TerraLex Cross-Border Guide to Cross-Border Merger & Acquisition Guide

Foreign investment in New Zealand is controlled by the Overseas Investment Act 2005 and the Overseas Investment Regulations 2005. Foreign investors must obtain consent from the Overseas Investment Office (OIO) prior to investing in sensitive New Zealand assets, being one or more of the following:

• Significant business assets (usually over a threshold of NZD $100 million);
• Sensitive land (e.g. residential land, farm land); and
• New Zealand’s fishing quota.

Foreign investors are also required to notify the OIO of proposed investment in certain strategically important businesses. These include business involved in military or dual-use technology, ports and airports, utilities, media businesses, and financial institutions.

There are no foreign exchange controls or currency regulations, although the Reserve Bank has power to intervene in extreme circumstances, e.g. natural disaster or global economic shock.

The New Zealand government welcomes foreign investment that is beneficial for New Zealand – for example investment that will result in job creation, introduction of new technologies. There are a range of grants and incentives available to support investment in certain business sectors including research and development, food and fibre, emissions reduction, and film production.

The Employment Relations Act 2000 regulates employment relationships and standards in New Zealand. Generally, employees are not entitled to management representation. However, employees may be entitled to be consulted in relation to transactions or other organisational changes that would impact on their employment. If an employee is engaged under a collective employment agreement, there may also be obligations to consult with the relevant union.

The Employment Relations Act places obligations on employers in respect of redundancies, as discussed further below.

Termination of an employment relationship must be done in accordance with the relevant terms of employment and the Employment Relations Act. There are no statutory notice provisions in New Zealand, notice periods are specified in the terms of employment.

A dismissal will be held to be unjustified if it was not the action of a fair and reasonable employer in all the circumstances. The employer must have a valid reason to terminate employment (such as poor performance or serious misconduct) and follow a fair and reasonable process before terminating.

The exception to this is where an employee has been engaged under a valid 90-day trial provision, in which case employment can be terminated without a need for substantive justification or a consultative process.

An employee whose dismissal was unjustified can be entitled to remedies including reinstatement to their previous position, reimbursement of lost wages or other earnings, and compensation for emotional distress and loss of employment-related benefits.

There are also discrimination laws which prohibit the termination of employment for certain prohibited reasons (i.e. gender, race, family status). A 90-day trial provision does not protect an employer from a discrimination claim.

New Zealand employment law is very prescriptive regarding redundancy. Under the Employment Relations Act the decision to terminate employment by way of redundancy must be the action of a fair and reasonable employer in all the circumstances, and must be both procedurally and substantively justified.

Redundancy must always be presented as a proposal to potentially affected employees, and the employees must be provided with an opportunity to provide feedback on the proposal before any decisions are made. Employers must establish a genuine commercial justification for the proposed restructure, and must follow a fair and consultative process.

Employers are also required to consider whether employees can be redeployed to other roles across the business if their position is confirmed as disestablished.

There is no statutory entitlement to redundancy compensation in New Zealand, but employment agreements can contain redundancy compensation.

The asset sale of a business in New Zealand triggers consultation requirements with employees. Generally, an employer must consult with its employees before the decision to sell is made. This requires specific advice as it can be difficult to balance commercial sensitivity with the consultation obligation. It is also a requirement for employment agreements to contain employment protection provisions that detail the employer’s obligations to its staff when selling or transferring its business.

Employees providing certain services (including cleaning services, food catering services, and some caretaking, laundry, orderly and security services), called “vulnerable employees”, are provided with special protections in redundancy situations that arise from the sale or transfer of a business. They are given the automatic right to transfer over to a new employer on their existing terms and conditions of employment. There are strict rules about the amount of information that must be provided to vulnerable employees in these scenarios, and when this must be provided.

The proceeds of sale of shares/business assets is generally not subject to income tax unless the seller purchased the shares/business assets with the intention of re-sale, or the sale of the shares/business assets is part of the trading activity of the seller. The sale of business assets that have been depreciated can give rise to clawback of some or all of depreciation deductions previously claimed.

Goods and services tax (GST) of 15% will generally apply on the sale of business assets unless the recipient is registered for GST and a lease or other interest in land is transferred with the assets or all assets required to carry on a going concern are included in the sale.

Share transfers are usually exempt from GST.

This depends on the transaction. Documents commonly executed at signing meetings for private company share sales include sale and purchase agreement; disclosure letter; authorising resolutions, consents and waivers; share transfer forms; director resignations and appointments; and board resolutions of the target company approving the share transfer and updating of the share register.

No – this is a matter for negotiation.

No.

The Companies Act generally allows counterparties to rely on public records maintained by the Companies Office reflect current directorships, and that employees or agents held out by companies are duly appointed and have usual level of authority to bind the company.

Lawyers acting on business and property transactions and banks (among others) are required to verify client identity including by verifying photo identification and collecting proof of address as part of New Zealand’s anti-money laundering regime.

Yes. New Zealand law distinguishes between simple contracts and deeds. Deeds are generally used where there is no consideration given by one of the parties to the document and require additional formality.

Certain types of document have specific requirements, e.g. land transfer forms and documents containing a power of attorney.

Any director or other company representative with authority can sign a simple contract on behalf of the company. Additional formalities apply to deeds (see above).

Individuals can enter into contracts by confirming their intention to be bound (including verbally, by email, etc). Certain types of contract (including contracts for the sale of land) must be in writing and signed. Additional formalities apply to deeds, including witnessing.

Certain types of document have specific requirements, e.g. land transfer forms and documents containing a power of attorney.

There are no specific New Zealand requirements for execution of documents by overseas companies except for deeds, in respect of which the company can either meet standard New Zealand requirements, or the requirements of the jurisdiction in which they are incorporated.

Not required in New Zealand, unless overseas requirements apply in respect of the transaction.

A notary cannot change the terms of the deal.

Negotiable.

None unless notarisation required by another jurisdiction.

In general, company directors are appointed by simple majority vote of shareholders, subject to providing a signed consent form.

The appointment process is subject to specific requirements for any company which are set out in the company’s constitution.

Changes of company stockholders require share transfer forms and entry of the transfer on the company’s share register.

Director and shareholders changes must be notified to the New Zealand Companies Office.

A transfer of shares in a private company requires a share transfer form, a resolution of the board of the target company approving the share transfer, and entry on the share register. If share certificates have been provided in respect of the shares (which is optional), the share certificate, or evidence of its loss or destruction, must be provided before the shares are transferred.

The constitutions of many private limited companies impose other restrictions on the transfer of shares and must be checked in each case.

In general, an individual or a company can appoint a third party to execute documents on its behalf, generally by way of power of attorney. Where a power of attorney is relied on to execute documents, the signatory will be required to provide confirmation that the power of attorney has not be revoked.

Subject to the terms of the power of attorney.

Yes – in general faxed and emailed documents are admissible in Court.

Yes, digital signatures can be admitted as evidence of execution provided requirements for electronic execution have been met. For these purposes, it is generally helpful to have a record of digital signing.

Yes, documents can be executed in counterparts.

Yes. Undertakings can be given by lawyers in relation to matters strictly within their control. The penalties for breach of an undertaking are serious and can include personal liability.

No, although it is standard for parties to require warranties as to due execution and compliance with formalities.

Changes to shareholders, directors, ultimate holding company information, company names and constitutions must be notified to the Registrar of Companies within specified timeframes.

Share and asset deals can take anything from one or two weeks to six months from start to completion. Factors that influence the transaction timetable include the level of diligence required, informing and consulting employees, and conditionality around regulatory clearance and/or change of control consents.

Yes, provided they are reasonable to protect a legitimate interest in terms of their breadth, geographical scope and time limits. Employee non-competes are not covered here but are generally more difficult to enforce.