As you may be aware, the existing Trustee Act 1956 will be replaced by the Trusts Act 2019 (‘the new Act’), which comes into force on 30 January 2021.
The new Act primarily serves as a restatement and clarification of existing trust law, in a way which modernises the (very) outdated 1956 Act. Historically, the operation and management of trusts have required minimal trustee involvement. Under the new Act, that all changes. Trustees are now enlisted to play a much more “hands-on” role from early 2021 onwards and face serious consequences for failing to do so.
Overall, the Act increases compliance requirements imposed on trustees, gives beneficiaries’ greater access to information, and increases the scope for beneficiary claims against trustees and professional advisors. Trustees in particular need to ensure that they understand the key features of the Act and discuss their obligations with their legal advisors in order to avoid any potential legal ramifications down the line.
A quick overview of the key changes contained in the Act:
- The age of majority is now 18 (rather than the current age of 20)
- The maximum life of a non-charitable trust is extended to 125 years (currently 80 years)
- Trustees now have mandatory duties, which cannot be modified or contracted out of.
- Trustees also have default duties, which are optional and can be varied by the trust deed. Unless specifically dis-applied or varied, they will apply by default
- Exemption and indemnity clauses will only be given effect in limited circumstances. These clauses can be included, but they cannot protect a trustee from liability arising out of dishonesty, wilful misconduct or gross negligence. If it purports to do this, the clause will be struck down as invalid
- Trustees must keep certain documents and retain them for the duration of their trusteeship. This includes things like the trust deed (and any variations to it), financial statements, and letters or memoranda of wishes
- Trustees must provide all beneficiaries with basic information relating to the trust
- If a beneficiary requests for specific trust information, this information must be made available to them within a reasonable time. There are only limited circumstances when the trustee can refuse the request for information
- A trustee who wishes to retire must seek a discharge in writing from the person with the power of removal. A trustee is not discharged from liability simply from notifying the other trustees of their retirement.
- Beneficiaries can now apply to the court to review trustee decisions on the ground that the decisions was “not reasonably open to the trustee in the circumstances” to make. If the beneficiary can establish a “genuine and substantial dispute”, the onus shifts to the trustee to establish that their decision was reasonably open in the circumstances.
“What does this mean for me”?
- If you are a trustee, beneficiary or owner of a trust, you need to make sure you are familiar with the new Act before it comes into force on 31 January 2021. There are legal consequences for failing to adhere to the provisions of the new Act, therefore it is in your best interests to speak to a legal advisor as soon as possible.
- Trusts are commonly used in asset protection and estate planning – and for good reason. Under the right circumstances, they are an excellent vehicle for managing personal assets. However, with the new Act comes greater compliance duties, which will naturally increase the time and costs involved with administering these trusts. You may wish to consider whether the reasons behind why you initially set up the trust are still valid. Are they still cost-efficient?
- The increased duties and obligations for trustees means more work and care must be undertaken when managing trusts. Are you happy with this heightened level of risk? Do you have the time to overlook the trust? Do you want to hire a professional trustee instead?
- Increased disclosure requirements means beneficiaries will now have greater access to information – some of this being information that you’d rather keep confidential. Are you comfortable with this information being made available to all beneficiaries? You may also wish to consider amending certain trust documents, such as trust deeds and memoranda of wishes.
These new laws will be enforced by New Zealand courts from January 2021 onwards. If you have any queries about your trust, wish to make changes to your trust, or simply want to seek further clarification on these new laws, please do not hesitate to approach one of the team at GML Lawyers and seek our advice. We have a number of highly-experienced experts in trusts, estate planning and asset protection. We want to ensure all our clients are achieving their optimum desired results with the highest levels of personal protection that can be afforded.
Shareholders’ Agreements – Always Have It In Writing!
A Shareholders’ Agreement operates as a contract between the shareholders of a company, regulating the relationship between the shareholders and governing how the company will be managed. Whilst they are not mandatory under the Companies Act 1993, more often than not you will see them being used in practice. They are akin to a ‘Relationship Property Agreement’ between parties to a relationship or a ‘Partnership Agreement’ between business partners. Because Shareholders’ Agreements are private documents, they do not need to be registered with the Companies Office, and therefore attract a higher degree of confidentiality than other documents such as the Company Constitution.
What do they do?
- Sets out the rights and obligations of shareholders
- Regulates the purchase and sale of shares within the company
- Describe how the company is going to be run
- Defines the processes for (important) decision making
- Provide an element of protection for minority shareholders
They cover things like:
- Dividend policies – when and how dividends are paid out
- Composition of the company’s board and board meeting procedures
- Appointment, removal and remuneration of directors
- Restrictions on share transfers and/or new share issues
- Shareholder voting rights
- Non-compete obligations on shareholders
- Exit mechanisms for shareholders who want out
- Dispute resolution provisions (which is important as resorting to battling it out in the courts is costly and time-consuming!)
The above list is not exhaustive. Essentially, there is no limit as to what can be included in a Shareholders’ Agreement. However, it is advised that you do consider having one in place, whether you are a small family-run business or a multi-national conglomerate. Such agreements increase accountability and trust between all stakeholders, whilst reducing uncertainty and ambiguity.
If you are considering starting up a company or buying into a company as a shareholder, please do not hesitate to contact us at GML Lawyers for our legal advice. Our commercial law experts can assist you with all aspects of your business, including the adoption of a Shareholders’ Agreement tailored to your needs.
Shareholder’s Access to Company Information
The term ‘shareholder’ can be used interchangeably with the word ‘owner’ in a commercial context. As a shareholder, you will want to keep an eye on how your company is doing. To do so, quite often this will require you to access company information and records. Sometimes this information is already publicly available, whilst other times you will have to specifically request it from the company. The Companies Act 1993 sets out the procedures and obligations of each party relating to this.
Section 216 provides shareholders with the power to request for company records from the company. “Company records” includes the following:
- Shareholders’ minutes and resolutions
- Copies of written communications to shareholders
- Annual reports and financial statements
Shareholders are entitled to these records under statute – the board does not have any discretion in determining whether this information should be made available to shareholders. As a shareholder, you ultimately have a vested interest in all property owned by the company, including its records. Accordingly, this is reflected by the law. Under section 216(2), a company and its directors commit an offence for failing to provide the information that is sought, and is liable for a fine up to $10,000.
In addition to company records specifically available to shareholders under section 216, section 215 gives the public the right to inspect certain records by sending a written request to the company. These publicly-available records include the certification of incorporation, the company constitution, the share register, and the full names and residential addresses of the directors. It may be useful to note that this information is readily accessible on the Companies Register website, which means you do not have to request for this information directly from the company. It is as simple as searching the Companies Register for the company name, which will bring up all the relevant information.
Shareholders can also seek further information from the company under section 178. This section provides shareholders with the right to obtain information held by the company, by making a written request specifying the information sought. The company is entitled to charge the shareholder for the provision of this information, however the amount must be reasonable. Following receipt of the written request for information, a company has 10 working days to either:
- Provide the information; or
- Agree to provide the information within a specified period; or
- Agree to provide the information within a specified period at a cost; or
- Refuse the request and specify reasons for doing so.
Section 178(4) allows the company to refuse the request in limited circumstances, such as where the disclosure of the information would likely prejudice the commercial position of the company or any other person, or where the request is frivolous or vexatious. For this reason, it is best to include in your written request the specifics of why you require the information, and what you intend to do with it. If a company refuses your request for information, you can make an application to the court for an order requiring the company to supply the information under subsection (7). The court will only grant this order after an analysis of the facts and undertaking a balancing exercise between the reasons for providing the information versus reasons for withholding the information.
As a shareholder, it is your general right to have access to certain company documents. The information contained in these documents is what allows you to make informed decisions regarding your investment, and also a way to ensure that your investment is being run in a way which suits you. The Companies Act 1993 has a number of provisions which specifies the scope of these rights and the process to obtain information.
If you have any queries regarding your right to company information as a shareholder, please get in touch with us. Our team of lawyers at GML are committed to providing all our clients with practical, tailored advice.