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Welcome to our Christmas 08 issue of news from Paul Gallagher Legal. It has been a crazy year for us all I’m sure. When I asked around the office about possible topics of interest for this issue of our newsletter I though it was quite timely (given the economic landscape this year), and I had to agree, when one of my colleagues replied “Umm, maybe just a “thank goodness you made it this far!” ’
However, the wheels do keep turning, and although it has been a challenging time of late, the phone still rings and people still have issues they need assistance with to resolve.
What is the role of a family trust for those who have a business?
One of our clients recently came to us with the question. “We have a business which is going OK at the moment. How can we make sure that our personal assets and financial affairs are completely separate from our business assets and commitments.” It wasn’t that their business was in trouble, it was that their business had been going six years, and they had had a ‘bit of a recent experience’ with a creditor. So, the timing was good! Also, in this particular economic climate, they were looking at how to protect what they have so that the foundations are as stable as possible for the future.
As reported in our May 08 newsletter ‘Statistics New Zealand reports on their website that of the new businesses started in 2001, only 40% of those businesses were still operating in 2007’. Our client is one of the ‘lucky few’ who have managed to survive the odds and still be around in its 6th year. We suggested that the owners of the business met with an independent accountant whom we recommended. This was so that the company affairs were able to be reviewed independently and a snapshot taken of how the company was structured. This wasn’t a complicated exercise, it was only a matter of ensuring that the company was structured in such a way as to maximise the protection a family trust is able to provide.
So, here is a snapshot of our recommendation to our client with regards to how their assets should be structured:
- The jointly owned family house was independently valued at $750,000 and then ‘sold’ to the trust. With a house mortgage of $175,000 there was equity of $575,000. With gifting at $54,000 per year (for two individuals) – gifting would take approx 11 years to complete.
- A loan in the name of the business is still able to use the house, which is owned by the trust as security.
- Form a Relationship Property Agreement to state that all monetary investment assets of approx $35,000 is in the business owner’s partner’s name (wife) to distance their exposure to potential future business creditors.
- Update the couple’s individual wills to channel any assets back to the trust to lessen exposure to business creditors.
- Open an independent trust bank account to keep trust moneys, personal moneys and business accounts separate.
- The business owner (husband) to be sole director with the wife and the trust to be shareholders.
- Any superannuation plans to be kept in the individuals names, but intentions to be outlined in the individual wills.
All this was established after first meeting with our client to see what their individual circumstances were. It seems complicated and there is a lot to think about, however, this is about protecting what has been hard-earned.
At PGL we know what questions to ask and how to recommend a solution that is specific to your needs and circumstances. Here is what our client had to say…
“We came to talk with the team at PGL after a fairly scary experience with the IRD – we did not realise that we needed to protect our things until we were faced with the possibility of losing them. It’s not that we weren’t money-savvy, it’s just that we have a small business which is a lot of time-consuming hard work - my husband runs it, works for it and keeps the wheels turning. Meanwhile I work too, have the kids to look after and do the books for our business. We wanted to set up a trust - something that we did not continuously have to look after ourselves, and second-guess that we did the right thing.
We looked at a lot of options on the internet and there were products that offered a ‘do-it-yourself’ component. However, it seemed that these raised more questions than gave us answers. Our trust has been custom made for us and I feel that we have talked to the right people who have given us the best advice and solution for what we need.”
And, if you have an existing trust it is important that the trust deed is reviewed regularly to assess its effectiveness. The reason for this is that if a trust is to be challenged, all aspects of the trust will be under scrutiny. These may include the initial establishment, transfers of property to the trust and all relevant documentation.
If you would like to discuss how we can provide the best advice for your situation, please contact us for further details.
Ph: 09 415 9321
When’s your stuff not your stuff?
There is an old saying ‘Possession is nine-tenths of the law’. So, what happens when your stuff becomes someone else’s stuff without you knowing? It all sounds a bit cryptic, so mapping out a scenario might be the best way to work through this.
Let’s say that a company called ‘Joe’ has been dealing with another company called ‘Bob’ for a number of years now. Bob manufactures a shipment of widgets for Joe about once every two months and uses the tooling equipment that Joe originally bought (and owns) in order to produce the widgets. For convenience Joe keeps his tooling dies at Bob's so that he doesn’t have to lug them back and forth every couple of months.
They’ve done business for a number of years now and for some reason Bob’s quality has dropped with the latest shipment of product and there are a large number of faulty widgets. Joe is unhappy with this and so has decided to quality-check each of the widgets and decides to delay payment for the shipment until this task has been completed.
In the meantime, Bob is placed into liquidation by his bank, which then has a registered security over personal property at Bob’s premises. At the date of receivership, the dies that Joe owns have been at Bob’s premises for over one year. Because of this, the bank can register a security over the dies and can therefore treat the dies as they see fit, despite the fact the dies are Joe’s property. Because the dies have been at Bob’s for over one year what Joe had needed to do was register a financial statement on the ‘Personal Property Securities Register’ in order to retain an interest in them as an asset. Yep, I bet you knew all about that right? Joe certainly didn’t and it is not something that is thought about in the context of day-to-day business dealings.
So, Joe, being understandably ‘miffed’ at the prospect of losing his dies, races over to Bob’s and uplifts his property. The bank then gets upset as in effect, what they own has just walked out the door. The bank starts talking about legal action and trespass issues – what a mess! With our assistance, the bank and Joe come to an arrangement – payment for the widgets that Joe was originally holding back for faulty goods is paid and Joe gets to keep his dies.
So, what would’ve happened if there was no ‘bargaining chip’ – that is Joe didn’t owe any money. The bank would’ve been legally within its rights to go to Joe’s and demand the dies back and then sell them to recover monies owed to the bank by Bob’s. Joe would’ve then been in a very tricky situation!
Our advice to you, especially in this climate – make sure that you keep a very clear eye on the external landscape. In these economic times, it is very easy to become internally focussed. Keep a very broad perspective upon your competitors, suppliers and clients alike and give us a call if there is anything that you feel needs attention.
Construction contractors wise up.
It needs to be said that with the number of construction projects going ‘belly up’, building contractors and sub-contractors have been getting a bit of a hard time with regards to being paid either on time or in some cases, paid at all! Many contractors are not aware of the ‘Construction Contracts Act’ which was set up in 2002 to manage a process of regular and timely payment of invoices for construction work. There is a great overview of the intentions of the act and how, as a contractor, you can manage how you get paid by your clients. For clients, it outlines expectations and obligations of how you pay your builder or contractor.
http://www.consumerbuild.org.nz/publish/legal/legal-other-pimsconstruction.php
The recent collapse of the Kensington Park Project in Orewa is a case in point where the partially-developed property was placed into receivership, owing funds to a variety of creditors. Several contractors found that they were owed payment and were deemed to be an ‘unsecured creditor’. This sets them apart from typically ‘secured creditors’ such as a bank which have usually taken out a formal contract deeming the property to be security against any owing or unpaid debt. If you are a contactor and find yourself if a similar situation, there are several things to watch out for.
- Establish if you are a secured or unsecured creditor.
- If you have a contract, check the terms of the contract and be clear about what can be done in the context of the agreed terms.
- Be careful about what you do with regards to trying to recover either goods or money. If your goods are at the place of construction, establish if you have the right to be on the premises and if you are entitled to your goods BEFORE you try to remove them!
- It may be fairly obvious, but don’t try and recover money by removing goods that do belong to the owner of the construction area.
- Try and maintain communications with all parties – and keep your cool. We recognise this may be difficult in trying circumstances.
As with anything of this nature, what you are entitled to recover often depends upon the circumstances of the situation. We suggest you seek assistance to help you navigate your way through a potential minefield of options, considerations and possible outcomes. Spend your time wisely and come and talk with us if you find yourself in need of advice, it may be a way to find both peace of mind and a practical, workable solution.
Employment – what will a ’90 day trial’ for employees mean for you?
We have a new National-lead Government with policies specific to employment. They state on their website that they understand small business as most of their MPs have been self-employed or have helped run a small business (nearly 90% of New Zealand businesses employ 5 or fewer people). As reported in their horticulture policy: ‘The rural sector is dependent on a flexible and open labour market. The vast majority of farming businesses are small-to medium enterprises. National is committed to expanding job opportunities and letting businesses grow.’
So, just how are the policies of National going to impact upon small business, specifically in the area of employment? They say they are going to make employment easier – how do they propose to do this? There are two main components:
- Provide choice for accident insurance in the workplace.
- Introduce a voluntary 90-day probation period for new employees in small business. This is ‘by agreement between employer and the employee for businesses with fewer than 20 staff’.
At the risk of this ‘opening a can of worms’, National reports that:
‘Personal grievance provisions would still apply for matters not related to performance. Good-faith provisions will apply, as will rights to sick leave, holidays and safety provisions. New Zealand is almost the only country in the OECD that does not have a probationary period for new employees who employers might consider risky at first glance. This is an effort by National to give opportunities for people who might not otherwise be given a chance to get on the employment ladder’.
There are other considerations with regards to employment law and you can view these in more detail on the official National Government website or on the Department of Labour site:
http://www.national.org.nz/
http://www.ers.dol.govt.nz/audienceinfo/employers.html
We suggest keeping up to speed with changes over the next six months if you are planning to change jobs, or if you are an employer planning to recruit. As an employer you will need to keep up to speed with the latest developments and remain compliant with new legislation as it is introduced. It can be argued that these developments have increased importance as we enter a period where there is a risk of greater unemployment.
In any case – we are only too pleased to assist with your employment queries and can help you navigate through new considerations in employment conditions and contracts. Call Paul or Harvey to have a chat. Ph: 415 9321
Tips to survive the recession
The ‘r’ word is being muttered by all and sundry and sticking your head in the sand hasn’t really worked for you – so just how do we survive the recession. What practical tips and trends are there around?
- Buy a lunch box. Revisit your school days and invest in a ‘Star Wars’ edition ‘food facilitation tool’ to keep your lunch time treats fresh and tasty.
- Exercise in your own backyard. Get to know your own backyard. Go running or walking with your mates and do some regular old sit ups and press ups. You’ll still look fab for summer. Do you really need a personal trainer?!
- Still treat yourself with a bought coffee, but maybe just not the two or three a day. Cut back to buying one a day or a few every week even – makes it more of a treat.
- There are some great coupon offers on the back of supermarket receipts – as well as the petrol discounts. Take the kids to Waiwera for the afternoon with a two-for-one offer.
- Entertain at home and get to know your friends again. Remember how the highlight of a weekend was a simple ‘party’ instead of expensive dinners out. OK, so some of us are not as young as we used to be, and ACDC blaring on the stereo is a bit of a stretch - but it can be cheaper to entertain at home.
- Quit the lawnmower man. Borrow Aunty Ida’s lawnmower and actually start to cut your own lawn again… ahhh smell that freshly cut grass. Oh yes, complete foot covering essential.
- Start a vege or food co-op. If you’ve stuff to spare or have bought food you’re not going to use – ask around if anyone else wants it. Don’t bin it, unless it is past the use by date of course!
- Do your Xmas shopping early! Look for bargains and get in before the last minute. That way you can buy that something special without having to pay top dollar for something you’ve really not thought about.
- Get the kids to make greeting cards. They look cute, don’t cost a fortune and people love to receive something ‘hand made’.
Around the Traps
It is with regret that recently we saw the closure of one of our local Albany Village businesses. The Classic Real Estate Ltd offices in the Albany, East Coast Bays, Greenhithe and West Auckland suburbs closed their doors for the last time mid-November 2008.
As reported on the Professionals website ‘Havard and Frith Daniels have operated as owners of a Professionals office since 1991 expanding to several offices over the 17 years and both are highly respected in the Group and community.
It is extremely difficult for staff, colleagues and those involved with the business to see challenging economic times claim this business as another casualty. Our best wishes go to Havard, Frith and all those agents who have until now worked as part of our Professionals Group.’
Holiday Closure
Paul Gallagher Legal will be closing from 5 pm Tuesday December 23rd 2008 and re-opening Monday the 19th January 2009. We wish you a safe, happy and relaxing Christmas and look forward to catching up with you on the New Year.
Cheers from the team at Paul Gallagher Legal
P.S. We invite you to forward this newsletter on to others who you think may find the information valuable.
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