New Zealand collection profile

The New Zealand Companies Office (registrar) generally requires large companies to file audited accounts publicly, which includes larger overseas companies, and consolidating groups. However, with the exception of micro-SME’s, smaller businesses generally are only required to file the minimum of information to the Internal Revenue Department (IRD / tax office), and as such this financial information is generally public. The requirements to file accounts, and to which standard generally depends on thresholds for assets and revenue, with the minimum requirement being basic / unaudited accounting information (statement of assets, liabilities, income, and accounting methodology). 

Therefore, obtaining financial information can be difficult; however, at Allianz Trade we have a team of skilled analysts whom are trained in approaches to, and collecting information from, Buyers. 

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.

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, and these are not required to be registered with the Companies Registrar. However, sole traders can apply for a New Zealand Business Number 
• 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 Partnerships (‘LP’) are governed by the Limited Partnership Act 2008, and must be registered with the Companies Office. These structures require at least one general partner, and at least one “limited” partner. 
• Limited Companies (as regulated under the Companies Act of 1993) are the most favoured legal entities since they require no minimum capital funds while the shareholders’ liability is limited to their contribution. The ownership and management of the company are distinctly separate (‘corporate veil’) though this protection can be pierced in certain exceptional scenarios (distributions in excess of capital, trading while insolvent etc) 
• Public Companies 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 the monarchy of the United Kingdom. The country‘s legal system therefore was historically 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 175,000), 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.

Smaller civil matters may be heard by the Disputes Tribunal, which governs the civil recovery process for matters up to NZD $30,000 (approx 15,000 EUR) – usually this is a swifter process than district court proceedings, though this level of court has been over capacity in recent years. 

To avoid debts being written off due to the cost of debt collection, some lawyers and recovery agents recommend that parties in trade have a clause in their contract which allows them to recover their full legal, or other debt collection, expenses directly from the debtor. There is no particular law governing collection costs, though the costs must remain reasonable and fairly representative of the costs incurred. 

Most countries allow use of Retention of Title (RoT) which aims to preserve title to property over goods until the related invoice has been paid in full (Romalpa Clauses). Ownership protection in New Zealand is regulated under the Personal Property Securities Act of 1999 (PPSA), which provides that RoT provisions, considered as Security Interests must be registered with the Personal Property Securities Register. In practice, failure to register would have no impact on the validity of the right itself, however the lack of registration would provide no priority to the owner should insolvency proceedings be commenced. In other words, in order for such a Romalpa Clause (RoT) to be effective, it is recommended to register the interest on the Personal Properties Security Register. Seeking legal advice is therefore highly recommended in the event that this clause is triggered by an insolvency or event of default. 

The most common payment methods are as follows:

Electronic Funds Transfer (EFT) and Swift (Telegraphic) bank transfers are the most popular as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically.

Alternatively, for export transactions popular methods include Standby Letters of Credit, Documentary Letters of Credit, Telegraphic Transfers, Standby Letters of Credit require the bank to guarantee the debtors’ credit quality, whereas Irrevocable and confirmed Documentary Letters of Credit  are where a 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. 

Down payments or deposit transactions are sometimes negotiated, and are somewhat popular in industries which require stage payments (e.g. construction or complex manufacturing)  

Even though the law in New Zealand is business-friendly and domestic tribunals are effective, amicable settlement opportunities should always be considered as an alternative to formal proceedings. In addition, before starting legal proceedings against a debtor, assessment of assets is important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt (see below). The New Zealand Companies Office (similarly to the UK) has a public registry of basic company documentation (including annual returns, changes to particulars etc.), which accessible by the general public, and sometimes proves useful in locating debtors. 

Prior to commencing ordinary legal action, the parties may use a simplified procedure before the Disputes Tribunal, provided that the claim is below NZD 30,000 (approx. EUR 15,000). 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 usually final, but for very 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 should 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. Appeals to the district court are given 20 working days to bring a defence (25 working days if the claim is brought before the High Court). The court(s) 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.

Copies of unpaid invoices, last statement of account, copy of supply contract, copy of signed and witnessed credit application/purchase orders, proof of delivery if necessary (Air Waybill (AWB) or Bill of Lading (BOL) for export contracts).

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.

Precautionary measures may help preserve the debtor’s interests pending a final decision. Indeed, the courts may order interim measures aiming at protecting assets (attachment orders, restraining orders). The claimant, however, must demonstrate that they have a strong case and that ordering such measures would prevent irreparable harm. Such measures are rarely awarded in practice.

The defeated party is entitled to lodge a leave for appeal before the High Court or before the Court of Appeal (depending on which court rendered a decision in first instance), within 28 days from delivery, unless the court provides leave for a late appeal. In other words, appeal proceedings are not directly available but must be granted by the competent courts, which would normally only focus on questions of law. If an application for Judicial Review is filed, the courts would consider both questions of law and fact.

A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted). If the debtor fails to satisfy the judgment, it is possible to file a petition for liquidation against the debtor before the High Court, but the court would normally request that the debtor’s financial situation is examined (Order for Examination), or that its assets be seized and sold (Distress Warrant). Garnishee Orders aiming at obtaining payment from third parties from whom the debtor is owed are also available.

Obtaining a final judgment could take from 28 days (default judgment) to a year. Enforcement through sheriff or examination could be completed within two months, while uncontested winding-up proceedings could take three months. International litigation would always take longer and cost more than domestic litigation – the difference would depend on numerous factors which could only be meaningfully quantified on a case by case basis.

As a general rule, the defeated party may be required to pay court fees and annex costs, but the successful party’s legal costs would often be compensated for partially.

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. 

For the same reason, use of a foreign forum in order to obtain an enforceable decision is not necessary, but domestic courts would nonetheless permit the parties of a contract to, by mutual agreement, choose the law applicable to this contract, and select the court that will have jurisdiction over disputes. As a result, the parties’ written agreement to solve their business disputes in a foreign forum (i.e. under a foreign law or before a foreign court) would be applicable, provided that it does not contradict public policy.

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.

Insolvency is regulated under the Insolvency Act 2006 and is defined as the inability to pay one’s debts as they fall due. Bankruptcy only applies to natural persons while liquidation (or voluntary administration, receivership or controllership) refers to corporate insolvency. Several mechanisms aim at supporting companies in financial difficulty through rehabilitation plans. In September 2020 a compulsory licencing and registration regime for insolvency practitioners came into operation, and is regulated by New Zealand Institute of Chartered Accountants (NZICA) for domestic members of the Institute of Chartered Accountants of Australia and New Zealand (CA ANZ). The Registrar has also approved RITANZ (Restructuring Insolvency & Turnaround Association of New Zealand) as a recognised body under the Act The reform saw the development of a searchable register of eligible practitioners available publicly available from the Companies Office.

Informal out-of-court proceedings may be conducted so as to reach a Statutory Compromise (under the Companies Act 1993), but all creditors would need to agree to and execute a Deed so that only one creditor could well overturn such an arrangement. Unlike a Deed of Company Agreement (DOCA), the creditors would have no protection against unfair preference claims by any later liquidator.

Voluntary Administration is a relatively new rehabilitation scheme in New Zealand, inspired by Australian insolvency law. Regulated under the Companies (Voluntary Administration) Regulations 2007 (reprinted in 2012), It consists in negotiating a debt resettlement (or write-off) with creditors of order to allow continuation when the core business is still viable. The company is temporarily managed by an administrator (often a chartered accountant and/or a member of Restructuring Insolvency & Turnaround Association of New Zealand) and a moratorium is placed on the company’s debt repayment obligations while an agreement is reached in the creditors’ meeting. The administrator must present a restructuration proposal which, if approved, becomes the new Deed of Company Agreement (DOCA) ruling the company. The law, however, provides no limitation as to how much of the debt may be written off. Strict time limits apply to the moratorium protection, and if agreement cannot be reached, the company goes into liquidation.

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.

Priority rules normally apply while distributing the proceeds to the creditors (under the Companies Act of 1993), but in practice the proceeds of the liquidation would be distributed as follows. They would first compensate for secured creditors (such as the owners of registered Retention of Title rights, the providers of fresh money during rehabilitation proceedings, etc.), for the various fees flowing from the insolvency proceedings, and for the various costs awarded by the court to the creditors. Employees’ claims would also be paid for (up to a certain point). The proceeds would finally compensate preferential tax creditors, leaving the remaining proceeds to unsecured creditors (5% to 10% on average).

Liquidators are usually entitled to request the court to cancel certain transactions concluded prior to the insolvency proceedings. In particular, any measure taken by the debtor deemed detrimental to the creditors would typically be void. The clawback period was reduced to six months prior to liquidation in 2020 by a planned fast track change to the law regime.

Insolvency proceedings in New Zealand last for 12-18 months on average, though higher complexity matters may take several years to unwind.