Sometimes the most important assets in a business are not the stock in trade or tangible assets, but the intangibles. This includes things like trade names, domain names, logos and trademarks – all significant features of branding. These branding intangibles are part of what is known as intellectual property (IP), and it is often this IP that has the most value, both to your current business and as a future saleable commodity.

All business owners should assess their risk, and this would be true especially in tough economic times. If the worst happens, and your business is liquidated, all business assets would be sold to clear debt. If the IP belongs to the business, then the IP is also subject to liquidation and sale. Gone. Lost.

It is a good strategy to evaluate whether or not your branding IP should be owned by an entity separate from the business. The IP owner – a stand-alone company or family trust, for example – would grant a license to the business to use the IP, but ownership of the IP would be secure from the reach of the business creditors. This very practical risk management ring-fencing would ensure that the IP is not lost in the event of a business collapse.

Barbara Beck – February 2012

What are your options?

• Sell the investment property.
• Do nothing.  It will become a qualifying company.
• Revoke the QC status.  It will become an ordinary company.  Advantageous if the company is in profit as the company tax rate is 28%.
• Wind up the LAQC and transfer it into the shareholders names (future tax losses will reduce your personal tax).
• Wind up the LAQC and transfer its property to a family trust (if it is in profit).
• Convert into another structure such as a limited partnership, or into a Look Through Company (“LTC”).

What is a “Look Through Company”?

The LTC removes many of the tax benefits previously enjoyed by a LAQC.  A LTC allows tax losses to be passed to shareholders (or “look through owners”), these are then taxed at your marginal tax rate.  Tax losses can only be used by owners in the proportion of their investment in the company.

What does a LTC involve?

• Profits AND losses flow through to the shareholders for tax purposes.  Profit is taxed at the personal rate.
• There must be no more than five sharedholders.  A LTC is restricted by the inability to have a corporate shareholder.
• There is a “look through counted owner test”.  Shareholders related by blood, marriage, civil union, de facto or adoption all count as relationships that constitute a single owner for the purposes of the test.
• Disposal of shares is treated as disposal of underlying assets, with all tax implications.

Is a LTC better than a partnership?

• LTC’s are limited liability, so they protect shareholders personal assets.
• Movements of shares in an LTC will not involve conveyancing and may be shielded from tax for small amounts below a threshold.
• However, accounting will be more complex because the LTC must be monitored to ensure the loss limitation provisions are not contravened.

When must you act?

You have six months after the start of the 2012 income year to elect to change to a LTC without incurring depreciation clawback (cut off of 30 September 2012).  You should talk to your accountant who can estimate whether your company is likely to make a profit or loss in the next few years.  Then we can discuss with you what sort of restructuring may need to occur and put this into place.

December 2011

Marriage significantly changes property division and the allocation of assets.

A new marriage invalidates a Will made before the marriage.

If you die without leaving a Will, then your assets are allocated by legislation such as the Property (Relationships) Act 1976.  This may be different to what you wanted.

So you should reconsider documents such as Wills and Contracting Out Agreements (“Pre-Nuptial Agreements”).

Estate planning should be reviewed before marriage as it will be affected by the marriage as well.  Your review should look at who will benefit from your estate and gifts.

If your documents do not reflect your wishes, then that can have negative consequences for everyone.

November 2011

It is not uncommon for purchasers to face difficulties after settlement, such as having to evict a previous owner occupier or having to deal with damage caused to the house by the disgruntled owner.  In one instance the occupier took all the chattels from the property and sold them to pay other sundry debts, leaving the purchaser out of pocket.

Other common issues from purchasers at mortgagee sales can include:

• There is less protection for purchasers as the agreement usually does not include standard provisions.  For example, the mortgagee will typically remove the section in the agreement relating to the vendor’s warranties and the right for the purchaser to approve title?  Often purchasers will not be able to view the property beforehand as the owner does not allow an inspection, so it will not be clear whether work has been carried out that should have required a permit.
• Purchasers may not be able to claim against the mortgagee for late settlement/possession as there may be situations where the mortgagee is unable to evict the owner.  The mortgagee does not guarantee that it will give vacant possession on the day of settlement.
• Once the contract is signed it is unconditional and so requires thorough due diligence prior to signing.  Even though a contract is unconditional, the terms may allow the bank to cancel the agreement prior to settlement if the owner pays the debt.  This means the purchaser is unable to know whether settlement will actually occur until the day of settlement.
• The purchaser must insure the property from the moment the agreement is signed, because risk in the property passes when the agreement is unconditional.

While mortgagee sales offer an opportunity to buy a property at a reduced cost, you must understand the agreement well and undertake a thorough due diligence investigation prior to entering into the agreement to lessen the likelihood of problems.  It is recommended that prior to signing an agreement or attending an auction, you seek legal advice, as well as checking the title, council records and the property itself.

The above is by no means an extensive list of the issues that a purchaser could face, but it is a reminder to put your ducks in a row before putting pen to paper.

August 2009

One reason is that Government “user pays” charges mean that it is better not to have assets owing to you in your own name.

Other clients just want to save the annual costs of an ongoing gifting programme.

Nothing is so straightforward.  Each person must consider the benefits of:

• Completing a gifting programme all at once;
• Continuing with progressive gifts as in the past, or
• Not gifting at all.

The abolition of gift duty is a tax change.  It is not a change to social policy.

WINZ will continue assessing entitlements to rest home subsidies.  WINZ only allows gifts of $6,000.00 for the five years before the application. Before that, only gifts of $27,000.00 per year are allowed.

If you want to be eligible for a rest home subsidy, then you are best to continue with an ongoing gifting programme of $27,000.00 per year. That way you will stay in tune with WINZ current policy for assessing entitlement to a rest home subsidy.

If you have no hope of meeting the WINZ requirements, or if you have other priorities with your asset planning goals, then it may be appropriate to consider a one off gift.

This could apply to an individual who has formed a trust but still holds considerable wealth either in the form of a debt owing from the trust or from other assets not yet transferred to the trust.  In this case, it may well be advisable to make a one off gift to the trust as protection against a potential relationship property claim.  A partner may still challenge a one off gift if you were in a relationship at the time the gift was made.

The moral then is to ensure that everything of value is held by a trust with no significant debt back at the time you form a relationship.

As we all know, timing is everything. If you are concerned about the potential claims under the Family Protection Act or similar legislation, then you may prefer to have your assets transferred to a discretionary trust with a one off gift.

That way it is much more difficult for disappointed family members to have a successful claim against a family trust as opposed to claiming against a deceased estate where there were assets owned by the deceased personally.

Business owners who want to protect themselves from claims by creditors may think that a one off gift is a good tool for risk management.  This is not necessarily so.

Insolvency and the timing of any debt forgiveness are relevant.

The Property Law Act and the Insolvency Act allow gifts to be “clawed back” for creditors in certain circumstances.

If you are self-employed, then full information of your financial position should be disclosed before making a gift.

With the way the law is developing, it is likely that all clients will be asked to produce a solvency certificate at the time of any one off forgiveness of debt.  This will entail a detailed summary of your financial position, which clearly shows your assets and liabilities as well as any contingent liabilities including guarantees.

There are obvious implications if a one off gift is made, without taking into account personal guarantees, which could make the donor insolvent. This would effectively allow the gift to be set aside.

There are income tax and GST implications on making gifts in some instances.  We recommend that, where business or income producing assets are involved, you first discuss the implications with your accountant.  In most cases, it will still be advisable to transfer the asset at its full market value followed by an immediate gift of the sale price.

Before making a one off gift there are other tax provisions to be taken into account.  For example, there could be adverse tax consequences if a gift is not made in favour of a beneficiary for whom the donor has “natural love and affection”.  A company is not an entity for whom a donor can have natural love and affection in this context.  If you gift to a trust, which includes members of your own family as beneficiaries, then generally they are held to be persons for whom you have natural love and affection.

So, what seems to be a much welcome law change does not take away the necessity for careful thought before deciding whether to continue with an annual gifting programme or to gift one large amount.

Some people should not gift at all. This is particularly where there are loans to family members. Even if loans are not intended to be claimed back, circumstances can change. It is desirable to have some control over the loans, such as in the case of the breakdown of a child’s relationship or simply where your financial circumstances have changed and you need the money back.

To state the obvious, once a gift is made there is no longer any loan owing to you and you lose the ability to claim it back.

November 2011

Although employers are entitled to run their business as they see fit, they must have genuine commercial reasons for making employees redundant and they must follow a fair process in doing so.

Genuine commercial reasons for redundance may arise from restructuring and/or contracting out work, a decline in demand, or a sale or transfer of the employer’s business.  Employers must not use redundancy as a way of dismissing an employee who is not performing.  Remember it is the position, not the person, being made redundant.

Having passed the ‘genuine reason for redundancy’ hurdle, employers must follow a fair process.  It is in the process that employers often come unstuck.  Fair Process includes:

• consultation about any proposal that may impact on the employee’s employment
• a consideration of any alternatives to dismissal e.g. redeployment, reduction in hours, job sharing
• providing affected staff with information about proposed redundancies and the selection criteria for appointment to any new positions
• following the terms of the employment agreement with respect to notice periods, payment and redundancy compensation
• advising the employee of their right to representation and offering support, and
• where possible, providing counselling, career, financial and retraining advice.

Note that the National Government has introduced the “ReStart” package to assist redundant workers, providing short term relief for low to moderate income families with children.  Strict time limits apply, so investigate the requirements immediately.  A redundancy tax credit may also be available in some redundancy situations.

August 2009

Property Disputes

• Equitable claims to Property
• Disputes between Joint Tenants/Tenants in common
• Disputes arising from Contracts for Sale
• Damage to Property Caused by Third Parties
• Caveats and mortgages

Commercial Leasing Disputes

• Water Leaks and Damages
• Disputes concerning market rental reviews
• Rental relief from forfeiture
• Structural Issues

Insolvency & Bankruptcy

In light of the current economic times this topic has been placed in the spotlight. Many companies have suffered a significant downturn in business which has led to cash flow shortages. It is important, as a Director, that you are aware of the true financial position of your company so as to avoid insolvent trading. Early intervention is definitely the key and we work with Insolvency Practitioners to provide up to date advice and devise strategies to assist during these difficult times.

Personal Bankruptcy is increasing in the current economic climate and again early intervention is the key. We can provide you with advice on the options available to you and work with Insolvency Practitioners to provide you with up to date advice and strategise on the best options for you.

Recovery of unpaid money, whether from an individual or corporate entity, in a cost effective and efficient manner is also an area that we can help with when debt recovery agencies fail.

Building & Construction Law

We advise building, construction and engineering companies and independent contractors on a wide range of construction contracts:

• The Construction Contracts Act 2002 aims to assist contractors in getting paid for the work they have performed. It offers a relatively simple process for contractors to submit payment claims and have them enforced.
• Contractors and the owner/developers need to be aware of potential pitfalls. We can advise on these matters.
• Our aim is to provide up to date advice on these matters and work with you in a cost effective and efficient manner

Partnership and Corporate Disputes

• Disputes between Officeholders
• Shareholders Rights and Disputes with Office Holders
• Disputes between Members of Incorporated Associations
• Advice on Directors personal liability

Estate Disputes and Estate Litigation

There is nothing like a death in the family to cause trouble amongst the surviving spouse and/or relatives of the deceased!

Whether you are an executor, co-executor or trustee of a Will and are having problems with the family or nominated beneficiaries in the Will, you need to make sure that you are receiving correct legal advice.

Some of the areas that we can help are:

Developers and apartment owners will take note of the new Unit Titles Act 2010

Key changes in the 2010 Act are:

• all common property is owned by the body corporate. Before the common property was jointly owned by all the unit owners;
• the body corporate must maintain the common property and all building elements and infrastructure which serve more than one unit;
• requiring body corporates to set up a long term maintenance plan and establish a fund for that plan.  Unit owners can pay regular installments over time. This avoids large one off special levies for work required on common property such as lifts;
• adopting of a comprehensive disclosure regime when buying and selling a unit title development. There are three types of disclosure – pre-contract disclosure statement – which the seller provides before entering into an agreement for sale and purchase – pre-settlement disclosure statement – which the seller provides after entering the agreement for sale and purchase but before settlement of the sale and additional disclosure – which the seller provides on the request of the buyer.
• establishing a new regime to decide on disputes;
• overhauling the governance regime. There are now clear responsibilities on chairpersons and body corporate committees. Improved financial management should result;
• introducing layered developments. This allows multiple use of a building;

Existing body corporate rules still apply until 1 October 2012. Body corporates should review their existing rules and make changes in light of the new Act.

Unit title ownership may be more appealing than before, because the Act gives unit title owners more certainty and flexibility.

October 2011

Property Disputes

• Equitable claims to Property
• Disputes between Joint Tenants/Tenants in common
• Disputes arising from Contracts for Sale
• Damage to Property Caused by Third Parties
• Caveats and mortgages

Commercial Leasing Disputes

• Water Leaks and Damages
• Disputes concerning market rental reviews
• Rental relief from forfeiture
• Structural Issues

Insolvency & Bankruptcy

In light of the current economic times this topic has been placed in the spotlight. Many companies have suffered a significant downturn in business which has led to cash flow shortages. It is important, as a Director, that you are aware of the true financial position of your company so as to avoid insolvent trading. Early intervention is definitely the key and we work with Insolvency Practitioners to provide up to date advice and devise strategies to assist during these difficult times.

Personal Bankruptcy is increasing in the current economic climate and again early intervention is the key. We can provide you with advice on the options available to you and work with Insolvency Practitioners to provide you with up to date advice and strategise on the best options for you.

Recovery of unpaid money, whether from an individual or corporate entity, in a cost effective and efficient manner is also an area that we can help with when debt recovery agencies fail.

Building & Construction Law

We advise building, construction and engineering companies and independent contractors on a wide range of construction contracts:

• The Construction Contracts Act 2002 aims to assist contractors in getting paid for the work they have performed. It offers a relatively simple process for contractors to submit payment claims and have them enforced.
• Contractors and the owner/developers need to be aware of potential pitfalls . We can advise on these matters.
• Our aim is to provide up to date advice on these matters and work with you in a cost effective and efficient manner

Partnership and Corporate Disputes

• Disputes between Officeholders
• Shareholders Rights and Disputes with Office Holders
• Disputes between Members of Incorporated Associations
• Advice on Directors personal liability

Estate Disputes and Estate Litigation

There is nothing like a death in the family to cause trouble amongst the surviving spouse and/or relatives of the deceased!

Whether you are an executor, co-executor or trustee of a Will and are having problems with the family or nominated beneficiaries in the Will, you need to make sure that you are receiving correct legal advice.

Some of the areas that we can help are:

1. Assisting family members where the executor or executors have died or refused to carry out their functions as executor;
2. Acting for beneficiaries and ensuring that executors properly administer the estate in accordance with the terms and conditions of the will;
3. Acting for beneficiaries and other family members where executors have misappropriated or have been negligent in investing estate funds or assets;
4. Acting for families or beneficiaries where the deceased has died without a will (intestate) or where the will is unenforceable due to being incorrectly signed;
5. Acting for executors where beneficiaries contest the will on incapacity grounds or bring a provision claim;
6. Acting for the executors and trustees in large and complicated estates to ensure that all duties and obligations of the executors and trustees have been fulfilled;
7. Acting for executors or beneficiaries in relation to lawyers being negligent with respect to the administration of estates resulting in losses to the beneficiaries or excessive legal costs being incurred.

October 2011

1. The agreement to lease is where you set out:
   • What needs to happen for the lease to go ahead?
   • How your expectations are different from the standard terms.
   • What has to happen before the tenant moves into the premises?

What the parties want – getting the deal done

1. The landlord is mostly concerned about return on investment over the initial term.
2. For tenants, the issues are not only economic. The tenants’ hopes about the premises are more diverse.
3. The lease is negotiable so long as the overall return objectives of the parties are met. Keep these firmly in mind when negotiating terms: how can we get (mostly) what we want and the other person get (mostly) what they want.
4. Knowing the landlord’s requirements means that the tenant can structure the terms of lease confidently.
5. The length of the term, the landlord’s expected capital sums during the term, the interest rate used, the landlord’s costs to get the premises ready and the method of rent review all affect the investment return.
6. Who is paying for the fit out, and who will own it at the end of the term are important. Is the landlord lending money to complete the fit out? Or is the landlord doing it?
7. Will the landlord’s costs be paid on a table mortgage type amortising or straight line?
8. For incentives, the landlord’s contribution to capital are a bit more tax effective than not paying rent for a time.

Rent

1. The two main types of review are inflation based and market.
2. Will the rent stay the same or go up? What if the market price goes down?
3. Rent reviews must say whether or not they are to include improvements made by the parties of the lease. For this to work, the improvements each party has made needs to be clear.
4. Outgoings are usually a proportion of total building outgoings. For outgoings, is there a separate power meter for the premises? What the common areas are, what the outgoings cover and don’t cover.
5. Who pays to repaint the outside of the building? This is often a cause of dispute. The standard lease is confusing on this point.
6. If there are naming rights and use of corporate colours on the outside of the building you need to agree on the type, placement and size of the Tenant’s signs.
7. Properly describe the tenanted area, including all car parks and areas you share with others. If the premises include stairs or common outside areas define who pays for what e.g. cleaning costs.
8. Tenants should find out if there are any problems with the premises, like leaks, and have the landlord fix them before moving in.
9. Detail who pays for and what is the scope of reconfiguration of the inside; what are the fit out arrangements. When does this all need to happen by?  Does the existing air-conditioning, lighting, power and cabling suit the tenant’s needs?  Do you need new sinks or hot water?  Is a building consent or other consent required? Do you need extra security lighting or camera installed? Are they agreed and who pays for them?
10. Confirm the requirements for fire and access. A new fit out may mean new rules apply requiring new exits, lifts, disabled toilets and wide enough doorways for wheelchairs. The fire rules can be complicated.
11. It may be attractive to say that the tenant owns those items after they have paid for them. But items such as air-conditioning and partitioning are not often removed. So it may be better for the tenant to simply leave them without an obligation to make good the premises to its original condition.
12. Plans should be attached to agreements to lease. Check old plans are actually correct and do not identify walls that aren’t there.

When can you move in?

1. An agreement is usually subject to due diligence, to make sure that the premises are suitable for the tenant and the tenant’s arrangements are suitable for the landlord.
2. Who else might be involved in leasing:
   • Real estate agent  –  to find what is available,
   • Designer – to provide plans and costs and advise on fire and access requirements,
   • Project manager – to get fit out completed and advise on costs,
   • Valuer – to establish rent and improvements,
   • Accountant – to check the figures and any tax implications,
   • Council – to check fire and consent requirements.

1. When an agreement to lease is properly done, when it comes time to complete the lease and move in, there are no hold ups or disagreements.
2. The lawyers at UMK have the experience to help landlords and tenants get the best out of their new lease.

October 2011