- Late payments in New Zealand are not regulated, meaning that interest and collection costs would essentially depend on the court decision.
- Courts are generally fairly efficient in delivering timely decisions. However, favouring amicable and pre-legal methods is always advisable. In fact, this is advised as soon as possible since the risk of the debtor becoming insolvent will impact the chances of recovering the debt over time.
Collecting in New Zealand
Availability of financial information
Financial information on domestic companies is generally difficult to obtain but it remains fairly reliable.
Allianz Trade allocates each company a grade reflecting its financial health and how it conducts business. Our grades represent a core of our knowledge and analyses, helping clients identify and avoid significant risk. Data is continuously monitored via real time data feeds with Credit Reporting bureaus, to offer the most up-to-date information to support management decisions.
Main corporate structures
Liability for business debts is determined by legal structures, which are described as follows:
- Sole Proprietorship is available for small businesses managed by an individual and for which no commercial structure is necessary. In this case, the owner is held liable for all business debts.
- Partnership - Two or more individuals may also decide to share ownership and responsibilities through Partnerships, in which case the partners may be jointly and individually liable for the actions of the other partners. Limited Liability Partnerships may alternatively offer limited liability to the partners.
- Companies (as regulated under the Companies Act of 1993) may take two forms. Private Companies with limited liability (‘Limited’ or ‘Ltd’) are the most favoured legal entities since they require no minimum capital funds while the shareholders’ liability is limited to their contribution. Public Corporations are rather used for larger structures willing to divide their capital into tradable shares. In these entities, the shareholders’ liability is of course limited to the value of their shares. There is no minimum capital requirement for companies in New Zealand
- Foreign companies may settle through Branch Offices which provide no liability limitation. Therefore, local subsidiaries often take the form of Private or Public Companies. Joint Ventures may be incorporated as Companies, but they may also be established through a contract (in which case no incorporation is necessary).
As a Member State of the Commonwealth, New Zealand is a constitutional monarchy falling under the authority of Queen Elizabeth II. The country‘s legal system is built upon British law and it is structured around common law principles, equity and statutes.
The judiciary system essentially divides into 58 District Courts (which have jurisdiction in first instance over all civil disputes up to NZD $350,000, i.e. approx. EUR 210,000), specialized courts (dealing with employment, environment-related disputes, etc.) and a High Court (dealing with large business claims in first instance and as a Court of Appeal in certain non-business-related matters). The Court of Appeal hears claims brought against decisions rendered in first instance by a District
Court or by the High Court. The Supreme Court finally reviews decisions rendered in the second instance, provided that a leave for appeal has been granted to this purpose.
Days Sales Outstanding (DSO)
Late payment interest
Debt collection costs
The most common payment methods are as follows:
Electronic Funds Transfer (EFT) and Swift bank transfers are increasingly popular as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. For export transactions, transfers should be insured by an Export Credit Insurance, which helps minimize the impact of sudden or unexpected customer insolvency. Allianz Trade’ worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which our clients may trade and claim should something go wrong. Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) constitute reliable guarantees.
Irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms specifically agreed by the parties have been met) may also be considered.
Down payments may be negotiated but could be perceived as a lack of trust.
Prior to commencing ordinary legal action, the parties may use a simplified procedure before the Disputes Tribunal, provided that the claim is below NZD 20,000 (approx. EUR 12,000). These proceedings can be more efficient than district court proceedings because they are informal, confidential, quicker and at a lower cost than ordinary proceedings insofar as a referee mitigates the parties’ claim and thus avoids judges and legal representation. A referees’ decision is binding and usual final, but for limited circumstances for appeal.
If the amicable phase fails or if the debtor questions the claim, the option of commencing legal proceedings remains an option. A claim must be filed with the District Court (or with the High Court depending on the amounts at stake) and, if admitted, must be served to the debtor. The latter is given a month to bring a defence (25 working days if the claim is brought before the High Court). The court then considers the parties’ claims and often encourages them to reach a compromise prior to furthering the proceedings. When the dispute cannot be settled by the parties only, the judges increasingly attempt to mitigate disputes in court (Judicial Settlement Conference) but if no compromise can be reached the courts may proceed with formal hearings.
The courts typically award remedies in the form of equitable compensation, damages, specific performance, attachment orders (i.e. freezing and seizure), declarations (of a right, of the law, etc.), as well as mandatory and prohibitory injunctions. Punitive damages may be awarded although they remain rare in practice.
Claims in New Zealand must be brought to court within six years, starting when the loss or damage caused by the wrongful act (or omission) was (or should to have been) discovered.
The Limitation Act of 1950 applies to claims on events having originated prior to 31 December 2010, whereas the Limitation Act of 2010 applies to claims on events that took place after then. Under the 2010 Act, a late knowledge period has been included, thus offering more flexibility to the parties. Having said this, time limitations would not prevent claims from being brought to court unless a defendant uses the argument to ground a counterclaim.
Lodging an appeal
Enforcing court decisions
How long could legal action take?
How much could this cost?
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Alternative Dispute Resolution methods are not necessary insofar as domestic courts provide timely decisions; nonetheless the use of ADR is growing in New Zealand, where mediation and arbitration are increasingly used as a means to avoid ordinary legal proceedings in the business community.
Mediation involves the nominating of a mediator who is given responsibility for helping the parties reach a compromise. In other words, the mediator has no authority to decide on the behalf of the parties and cannot bind the parties with a decision. An agreement is only binding if a settlement agreement is entered into between the parties at the end of the mediation. The mediator acts as a facilitator to settlement.
Arbitration involves the parties agreeing to rely on an independent and impartial third-party arbitrator, who is given authority to settle the dispute on their behalf. The arbitrator’s decision will be binding on the parties.
As an out-of-court settlement method, ADR can be cost-effective, generally reduces delays, allows preservation of confidentiality and offers a binding decision which may then be enforced before the courts, if necessary. When international transactions are involved, international arbitration may also be considered.
Enforcing foreign awards
Using foreign forums in order to obtain enforceable decisions against domestic debtors is rather unusual, though foreign decisions issued against foreign debtors may be enforced in New Zealand if the debtor has assets therein. As in most countries, the foreign decision must first be recognized through an exequatur procedure (under Part 23 of the High Court Rules) in order to become enforceable. The court would, for instance, verify whether the foreign court had jurisdiction to decide on the case, whether its decision is final and enforceable in the issuing jurisdiction and whether enforcement would be incompatible with public policy. In addition, the reciprocity factor implies that, unless the issuing country has a reciprocal recognition and enforcement treaty with New Zealand (as provided under the amended Reciprocal Enforcement of Judgments Act of 1934), the foreign decision would not be enforced automatically by domestic courts. In this situation, the claiming party would indeed be required to bring legal action before the court, requesting that enforcement is granted.
New Zealand is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Therefore, domestic courts also ought to recognize and enforce decisions rendered through international arbitration proceedings.
Restructuring the debt
Liquidation may be commenced upon demand of both the debtor (voluntary liquidation) and creditors (mandatory liquidation). The proceedings are usually conducted by an official assignee or by a private sector liquidator (often a chartered accountant and/or member of Restructuring Insolvency & Turnaround Association of New Zealand). The company is closed down and the proceeds of the sales are distributed to the creditors according to their respective pre- insolvency entitlements.
Alternatively, receivership proceedings (as regulated under the Receiverships Act of 1993) may be set up in order to realize the rights of certain secured creditors (with a debenture containing the terms of a loan to the company and defining the assets which secure the loan) over specific assets of the debtor company.