We are moving office on Monday 24 August 2015

Goodbye Parnell. Hello Newmarket.

On Monday 24 August we are moving office to Level 3, 142 Broadway, Newmarket. Please drop in and visit next time you are nearby and we’ll show you around. The entrance to the building is between the Crocs shop and Gateau House cafe.

Nick & Jeremy


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Creditors – what to do when the debt collectors come calling

I don’t know if it’s something in the air, but we’ve recently had a number of clients coming to us for advice about debts they owe to creditors – but way too late.

So I offer some basic advice which I hope is just common sense for most readers of this blog:

(1) pay your bills on time;

(2) if you can’t pay your bills on time, talk to your creditor(s) about it and get them to agree in writing to a payment plan (an exchange of emails is fine for this purpose). Make sure they agree – just because you propose something doesn’t mean they have agreed. Remember, they are doing you a favour – don’t get aggressive if they don’t agree to your first proposal;

(3) if you dispute a bill, take it up with your creditor as soon as you get the bill (and record it in writing) – don’t wait until they set the debt collectors onto you;

(4) if the debt collectors come calling, see my point (1) or call your lawyer IMMEDIATELY (not 3 weeks later);

(5) if you receive a statutory demand from a creditor, call your lawyer IMMEDIATELY (not 3 weeks later);

(6) if you haven’t paid your rent and you receive a Property Law Act notice call your lawyer IMMEDIATELY (not 3 weeks later); and

(7) if you get served with court proceedings call your lawyer IMMEDIATELY (not 3 weeks later).

If you can’t resolve a dispute with a creditor about how much you owe, you can take it to the Disputes Tribunal and get a referee to sort it out. Here’s the form you need to start that process.

DON’T put your head in the sand and hope it all goes away. If you leave it too late, you will have to pay the original invoice, interest on the unpaid amounts, collection costs, your creditor’s legal fees, my legal fees and potentially court costs. If you haven’t paid your rent you can add the cost of the landlord evicting you and changing all of the locks and any losses that they might suffer re-letting the premises.  If your creditor is the IRD, then call your accountant immediately and get their help.

There are companies that can help by providing invoice finance if working capital is tight, you can talk to your bank and some service providers will also provide instalment plans. The last thing you need when money is tight is to be incurring legal bills.

Finally, lawyers are not miracle workers. If you call me when you owe money to a creditor, my advice is likely to be that you should pay the bill.

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Parent company liable for debts of insolvent subsidiary

A recent High Court decision, allowing a landlord to recover rent owing by a tenant company that is in liquidation from the tenant’s parent company, is a reminder that the “shareholders have no liability for a company’s debts” principal has its limits.

The case, which considered the breadth of section 271 of the Companies Act, was an application by a landlord to recover rent owing by Stube Industries Limited (in liquidation) from its parent company, Steel and Tube Holdings Limited. Justice McKenzie decided that it was “just and equitable” that the parent company should pay the subsidiary’s debts to the liquidator. He found that Stube had been operated as a division of Steel & Tube – and not as a separate legal entity. The judge noted that while the directors of a subsidiary could prefer the interests of the parent company ahead of the subsidiary’s best interests (if the constitution allows), the directors could not simply ignore the interests of the subsidiary (and, by extension, the subsidiary’s creditors) in discharging their duties.

Section 272 of the Companies Act sets out the factors that the judge must consider:

  • the extent to which the [parent] took part in the management of the [subsidiary] in liquidation;
  • the conduct of the [parent] towards the creditors of the [subsidiary];
  • the extent to which the circumstances that gave rise to the liquidation of the subsdiary are attributable to the actions of the parent; and
  • such other matters as the court thinks fit.

It is possible that this judgment will be appealed but, as it stands, this interpretation of section 271 has implications for all company group structures. For example, where a group of companies includes separate operating and asset owning companies, it is possible that the asset owning company may not be protected from the creditors of the operating company following liquidation of the operating company. The key lesson for directors and business owners is that, as with the use of trusts for asset protection, you need to make sure that when you have separate companies holding different assets, you don’t just bundle all of the assets together and treat them as being part of the same enterprise. This means holding separate meetings, preparing separate accounts and ensuring that each company retains its own discreet identity.

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Election over – back to work everyone

It would be interesting to know just how much productivity is lost during events like general elections, World Cups, Olympic games and America’s Cup campaigns. Events that none of us (individually) has any control over seem to dominate our thoughts and our conversations. When the event finishes I feel a boost of productivity – because I can return to talking and thinking about, and doing, the things that actually add value to my clients and the economy (not to mention my family and my relationships). For example, I find time to post on this neglected blog.

So while lawyers often enjoy a change of government – because it can mean a boost in law-making and the need for expert advice – I think that most businesses like the idea of being left alone by politicians for 3 more years. The contingency plans that the power companies were drawing up to deal with Labour’s “NZ Power” policy can be shelved (for the time being). So can the capital gains tax “mitigation” plans that were starting to appear during the past few months.

Even if major legislative change is one thing less to have to plan for, there are still enough general business, economic, geo-political, technological, demographic, climate and other changes and uncertainties to keep all of us on our toes. But at least the end of election season has freed up some of our personal bandwidth to attend to the things we can influence ourselves.

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How the cloud is transforming business

Two events in the past two days have reinforced for me the dramatic impact that cloud computing is having on the way we do business. The first was a meeting with a new client who is getting ready to launch an ERP (“enterprise resource planning”) solution for small and medium enterprises hosted in the cloud. (That’s right, ERP for SME!). ERP systems have traditionally been expensive and complicated – and beyond the reach of the small companies who could get the greatest benefit from them. It’s great to see a kiwi company that wants to bring an ERP solution within the reach of every business – and in the process dramatically increase firms’ productivity, data quality and management information.

The second meeting was with Wellington-based start-up, Trustworks. Trustworks has built an online, cloud based platform for managing the thousands of trusts that families and businesses set up (and usually neglect). For a small annual subscription fee the system will store trust documents, allow trustees and advisors to collaborate, manage the trust and substantially reduce the risk and liability of trustees. Trustworks is also planning to launch an equivalent product for managing company compliance too.

Both of these companies have the potential to serve customers all over the world from a NZ base. It’s an exciting time for our tech entrepreneurs and investors – and the businesses who improve their own competitiveness by taking advantage of these cloud based services.

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10 business mistakes that lawyers love…

“If only I knew then what I know now” is a common refrain from clients who find themselves in disputes with their fellow shareholders, customers, suppliers, distributors or sub-contractors. It may be good for our business for you to make these mistakes, but we guarantee that it won’t be good for yours.

Here is our list of 10 mistakes that others have made – so that you don’t have to repeat them.

Mistake #1: set up a company without a constitution. For example, if you want the first right to buy your fellow shareholders’ shares, your company needs a constitution that includes that clause.

Mistake #2: set up a company without a shareholders’ agreement. Before you get started is the time to do it. Once you have started fighting with each other, it’s too late.

Mistake #3: draft your own customer terms and conditions. Really? Do you also service your own car and perform your own dental work?

Mistake #4: sign agreements without reading them. Ask yourself, did the person who drafted this contract have my company’s best interests in mind?

Mistake #5: start work for a customer without a contract in place. This is way too common. Get the contract signed before you start work. There isn’t a better time.

Mistake #6: lend/borrow money without a written loan agreement. Oh, so it was a gift was it? Or a loan that is repayable on demand?

Mistake #7: employ someone without a written employment agreement.

Mistake #8: launch a brand or product name without doing a clearance search. It’s going to be expensive to change all of that branding if you get a cease and desist letter from the trademark owner.

Mistake #9: get a “mate” to build your website/app/software without a written agreement in place. So who owns that intellectual property? Probably not you.

Mistake #10: supply goods on credit without registering a charge on the PPSR. If you have to ask what this means, it’s probably a good time to give us a call.

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Nakedbus case exposes Google AdWords campaigns

Jeremy’s been reading cases again – after a client contacted us when a competitor company infringed its trade mark online…

A recent High Court case – InterCity Group (NZ) Limited v Nakedbus NZ Limited [2014] NZHC 124 – has looked at the situation where a company bid for a competitor’s registered trade marks in Google Adwords keyword auctions.

What happened?

Nakedbus was bidding on the words “inter city” (and its variants “intercity”, “inter-city”, etc) in Google AdWords auctions.  InterCity Group had secured those words as a registered trade mark.  When internet users used the search term “inter city” (or its variants), Google search results displayed Nakedbus ads which incorporated InterCity’s trade mark.

The High Court found that Nakedbus had infringed InterCity’s registered trade mark, breached the Fair Trading Act 1986 by misleading and deceiving consumers, and had engaged in passing off.  InterCity were entitled to declaratory finding as to liability, injunctive relief preventing further infringement and a further hearing to determine an account of profits.

Importantly, the High Court found that the mere keyword bidding by Nakedbus for “inter city” did not of itself amount to trade mark infringement because, at that early stage, the consumer was not mislead or deceived by the use of the trade mark in that way.  However, as soon as Nakedbus advertisements containing InterCity’s trade mark were generated by a Google search of those keywords, the likelihood of confusion and deception arose and the breaches occurred.

What does it mean?

It is important to distinguish between the bidding for (use of) the competitor’s trade mark in Google Adwords auctions, and the generation of the advertisement caused by Google searches.  By bidding for “intercity”, Nakedbus did not infringe InterCity’s trade mark, or engage in misleading and deceptive conduct.  So you can jump in and bid on your competitor’s trade marks with impunity.

However, if a Google search using those keywords generates your paid ad, and your ad contains the trade mark, then you have problems.  It’s important to understand that there’s two ways keywords can appear in your ad: the first is because you put them there – do so at your peril.

But there’s another way – Google AdWords uses a function called Dynamic Keyword Insertion (DKI) which, if activated, will insert the keyword you are bidding on into your ad headline.  Google does not prevent bidding on keywords that are trade marks, but has complaint process for aggrieved trade mark owners.  If you must use a competitor’s trade mark as a Google AdWords keyword, common sense (and the law) dictates that you ensure that the DKI function is turned off so the infringing keyword doesn’t end up in your headline.

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Why don’t people use lawyers? Part two – “risk averse”

Looking out from a lawyer’s eyes it seems strange that our profession gets criticised for being “risk averse”. After all, that’s what our training is all about – identifying, avoiding and mitigating risks.

But if risk avoidance is all you are selling, clients tend to see you as a “necessary evil” and engage only reluctantly. When I bumped into an old school mate last weekend who is a dentist I realised that his profession faces a similar marketing challenge. We all know that if we go to the dentist regularly our teeth will benefit – yet many of will avoid booking a check up for years on end. Maybe that’s why advertisements for dentists no longer show images of tooth decay  – these days they are filled with images of dazzling smiles and couples kissing. It must work – when I tell my teenage son that he should brush his teeth regularly to stop them falling out when he is 40, it doesn’t have the same effect as when I point out that girls like kissing boys with fresh, minty breath and shiny teeth.

So how do we apply that to our practice? Well, take the “terms of trade” that every business needs to contract with its customers (and often its suppliers). There are plenty of businesses who write their own without involving a lawyer. If I want to convince a prospective client that I need to be involved in preparing them, the risk avoidance arguments like “it will help you recover the goods that you supplied if you don’t get paid” or “we will include clauses that will limit your liability if you get sued” aren’t as powerful as the positive benefits like “having clear/compliant terms and conditions will help you sell more goods/services because they will show your customers that you are a professional organisation”. This is particularly important if your customers are other businesses that are bigger than you.

Just as the teenage boy with the fresh breath and shiny teeth may attract the attention of prospective girlfriends, a well written customer contract can help build the trust in a prospective customer that leads to the big sale.

A good commercial lawyer understands that approaching any situation only looking for ways to eliminate risks will never get the deal done. People and companies go into business to make profits and my job as your lawyer is to maximise the chances that you will be successful. One of the ways to maximise your profits is to assume the risks that you are in the best position to manage. For example, if your customer is worried about the reliability of your product, you can offer a longer warranty and charge extra for that warranty protection.  Or if your customer needs the flexibility to cancel the contract if their circumstances change, you can offer a break fee to mitigate their risk (and yours).

The value of a good lawyer will far outweigh any fee you are charged. The key is to make sure you and your lawyer have the discussion about what “adding value” means to you before you get started.

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Why don’t people use lawyers? Part one – “expensive”

There’s been a quote flying around the internet lately from Red Adair (he’s the guy who put out the oil well fires set by Iraqi troops in Kuwait back in the first Gulf War) which is: “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.” 

It got us wondering what’s stopping people from hiring lawyers. Why do we only hear from people when the wheels have fallen off ? Why does it take a crisis before you hire a professional? The phrases that describe how people feel about lawyers include “necessary evil”, “risk averse”, “deal killer”, “pedantic”, “un-commercial” and of course “expensive”. Wow. Why would anyone want to do a job like that? And why would anyone hire someone with a reputation like that?

Let’s deal with the “expensive” description first. “Expensive” is a relative term about price but it says nothing about value. You’ll buy an expensive bottle of wine or an expensive car if your perception is that they provide good value for money. Otherwise everyone would only buy $8 bottles of wine and drive 20 year old Japanese imports.

So maybe the criticism is actually “poor value for money”. We don’t do conveyancing, but let’s look at the standard house sale transaction. You pay your real estate agent 2-4% of the sale price and your lawyer (say) $2,000 for their work. But you complain about the lawyer’s bill even though it is 5% of the real estate agent’s fee. Why?

It’s probably because the lawyer has done a terrible job of explaining the value he or she has added to the transaction. That’s because most of the value is tied up in risk avoidance. Your lawyer’s job is to make sure that the sale goes through – the purchase price ends up in your bank account and your mortgage gets paid off. It sounds simple, but there are dozens of things that could go wrong.  If you only call your lawyer after you’ve signed the sale and purchase agreement, then your lawyer has no way of preventing any of the problems that may be lurking in that contract. Your buyer may slip out of that contract leaving you back at square one or, even worse, if you’ve failed to disclose information about the property, you could be sued years after the sale goes through.

The same goes for all of the work we do for our clients – if you only call us when you’ve “done the deal” or signed a term sheet or want to get out of your contract, our ability to add value is limited. We can do a Red Adair and put out the fire, but if we are consulted early we might be able to recommend installing a sprinkler system, buying a fire extinguisher or maybe selling out of the Middle East oil well business altogether…

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Spreading the news

Lawyers get a daily deluge of inbox traffic about the latest news affecting our industry – court cases that have been decided, new statutes and regulations that have come into force and legislation that is being proposed. There’s a steady stream of lawyers’ commentary on all of these developments and industry news like what’s happening in law firms and who’s been appointed as a judge or QC. Often there’s information in there that would interest our clients and readers of this blog. Here’s a sample from the last week or so:

  • The Canadian Federal Court of Appeal has thrown out an appeal by Canada’s professional engineering body (the equivalent of IPENZ) against registration of trade marks that include the words “engineer” and “engineering”.  
  • Closer to home, Coca-Cola failed in its bid to stop PepsiCo from using a “silhouette” shaped bottle for its soft drinks.
  • The Ministry of Business, Innovation and Employment (MBIE) released a set of best practice guidelines to deal with cases of workplace bullying.
  • From 1 April 2014 companies wanting to raise equity through crowdfunding will be able to do so if they meet the criteria for exemptions set out in the Financial Markets Act.
  • Long time Auckland Crown Solicitor, Simon Moore QC will become a High Court Judge sitting in Auckland.
  • MBIE is calling for public submissions on its proposal to allocate a business number (NZBN)  to every business in New Zealand (not just companies). This would mean that sole traders, partnerships and trading trusts would all have a unique number that they’d use to deal with government agencies. This is similar to the ABN system used in Australia.

We plan to make this update a regular feature of our blog. Please let us know if there’s anything else you’d like us to cover.

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