25.07.2016

First judgment on whether a director “lives in” New Zealand

The Companies Act gives no guidance on how to determine whether a director will pass the Residency Requirement in New Zealand.

Background

Since 1 April 2015, New Zealand companies have been required to have at least one director who:

  • lives in New Zealand; or
  • lives in Australia and is also the director of an Australian company (excluding a branch),

(for the remainder of this article, we’ll call this the “Residency Requirement”).

The Companies Act 1993 (“Companies Act”) gives no guidance on how to determine whether a director will pass the Residency Requirement in New Zealand.  Up until now, the Registrar of Companies has, in line with tax residency requirements, operated on the basis that a director would satisfy the Residency Requirement if the director in question has been physically present in New Zealand for at least 183 days in any particular year. Failing this, the Registrar then gives the company an opportunity to establish other factors supporting an argument that the Residency Requirement is satisfied.  The Registrar has not published any guidance on the factors that may be important however, the High Court has for the first time directly addressed the issue in Re Carr [2016] NZHC 1536.

The Case

Mr Carr is the sole director of a number of New Zealand companies.  Over the last six years, he has, on average, spent approximately a third of each year in New Zealand (including just 69 days in 2015).  The Registrar’s focus on his absence for large periods each year meant it was of the view that Mr Carr did not satisfy the Residency Requirement.

The Judge (Justice Simon France) considered that the key driver behind the introduction of the Residency Requirement was a desire to ensure actions or obligations could be enforced against at least one of a company’s directors.  Accordingly, it was his judgment that, whilst a director’s physical presence in New Zealand for at least 183 days in every year was important (and provided a criterion which allowed a director to automatically meet the Residency Requirement), large absences should not be determinative.

His Honour did not set out a definitive set of criteria, nor a definitive test, for meeting the Residency Requirements. However, he did specify four relevant considerations (emphasising their importance to enabling enforcement), these were:

  1. the amount of time the director spends in New Zealand;
  2. the director’s connection to New Zealand;
  3. the other ties the director has to New Zealand; and
  4. how the director lives when in New Zealand.

In applying those considerations to the case, his Honour found that Mr Carr did “live in” New Zealand and satisfied the Residency Requirement for the purposes of the Companies Act.  The key factors influencing the Judge’s decision were:

  • he spends, on average, a third of the year in New Zealand;
  • he has a partner who lives in New Zealand most of the year;
  • he has a home and other land in New Zealand;
  • he is a member of various clubs and organisations in New Zealand;
  • his primary doctor is a New Zealand GP;
  • he has strong business relationships in New Zealand and employs a significant number of people in New Zealand;
  • he has New Zealand bank accounts; and
  • he generally presents as a New Zealand business person would.

Conclusion

The case reinforces that a director’s presence in New Zealand for at least 183 days in any year will conclusively satisfy the Residency Requirement.  However, it also shows that large absences from New Zealand in any one year will not necessarily be fatal where, as in Mr Carr’s case, there are a number of other factors connecting a director to New Zealand, such that enforcement against the director should be able to be achieved.  It should be noted that Mr Carr did have multiple connections to New Zealand which, when considered together, meant that applying a physical presence test alone may not have produced the result intended by the amendments to the Companies Act.  It remains to be seen how the Registrar will now treat other directors who are in New Zealand for part of the year but fail the 183 day test.

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Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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