potential stakeholder is the purchaser’s bank, especially if it is expected that the last tranche of shares will be sold for cash. Mostly the bank will not confirm  in advance exactly what it will finance in the future. However, a good discussion with a commercial banker will clarify the kinds of parameters that are likely to apply. When the parties start to agree in principle, it is a good idea to write the deal up. We will often use a ‘Memorandum of Understanding’. This is a simplified non-binding record of where the parties have got to and what they envisage agreeing  to. No legal commitment is usually expected until the purchaser signs a detailed agreement, and until they have a chance to consider the final agreement with their lawyer. Having a non-binding record in the meantime means that if a party wants to change their mind down the track, then they at least have to be transparent about it. These early write ups help bed in expectations. They also help contain costs. It’s better to identify issues at an early stage, than to wait till a prospective deal has been fully documented. Consider dipping a toe in the water before you make a fully-fledged commitment. A provisional sale of shares may be able to be unwound for a time, at the same price, if the arrangement does not work out. Probationary arrangements allow the vendor to wait and see how the purchaser is adapting to a new set of expectations. The Shareholders’ Agreement must be dynamic. As more shares are sold, the vendor will lose some degree of voting influence. The tipping point has to be managed carefully, so that the outgoing shareholder does not give up too much influence too soon. When you offer shares to an employee, look at the total package. You will need to work out how the new arrangement will affect the employment agreement. What more will you expect from this person? What will they expect? If you are going to agree to ‘market remuneration’, always research and discuss what that means.

Susan* called to see us with bank loan and mortgage papers. She had agreed to be a trustee for Bob*, her brother’s trust. She presented with over thirty pages of small print to read. She wanted to know what risks there might be for her in signing the bank papers. Many people are asked to be trustees for family and friends so Susan’s important question is topical. The bank forms limited her personal liability but that was not the end of the story. Susan needed to know that her brother, Bob, a builder was not also lending money to the trust either personally or through his company. If the trust did have other debts she may be liable to her brother’s creditors if the trust assets became insufficient. Although Bob was building a home for himself and his new partner, Susan also had to be sure that the equity wouldn’t be used to finance the building business. Any stress at that end might require the house to be sold, and being a builder, leave Susan with unfunded tax to pay. In this case Bob’s lawyer had things well in hand. There was a distinct limit on the loan. The other trust funding was by cash gift, there were no other debts, and Bob’s building company was personally owned by him, and a proper resolution was prepared to record the transactions. It wasn’t my concern, but Bob and his new partner also had properly documented their expectations of each other. If you are a trustee, you do have to ask nosey questions, you do need to see the trust accounts, you do need to know what your duties are and you can’t delegate decisions to other people. * Names have been changed. For further information contact us or call (03) 477 8080

If you love the house, we want you to get it. If you’re selling your house, we want it to go smoothly. Buyers If you’re climbing the property ladder or if you’ve found the house you love, we’re here to help you make this house your home. Who’s name should your house be in – and if you’re in business, this decision may be crucial. Finding finance & Property checks – we can point you in the right direction. KiwiSaver – assistance with the application and obtaining your KiwiSaver. Relationship Property – defining your rights. Sellers Real estate agents have the sales expertise; they know the current market and are skilled in presenting your house to its best advantage.  We’re here to make sure all the “i’s are dotted and t’s are crossed” and all papers are in order so your sale is smooth & stress free! Electrical & Building Valuation HP Charges Council Records Titles Your money to the bank! Anyone can deal with the simple things but it’s important to do these things well. If something comes up, or there’s a wee bump in the road, it’s our job to straighten it out for you. For further information contact us or call (03) 477 8080

I am a business owner who wants to sell my business. I am not sure how to find a buyer. What should I do? Work out what kind of person will buy your business. Do they need a specialist skill? What attributes are required to make a go of it? Assess whether the business is too dependent on you. Make sure your shoes are not too big to fill.  The more a business depends on your special talents, the less desirable it will be. Look at things from a purchaser’s point of view. What would you worry about if you were a purchaser? Is there anything that you can do to strengthen the relationship with your customers? How strong is your lease? Get help to identify all the risk areas. Be able to say clearly how the business works. In most cases a few key factors will drive a business’s profit and explain why it is successful. What are the factors that drive your sales? What makes your product or service attractive? What is it that you do differently from others? Is the formula proven?  What would your strategy be, if you were staying on? How would you take the business to the next level? What knowledge do you need to hand over to the buyer? Can you do this easily? Pay attention to the numbers, and be realistic about pricing. Many business owners overestimate the value of their business due to emotional factors. Of course you want your life’s work be worth a lot! However it is best to use objective information to price your business realistically. If you over-price your business, you may put off the best prospects. If the business is on the market too long, potential buyer may start to think there is something wrong with it. Another more subtle risk is that while waiting for a sale, the business owners can take their eyes off the ball, resulting in things going downhill. Even when you can get a purchaser excited about your business, there is no guarantee that they will seal the deal. The purchaser will be surrounded by advisors who will err on the side of caution, and who can potentially hold the deal up, or kill it. How can you mitigate ‘advisor risk’? Well, it is best to go in well prepared. It’s a great idea for example to have a sale and purchase agreement written up in advance, so that you know how you will approach the details. Also, this is an opportunity to shape the deal even before the purchaser’s professionals get involved. Being prepared for questions helps to streamline the process. Think about what the purchaser’s lawyer will be looking for. Work out carefully what you (and your agents) can and cannot say about your business with integrity. When you sell a business, you will naturally want to present it in its best light. But if you go too far, the purchaser may hold you responsible for not meeting their expectations. Non-disclosures can result in deal-killing loss of trust issues. Or you might be sued. Engage the best people you can to help you, and make sure that your strategy is realistic and cost-effective.